Opinion
Irrespective of the legal outcome, the ACCC/Coles “false discounts” case has heavily damaged the reputation of Coles and is set to do the same for Woolworths when its case is heard in April.
The entire Australian population, certainly the 14 million weekly shoppers at Coles, seem to know about it, with the publicity greatly amplified by Coles’ decision to fight the case publicly in court.
Jokes abound: “Coles believes that a recommended fine of $200 million be reduced to $400 million”, or “Coles has introduced new upward specials”. An ABC TV interviewee was even quoted as saying, “the prices go up and down like a dunny seat”.
If Coles, and later Woolies, lose, there will be fines in the hundreds of millions of dollars, a potentially costly class action for damages, and severe credibility and reputation damage.
There may also be ramifications for high-level executives, and even board members, of the business: this case differs from the more usual case where the alleged illegal behaviour is triggered by strategies and decisions made at low levels of the business.
The Coles defence seems to rest on two pillars. First, the price rises were, it claims, justified because of inflation. However, that argument is irrelevant. The case is about whether ordinary shoppers were misled by a deceptive marketing or promotion campaign.
Second, the claims were literally true because the “claimed bargains” were based on actual reductions off a higher price. However, a statement can be literally true but misleading or deceptive. A seller needs to tell not just the truth but the whole truth.
Particularly damaging for the Coles defence is that it planned the price ups and downs months in advance. This suggests they were a marketing ploy to induce consumers to buy more of the product in the belief that they were getting a bargain, when in fact the price had merely returned to its original level or had, in most or many cases, increased.
A critical issue for the case is how long the prices should have been set at the high level before being legitimately reduced.
It seems that originally Coles had a “guardrail” under which discounts would only be made after a higher price had been in force for about 12 weeks. Apparently under competitive pressure from not dissimilar discounting practices by Woolworths, Coles decided to reduce the period to a legally questionable four weeks and, in some instances, less, e.g. one week.
The respected Justice Michael O’Bryan, in reaching his verdict, may provide helpful guidance about the difference in principle between false and true discounting. He is, however, unlikely to specify a universally applicable fixed number of days before a price can be reduced.
Setting, say, four weeks, as a general standard, would still leave room for deceptive practices in many cases and could also encourage businesses who currently don’t normally engage in this kind of marketing to do so for the first time.
On the other hand, a longer period of 12 weeks seems too restrictive and inflexible, especially if applied across a range of industries, including retail clothing, where cascading price reductions are the order of the day. For the same reason, governments should hesitate in setting a rigid legislative rule, such as seems to apply in parts of Europe, for example, 28 days.
A likely outcome of the cases is a change in retail grocery pricing practices. As a minimum, Coles and Woolies are likely to establish strong guardrails, possibly a strict reversion to the 12-weeks rule.
However, having regard to near-universal public scepticism about the price-reduction claims, a possible outcome is a partial move to “everyday low prices”. Under this approach, pioneered by Walmart in the US, specials, bargains and the like are essentially non-existent. The business simply offers its best low price on each product and sticks to it for a prolonged period.
Looming in the background is that already some big Australian retailers, including Woolworths, are moving to digital price tagging.
Manual price tags are on the way to being replaced by digitally posted prices, saving heavy costs of manual price tagging. Initially this will be done cautiously but in the long term it opens the door to enable establishment of surge pricing similar to that of Uber where, for better or worse, prices change frequently in accordance with changes in underlying supply and demand conditions.
Longer term, digital pricing is a step in a direction of the adoption of surveillance-based personalised pricing. Under this approach, using the shopper’s phone, the retailers set a price for each person based on the shopper’s browsing history and practice, previous purchases, location, age and estimated income.
Finally, what does the public gain from the whole case?
The fines may be partly met by the shareholders of Coles and by its suppliers but a significant part will be passed on to the public.
The hoped-for benefit is better long-term marketing practices, more transparent pricing for consumers, and compliance with the law by retailers.
If retailers reduce discounting, will an equal amount of price competition continue in different forms? One would feel more confident about better prices for consumers if there was not such a high degree of concentration of retail grocery sales, with Coles and Woolies having the dominant share of the market.
Professor Allan Fels AO of University of Melbourne and Monash University is former chair of the ACCC.
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Allan Fels is the former chairman of the Australian Competition and Consumer Commission and former chairman of the Australian National Mental Health Commission.
