ACCC v Woolworths may have exposed the ‘magic’ of supermarket discounts – but will it change how we shop?
Picture this: you’re at Woolworths, weighing up which laundry powder offers the best value for money.
Picture this: you’re at Woolworths, weighing up which laundry powder offers the best value for money.
A 2kg box of Fab is on sale with a “Prices Dropped” promotional ticket showing it “Is” $8. The label also says the laundry powder has been reduced, and “Was” $14.
What Woolworths didn’t tell you is that the Fab cost $14 for only 19 days, and that it had been just $7 for 425 days before that. Were you enchanted by the “subtle magic” of the “Prices Dropped” ticket – as the consumer regulator’s lawyer suggested in its court action against Woolworths over the promotional scheme – into thinking the laundry powder was nearly 50% off?
The central legal question is whether Australia’s largest supermarket chain intended to deceive you.
Even if it doesn’t pass the pub test, Woolworths may not lose the argument in the federal court case brought by the Australian Competition and Consumer Commission (ACCC), if it is able to convince the judge that the new prices represented legitimate discounts during a period of high inflation.
The seven-day trial, which offered a rare glimpse into the supermarket’s internal machinations, wrapped on Friday.
It brings to a close the proceedings against Australia’s two biggest supermarkets, after a similar case involving Coles was heard in February. The Woolworths verdict is expected later this year, at the same time as the Coles judgment.
The ACCC accused Woolworths – and rival Coles – of temporarily hiking prices, then putting products on “sale” on their respective promotional programs, at prices that were higher than their previous long-term shelf price.
While the pricing changes themselves are not in dispute, the ACCC alleges the supermarkets misled shoppers with effectively fake discounts, by using their “Prices Dropped” and “Down Down” promotions to deliberately disguise price increases on hundreds of products between 2021 and 2023.
The ACCC and Woolworths had the opportunity to sharpen their arguments during the intermission between the two trials. As Joel Gibson, a consumer expert at the price comparison website Zyft, said: “Woolies had the advantage of watching how the Coles defence went down.”
Gibson said that while the supermarkets were unlikely to do away with their “yo-yo” pricing models, it would be a “massive disappointment” if the case didn’t result in stronger rules for retailers around the claims they can make during sales. But he said even a win for the ACCC wouldn’t seriously affect Coles’ and Woolworths’ core businesses.
“I don’t think this case is going to slow them down much – the majority of people shop at the major supermarkets,” he said.
The Australian Shareholders’ Association chief executive, Rachel Waterhouse, said her “gut feel” from recent member meetings was that shareholders weren’t ditching Woolworths stocks because of the ACCC action.
“Most people are waiting for an outcome,” Waterhouse said, adding Coles and Woolworths were generally seen as “defensive stocks”, providing stable earnings and dividends for investors.
And as inflation reignites, major supermarkets tend to make more money.
However, Waterhouse said the negative headlines generated by the trial would erode consumer and shareholder trust in Woolworths, pointing to James Hardie and Qantas as examples of ASX-listed companies that had suffered serious reputational damage.
Prof Nicole Gillespie, an expert in trust in organisations at the University of Melbourne, said the damage to Woolworths’ public image was “to some extent already done”.
“Even if the ACCC loses, a credible regulator saw enough evidence to take this to court,” Gillespie said. “For many consumers, that alone is enough to cast a shadow of suspicion over every [promotional] ticket they see from here on.”
Before its case against Woolworths began, the ACCC identified 266 products the supermarket giant sold at one price for 180 days or longer, then inflated by at least 15% for up to 45 days before being lowered and added to the “Prices Dropped” program. Twelve of those products were examined in detail in court.
Woolworths argued the discounts were literally true. As such, the “price establishment period” – or how long a product should be sold at one price before it could be described as a “Was” price on a promotional ticket – emerged as a key question in the case, and a legal grey area.
The federal court justice Michael O’Bryan told the ACCC’s lawyers that regular shoppers would not “over-intellectualise” promotional tickets to the point where they would consider what a product’s previous long-term price might have been.
O’Bryan said the ACCC’s case should focus on whether the “Was” prices were “fair dinkum”.
“Doesn’t it really come back to the genuineness of the price?” O’Bryan asked during closing submissions on Thursday. “None of it strikes me as nefarious or inherently misleading,” he said of Woolworths’ use of its promotional scheme. He was similarly cool-toned with the ACCC when he presided over the Coles case earlier this year.
The ACCC’s barrister, Michael Hodge, suggested there was no such thing as an average shopper. Some people would never have been into Woolworths, while others would shop there weekly and be familiar with different promotions. He told the court the case’s central question was whether the “Prices Dropped” tickets were truthful in representing that shelf prices had decreased.
The supermarket’s defence relies on 2021-2023 being a period of high inflation during which suppliers requested their products’ shelf prices increase. Sam Woodcock, a Woolworths manager, said while giving evidence that price hikes and subsequent drops promoted as discounts were planned in advance at the request of product suppliers. If Woolworths didn’t comply, they risked companies pulling their products, he said.
Woolworths’ barrister, Robert Yezerski SC, told the court the “threat a supplier might withdraw funding for a promotion is real and one that Woolworths must take seriously”.
The court heard Woolworths gradually reduced the minimum period that products had to be sold at one price before they could go on promotion from nine months to just three to six weeks, then, in some cases, broke the rules anyway.
Woolworths’ commercial pricing manager, Callum Davies, told the court that, in the case of Fab laundry powder, the supermarket flouted its own rules by keeping the product at its new inflated price of $14 for only 19 days instead of the required four weeks.
He acknowledged he never intended the product to stay at $14. The court heard similar admissions of “errors” when it came to the pricing of other products, while one manager conceded they had negotiated profit margins with a supplier based on a future promotional price.
