When is an advertised discount genuine? ACCC wins "was/now" price case against Coles

Australian retailers have been given a clear message by the Federal Court that, when advertising discounted savings on groceries, they must show the claimed saving has been measured against previous prices that were charged for a reasonable period, which in this case was at least 12 weeks.

The Federal Court held that Coles had engaged in misleading conduct in 13 of the 14 sample cases where Coles advertised a "Was" price that had been charged for less than 12 weeks and in some cases for much shorter periods.

The ACCC's case

The ACCC Case concerned the promotion of products using Down Down tickets that displayed a prominent "Down Down" label, a current discounted price, and (in all but one case) a "Was" price indicating the previous price. The ACCC's case concerned approximately 245 products across about 255 separate Down Down promotions.

What message did the Down Down Tickets convey?

The Court concluded that the Down Down tickets conveyed a representation to ordinary consumers that Coles had reduced the price from the "Was" price and, implicitly, that the reduction involved a real or genuine discount. Incorporated within the notion of a genuine discount was the idea that the "Was" price had been offered for sale for a reasonable period. Consumers' understanding would have been "intuitive and impressionistic" rather than analytical.

The pricing pattern

For most sample products, the factual pattern was materially the same:

1. The product was sold at a lower price (often on a Down Down promotion) for a lengthy period, frequently 12 months or more.

2. Following supplier cost price increases, Coles raised the retail price and sold the product on a higher white ticket price (typically at the supplier's recommended retail price) for approximately four weeks or sometimes less.

3. Coles then placed the product on a new Down Down promotion at a price lower than the white ticket price, but higher than or equal to the original price.

Key findings on the "Was" price

The Court accepted that the price increases for the sample products all resulted from genuine supplier cost price increases and that Coles increased its retail prices in a commercially justifiable manner. The white ticket prices had a reasonable commercial basis, reflected the supply cost and Coles' ordinary gross margin, and the products were sold in commercial volumes at those prices.

However, the critical issue was duration: the white ticket price was typically maintained for only about four weeks (and sometimes less), which the Court found was not a "reasonable period."

The 12-week benchmark

The Court concluded that the Down Down tickets would not have been misleading had the products been sold at the new "Was" price for a minimum of 12 weeks. This finding was informed by several considerations:

• Coles' own internal pricing policies (the "promotional guardrails") as at January 2022 required a 12-week price establishment period before a product could be placed on a Down Down promotion.

• The guardrails were relaxed to four weeks in March 2022 under competitive pressure.

• Aside from short-term Specials, Coles' prices for manufactured and packaged grocery products were relatively stable from month to month, and Down Down prices were typically stable for much longer periods.

• Ordinary consumers would likely be aware that Coles maintained its Down Down prices for periods of six to 12 months.

Coles argued that the "Was" price was genuine because it reflected the supplier's recommended retail price following a verified cost increase and that the product was sold in commercial volumes. The Court accepted that these matters were relevant, but held they did not overcome the fundamental problem of insufficient duration.

The implications

The critical issue in the case was: what was the reasonable period which typical consumers would regard as sufficient, to establish a new genuine regular price for a grocery item, before the retailer could use that price as the advertised "was price" to claim a new discount?

The ACCC has never published any guidance on how long such a period may be, saying it depends on the circumstances

In this case, the Court placed much weight on Coles' internal guidelines that this period had to be 12 weeks. That Coles later reduced that period to four weeks because of reported competitive pressure seemed to underpin the decision.

Notably however there was no evidence from any consumers in this case what they regarded as a genuine discount or how long a period is required to establish a "new normal", in the circumstances where there were genuine supplier price rises.

It might be said that a four-week period for a new regular price was short but there is nothing specific in the judgment to measure it against. That 12 weeks was more appropriate seemed to rest solely on Coles' own internal guidelines, which consumers would be completely unaware of, and not any external or market evidence. The Court inferred Coles' guidelines reflected the expert opinion of an experienced retailer but was not prepared to allow that inference to justify the reduction to four weeks.

The description of the fear of competitive pressure as a "race to the bottom" does raise some questions. Presumably that fear was genuine and many consumers would be aware if there was increased competitive pressure.

It might also be said that increased competitive pressure might have added to a more dynamic retail environment where more frequent price adjustments became necessary.

However, the Court did not find that grocery prices were frequently changing over this period but were fairly stable.

At this stage it's unclear if Coles will appeal the decision. Whether it does or doesn't, it must be stressed that, as the Coles decision shows, these cases turn very much on the individual facts, so it remains to be seen how the ACCC will fare in similar cases.

The decision is a reminder to all businesses to make representations to customers about discounts carefully and be prepared for ACCC scrutiny.