Woolworths used ‘subtle magic’ to mislead consumers: ACCC

Woolworths’ strategy in communicating the price of products employed a “subtle magic” that misled shoppers into thinking the prices of pantry staples had become cheaper when they had not, the Federal Court has heard.

On Tuesday morning, the blockbuster case in which the Australian Competition and Consumer Commission (ACCC) is accusing Woolworths of “illusory” discounts got under way in Sydney. The watchdog’s lead barrister, Michael Hodge KC, laid out the case, which centres on the supermarket’s “Prices Dropped” program and examines the pricing trajectories of 12 sample items such as Tim Tams and laundry powder.

The two weeks of hearings follow a related case the ACCC pursued against Coles in February. While that case relates to Coles’ “Down Down” specials program, both supermarkets are defending allegations that they effectively faked discounts.

The supermarket giants are accused of misleading consumers by artificially increasing a product’s price for a short period with the intention of subsequently lowering it and advertising it as a comparative discount, despite the discounted price being higher than the regular price it was sold at before its short-term spike.

Hodge – nicknamed the “baby-faced assassin” for his time cross-examining senior financial services executives in the 2018 banking royal commission – opened the ACCC’s case by explaining the difference between three types of shelving labels that Woolworths used when advertising hundreds of pantry staples as being on its Prices Dropped program.

He argued that while standard “white ticket” prices indicated a regular shelf price, and “yellow tickets” stand out and suggest a temporary, special saving, the red-and-white design scheme of the labels used to advertise products on “Prices Dropped” communicated something different to shoppers.

The “Prices Dropped” labels benefit in attracting shoppers by displaying a “was/is” price comparison pointing to the second, higher price, and its colour scheme nods to the regular white labels, Hodge argued.

“It communicates to a consumer that Woolworths has done something remarkable or unusual, it has dropped the regular shelf price,” Hodge said.

“The subtle magic of the ‘Prices Dropped’ message that draws the consumer in is to say the new, stable price is lower [than the previous regular price],” he said.

Early on in Tuesday’s hearing, Justice Michael O’Bryan interrupted Hodge to suggest the ACCC was setting up a “straw man” and not directly responding to Woolworths’ case.

O’Bryan’s questioning echoed the tone in which he responded when the ACCC’s lawyers laid out their case against Coles in February. Specifically, O’Bryan believes that Hodge’s opening remarks on Tuesday assumed shoppers did not believe the intermediate, higher price preceding the “Prices Dropped” special was a genuine price.

O’Bryan questioned if consumers, who are often in a rush when shopping, would “over-intellectualise” the information conveyed on pricing tickets.

Hodge pushed back, saying one of the things shoppers would absorb from the “Prices Dropped” label is that “there is something special”.

Hodge also raised the pricing of a family pack of Oreos to illustrate the ACCC’s case. The biscuits’ price was $3.50 for nearly two years, was hiked 43 per cent to $5 for 22 days before being placed on the Prices Dropped program at a price of $4.50. Although the customer was being told it “was” $5, they were paying a dollar more than the month before, he claimed.

Across this week and next, the watchdog’s legal team will call 11 Woolworths managers as witnesses to question them about how the supermarket giant determined the shifting shelf prices of 12 items between September 2021 and May 2023.

Woolworths introduced the “Prices Dropped” program in 2015. It kept products at discounted prices for at least 12 weeks, and up to six months or longer. Included products were marked by red-and- white shelf tickets, displayed in store and online, with the “dropped” price alongside a “was” price.

While the hearings will focus on 12 sample products, court documents published on the eve of a landmark trial show that of 276 products filed in the initial claim, 265 had been sold under the “Prices Dropped” program for amounts that were higher than they had been for a previous 180-day period.

In 254 of those cases, prices and supplier funding behind the red and white tickets were planned before the temporary price spike had begun, according to the statement of agreed facts between Woolworths and the consumer watchdog.

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