The supermarket giant raised prices for hundreds of items for a matter of weeks before dropping them to levels above the original shelf prices under its "prices dropped" promotion, the consumer watchdog alleges.
"The subtle magic of the 'prices dropped' message that draws the consumer in is to say that the new stable price is lower than the old stable price," Australian Competition and Consumer Commission silk Michael Hodge told the Federal Court on Tuesday.
"The power of the 'prices dropped' marketing message is that it conveys to a consumer that Woolworths has done something remarkable or unusual."
The ACCC launched the joint action in 2024 against Woolworths and Coles, alleging the supermarket giants broke consumer law using fake discounts to mislead customers.
The reduced prices were often the same or higher than the original shelf prices and therefore deliberately misled consumers, the competition watchdog claims.
Woolworths discontinued the marketing campaign after the ACCC brought legal action against it.
But during the hearing in Sydney, Justice Michael O'Bryan was at odds with the watchdog's lawyer over the extent to which discount tickets impacted consumers.
"They're not going to spend any time analysing in any intellectualised or analytical way, what these tickets mean," the judge said, stressing the case hinged on whether or not consumers were getting a real discount.
"One thing we can be certain of is that they would form the belief, and in my view, be entitled to form the belief, that what's said to be a saving is a genuine saving."
The commission alleges the conduct involved 265 products sold by Woolworths at different times across 20 months between late 2021 and mid-2023, impacting tens of millions of sales by itself and Coles.
The product list was pared down to 12 agreed items to be scrutinised in court, including a family pack of Tim Tams biscuits, Carman's classic fruit and nut muesli bars and Sakata rice crackers.
The watchdog is not suggesting Coles and Woolworths colluded or engaged in anti-competitive behaviour as part of the alleged misleading conduct.
In a statement to AAP, Woolworths said it fundamentally disagreed with the claims and at no stage misled or deceived its customers.
"Following COVID, there was a period of extraordinary inflation, and we were acutely aware that customers expected Woolworths to provide value wherever possible," a spokesman said.
"Inflation also put pressure on our suppliers' costs, and we worked with them to reduce the inflationary impact on customers through our 'prices dropped' program."
Australia's supermarket sector has come under heavy scrutiny after cost pressures borne by the COVID-19 pandemic, leading to multiple inquiries.
One such probe found Australian supermarkets to be some of the world's most profitable, with margins expanding in the years after the pandemic.
The ACCC inquiry found no evidence of price gouging, but the watchdog has flagged potential future legal action through new excessive pricing laws set to come into effect in 2026.
Coles and Woolworths account for roughly two-thirds of Australian supermarket sales.
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