The Coles Group Ltd (ASX: COL) share price is down 3.3% to $20.44 after an explosive Federal Court ruling.
The court found Coles misled shoppers on products promoted via its 'Down Down' discount program between February 2022 and May 2023.
You can read the full judgement here.
Let's dig into the details.
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Coles share price falls close to 52-week low
The Coles share price traded at an intraday low of $20.32 this morning, not far off its 52-week low of $20.10 set in February, as investors weighed the impact of the court's ruling.
The Australian Competition and Consumer Commission (ACCC) launched the legal proceedings against Coles in September 2024.
The ACCC alleged that Coles deceived customers by marking 245 products as discounted shortly after their regular prices were materially increased.
The watchdog said Coles raised the prices by at least 15% for a short time before placing them on a 'Down Down' promotion.
The ACCC claimed the Down Down prices were higher than, or the same as, the price at which each product had been previously sold before the increase.
Therefore, the ACCC claimed that the discounts were illusory and misleading, and in breach of Australian consumer law.
Coles denied any wrongdoing.
Court findings
The hearing involved an agreed list of 12 sample products from the 245 specified by the ACCC.
Two products were marketed twice on the Down Down program, leading to 14 case studies being considered.
The court found that Coles increased the prices on all 12 items because suppliers had requested a rise to offset higher costs.
In the judgement, Justice Michael O'Bryan said:
… Coles increased the prices in a commercially justifiable manner.
Coles did not select an artificially high 'Was' price for the sample products in order to increase the perceived discount on the Down Down ticket.
However, Justice O'Bryan concluded that customers would only view the discounts as genuine if the increased prices had remained in place for a reasonable period before being reduced in a Down Down promotion.
Justice O'Bryan determined that a reasonable period was 12 weeks.
Based on this evaluation, Justice O'Bryan concluded that Coles made misleading representations in 13 of the 14 case studies.
He noted that several products had been marketed at higher prices for just four weeks or less before being discounted.
On that basis, I have concluded that 13 of the 14 Down Down tickets … were misleading because the relevant products were not sold at the 'Was' price stated on the ticket for a reasonable period and, as a consequence, the discount represented on the ticket was not genuine.
It follows that … Coles engaged in conduct in trade or commerce that was misleading…
In a short statement, Coles said it was "reviewing the judgement".
What did the ACCC say?
In a statement, ACCC Chair Gina Cass-Gottlieb said:
The ACCC brought this case in the public interest because we considered that Coles' pricing practices within its 'Down Down' program made it harder for customers to identify genuine value for money while shopping for household essentials.
We had received complaints by consumers about the 'Down Down' discounting claims made by Coles.
We understand how important it is for consumers to get value for their supermarket purchases, and decided to take action to test the discounting practices in Court.
This case has increased transparency and accountability in relation to Coles' Down Down program.
Former ACCC chair, Allan Fels AO, told abc.net.au that the case was "a huge blow to Coles".
Fels said:
For Coles the damage is immense. There will be substantial fines, a class action for damages, reputational loss for the business.
No penalties or court orders relating to the findings today have yet been set.
The parties will be back in court on 10 June.
The ACCC also launched separate proceedings against Woolworths Group Ltd (ASX: WOW).
The Federal Court has reserved its judgement in that matter.
