Australia’s two biggest supermarket chains will face court, accused of ripping shoppers off to the tune of millions of dollars with fake discounts.

The Australian Competition and Consumer Commission launched legal action in the Federal Court against Woolworths Group Limited and Coles Supermarkets Australia Pty Ltd on Monday.

The watchdog claims both retailers bumped the prices of products by 15 per cent for short times, before including them in Woolworths’ Prices Dropped promotion and Coles’ Down Down scheme at less than the spike but for at least the same, or even more, than the regular price.

ACCC chair Gina Cass-Gottlieb said the dodgy discounts brought in “millions of dollars of revenue” for the big retailers.

“We are seeking a significant penalty. This is serious conduct; it is of great concern to us and it affected many consumers with millions of products sold, subject to this practice,” she said.

“That penalty has to be high enough to be not a cost of doing business for such major companies to deter them from this conduct in the future and deter all retailers from this manner of conduct.”

Cass-Gottlieb accused the duopoly of breaching consumer law by making “misleading claims about discounts, when the discounts were, in fact, illusory”.

She said it would be alleged that in many cases the supermarket giants had already planned to eventually put products on special before using a temporary price rise to establish higher “was” prices.

“It is critical that Australian consumers are able to rely on the accuracy of pricing and discount claims,” Cass-Gottlieb said.

“We allege these misleading claims about illusory discounts diminished the ability of consumers to make informed choices about what products to buy and where.”

We’ve commenced separate proceedings in the Federal Court against Woolworths and Coles for allegedly breaching the Australian Consumer Law by misleading consumers through discount pricing claims on hundreds of common supermarket products. https://t.co/dEklDWdMhx pic.twitter.com/G5T1ZQ7oHc

— ACCC (@acccgovau) September 22, 2024

The allegations relate to 266 products sold by Woolworths across 20 months and 245 across 15 months at Coles.

The representations were made on pricing tickets shown on supermarket shelves and online, usually also showing a “was” price that was at the level of the short-term spike.

The watchdog said it identified the offending conduct through consumer contacts and social media monitoring, and then conducted an in-depth investigation using its compulsory powers.

It is seeking penalties, costs and community service orders for supermarkets.

“We will put to the court that there should be a substantial additional donation to charities that are providing food relief and meals in aid to needy families, and that each of Coles and Woolworths are ordered to pay additional donations to support that,” Cass-Gottlieb said.

Choice complained to the ACCC in December last year about Coles pricing. Photo: Choice

Consumer group Choice said it welcomed the legal action.

“Earlier this year, our nationally representative research revealed that on average one in four people found it difficult to identify if certain supermarket labels represented a true discount or not. Down Down labels at Coles and Prices Dropped labels at Woolworths were among those that caused confusion for consumers,” director of campaigns Rosie Thomas said.

“This kind of bad behaviour from the supermarkets is exactly why we gave Coles and Woolworths a Shonky in 2023, and it urgently needs to be addressed – particularly during a cost-of-living crisis when people are doing it tough.”

Prime Minister Anthony Albanese said the allegations, if true, were completely unacceptable.

“This is not the Australian spirit. Customers don’t deserve to be treated as fools by the supermarkets. They deserve much, much better than that. My government takes today’s announcement by the ACCC very seriously,” he said.

Coles said on Monday it would fight the proceedings.

“The allegations relate to a period of significant cost inflation when Coles was receiving a large number of cost price increases from our suppliers and, in addition, Coles’ own costs were rising, which led to an increase in the retail price of many products,” it said.

“Coles 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.

“In line with our values, Coles takes compliance with the Australian Consumer Law extremely seriously, and places great emphasis on building trust with all stakeholders, especially our customers.”

Woolworths acknowledged the legal action and claimed it related to “historical” pricing schemes.

“Our Prices Dropped program was introduced to provide customers with great everyday value on their favourite products,” CEO Amanda Bardwell said.

“We remain committed to offering many ways for customers to save at the checkout.”

Shares in both grocery giants were down in early trading on Monday.

-with AAP