Woolworths Group Ltd (ASX: WOW) shares and Coles Group Ltd (ASX: COL) shares are facing heat from the ACCC.
The Australian Competition and Consumer Commission (ACCC) describes itself as “Australia’s competition regulator and national consumer law champion.”
Supermarket giants taken to court
The ACCC has started legal proceedings against Coles and Woolworths for alleged misleading ‘prices dropped’ and ‘down down’ claims, suggesting the supermarket businesses misled consumers through discount pricing claims on hundreds of common supermarket products.
The regulator’s claims relate to products sold by the supermarket companies at regular long-term prices which remained the same, excluding short-term specials, for at least six months and in many cases for at least a year.
The prices of those products then went up at least 15% for a brief period, before being put in the Coles and Woolworths promotions despite being priced higher, or at the same price, as the regular price before the price spike.
These claims relate to 266 products for Woolworths across 20 months and 245 products for Coles across 15 mins.
The ACCC said it identified this conduct through consumer contacts to the ACCC and social media monitoring, and then conducted an in-depth investigation using its compulsory powers.
The ACCC estimates that tens of millions of sales were made and the supermarket businesses “derived significant revenue”. It’s seeking declarations, penalties, costs and other orders, as well as community service orders that Woolworths and Coles must each fund a registered charity to deliver meals to Australians in need, in addition to their pre-existing charitable meal delivery programs.
ACCC comments
The ACCC Chair Gina Cass-Gottlieb said:
Many consumers rely on discounts to help their grocery budgets stretch further, particularly during this time of cost of living pressures. It is critical that Australian consumers are able to rely on the accuracy of pricing and discount claims.
We allege these misleading claims about illusory discounts diminished the ability of consumers to make informed choices about what products to buy, and where.
Early response
In an ASX announcement, Woolworths said it would review the claims and engage with the ACCC.
Coles said this relates to a period of significant cost inflation when it was receiving a large number of cost price increases from suppliers, and its own costs were rising.
Coles then said it “sought to strike an appropriate balance between managing the impact of cost price increases on retail prices and offering value to customers through the recommencement of promotional activity as soon as possible after the establishment of the new non promotional price.”
Finally, Coles said it intends to defend the proceedings.
Final thoughts on Coles shares and Woolworths shares
The Coles share price is down 3.5% and the Woolworths share price is down 3.7%. The market clearly isn’t pleased by this news.
Time will tell what the ultimate cost to Coles and Woolworths is as a result of this, the penalty could run into the tens of millions of dollars. It will be up to the Federal Court to decide the size of the fine, if any.
I wouldn’t say the decline of the share prices is enough to make me want to invest – they are only back to valuations of the last couple of months. But, a larger sell-off could be appealing considering these businesses are likely to stick around for a long time to come.
