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RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

When the ACCC announced it would be suing Coles and Woolies over fake discounts on more than 500 products, it did so on the back of tip offs from citizen sleuths who’d been documenting curious price changes on everyday products like chocolates and tampons.

The consumer watchdog is alleging the big two supermarkets knowingly misled customers and sold tens of millions of dollars worth of products that way.

With more market share than almost any other grocery chains in the world, and with the cost of food skyrocketing, Coles and Woolworths are now faced with a choice on whether and how to defend themselves.

Today, Economics Editor of The Conversation and contributor to The Saturday Paper Peter Martin, on the reckoning ahead for Coles and Woolworths.

It’s Wednesday, October 2nd.

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RUBY:

Peter, let's begin by talking about how this legal case was built. Where did the ACCC’s investigations begin?

PETER:

Initially, it got phone calls. Now, it gets a lot of phone calls and it has a lot of discretion about what to investigate. In fact, most of the things it gets it never investigates. In this instance, there were so many that it looked further, and when it looked further it discovered social media. Hundreds of posts from, I don't know if you call them citizen data analysts or citizen data journalists.

Audio Excerpt - Price Check Guy:

“Coles and Woolworths pricing is fascinating and I've got a really great example here...”

PETER:

One was from a guy called Price Check guy. Now, one post on TikTok about Cadbury Caramello Koalas has been viewed 373,000 times.

Audio Excerpt - Price Check Guy:

“Okay. I'm actually a little bit upset by this product, and I'll tell you why. Here's a product that was consistently $1 discounted to $0.80, $1 discounted to $0.80. And then one day, it just jumped up to $2. And now, it's $2 discounted to $1 and Coles is calling that half price.”

PETER:

That's what the ACCC saw but then it was able to, as it has the power to do, seek data from the parties in this case Coles and Woolworths. Now it can only do that legally, normally, if it's preparing a legal action. So they knew something was coming because the ACCC has been going through the data on their computers for some time.

RUBY:

Okay, so the ACCC has been trawling the data, so what has it said that it's uncovered about just how many times these kinds of promotions were happening?

PETER:

It's only presented 500-odd cases. It could have presented more, but it said it wanted to only look at cases where prices had been steady for at least six months before the action. What happened in the action was an increase of a few weeks, and then prices being discounted to a price that was no lower than the price had been for months before.

And the products are the kind we all use. Arnott's Tim Tams, Kellogg's Cereal, Stay Free pads. Those are some of the ones for Woolworths.

Energiser batteries for Coles, Libra tampons, Nescafé Instant Coffee.

If the ACCC can establish that people took them at their word, that's a key part of the ACCC case. It says, and it needs to establish this, that people were led to believe that Coles and Woolworths were looking after them by delivering lower prices. In other words, that people didn't think it was a trick.

It has a strong case to argue that it's misleading and deceptive.

RUBY:

As this court case is launched, how would you describe the way the public feels about the big two supermarket chains?

PETER:

I think the public hates the big two supermarket chains, but it wasn't always like this.

It's an appalling comedown in terms of public image.

During Covid, Coles and Woolworths got together. They ensured we got toilet paper, all of the things we needed. Woolworths, they were, a mere year ago in September, the most trusted brand in Australia according to Roy Morgan. Now that same company, Woolworths, is Australia's fifth least trusted brand.

I think they've probably always behaved badly where they could. That's a guess. Don't hold me to that. We'll see what comes out in court. But when prices shot up in 2022 we saw, according to the ABS in two and a half years, a 16% jump in prices. Previously they had increased only slowly.

You know, a lot of that was just passing on costs. But the ACCC report says Woolworths widened its margins in that time of high inflation. We started paying attention. We saw the pain every time we went shopping. We were horrified at what we saw.

Audio Excerpt - 4 Corners host:

“I mean Rod Sims, the former head of the ACCC, says that we have one of the most concentrated supermarkets in the world. Is he lying?”

Audio Excerpt - Brad Banducci:

“It's not true.”

PETER:

Then, we saw the walkout from a Four Corners interview from the Chief Executive of Woolworths earlier this year.

Audio Excerpt - Brad Banducci:

“He’s retired, by the way.”

Audio Excerpt - 4 Corners host:

“I don't think you would impugn his integrity and his understanding of competition law.”

Audio Excerpt - Brad Banducci:

“I'm just saying the world has got much more competitive.”

Audio Excerpt - 4 Corners host:

“He retired 18 months ago. He’s not…”

Audio Excerpt - Brad Banducci:

“Okay, lets, can we take that out? Is that ok?”

PETER:

We saw the same chief executive, as a result of that, being threatened with imprisonment when he refused to give a clear answer to a Senate inquiry.

Audio Excerpt - Brad Banducci:

“I’ve answered the questions many times.”

Audio Excerpt - Senator:

“You have not answered the question, Mr Banducci. Honestly, I’m not interested in your spin or your bullshit. This is a senate inquiry. Answer the question. Was your return on equity 26% the last financial year, which is more than 2.5x…”

PETER:

It's been really one, I suppose, image blunder after another. Although none of them are as serious, I think, in the mind of the public as this.

RUBY:

Coming up after the break, will Coles and Woolworths fight back?

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RUBY:

Peter, Coles and Woolworths are being sued by the ACCC over allegedly misleading customers with these “illusory” discounts on everyday items. What have the supermarkets said about how they plan to respond?

PETER:

Coles says it will respond and that's all. It issued a statement to the stock exchange almost immediately after the ACCC statement, which tends to indicate it thought it was coming. And Woolworths merely said it would continue to engage with the Commission. Which also indicates that it's been engaging about this reluctantly letting the Commission inside its computers for some time.

RUBY:

Do they have any chance of beating it?

PETER:

It's an awful case to win. In fact, winning might be even worse.

RUBY:

What do you mean?

PETER:

You would need to let people inside your pricing practices. Everything would come out in court.

We saw this with Qantas. Qantas sold those ghost flights, flights it had already cancelled, and when it made its submission to the Federal Court using the same provision of the Australian consumer law, it said people did not buy tickets when when they bought them for a flight. They bought, quote, a bundle of rights that enabled them to various things. Now this made Qantas a laughing stock.

Does Coles want that? What Qantas did was to settle out of court for a total of $120 million, and I think it regarded that is fairly good value for money, and it's interesting that Woolworths has not said it will fight it in court.

RUBY:

Okay. There's probably a lot of conversations happening behind the scenes then about how both companies should handle this.

PETER:

I would say so.

RUBY:

Tell me about the possible penalties.

PETER:

Labor increased the penalties shortly after it was elected. The penalty was $10 million for an instance of misleading and deceptive conduct, that's increased to 50 million. I don't think anyone thinks that they'll add 500 cases together and multiply them by either $10 or $50 million. That would be an extraordinary amount of money.

There is a provision in the law, actually, which says if it's too complicated to calculate there can be an award of 30% of a measure of turnover, which would be enormous. That's probably not going to happen. The Commission has certainly said it wants those firms, Coles and Woolworths, to donate money to charities that provide food to people in need.

I think what it wants is a big number. In interviews Gina Cass-Gottlieb, the chair of the ACCC, has said she wants this to set an example. So, they don't want nothing. In fact, they probably will not be satisfied with a genuine promise to fix the behaviour. They want this to set an example in the same way as the Qantas case did.

RUBY:

So, the ACCC, they're seeking significant penalties. But Peter, what else is the government doing beyond that?

PETER:

Well, just this week on Tuesday, the Treasurer ramped up the pressure on supermarkets further. He announced an extra $30 million to the ACCC to investigate their pricing practices on an ongoing basis.

Audio Excerpt - Jim Chalmers:

“So what we’re announcing today is all about more resources for more investigation, and more enforcement, and more sites for competition.”

PETER:

And he talked about negotiating with state governments and, and through them local councils, to sort of unpick planning logjams.

Audio Excerpt - Jim Chalmers:

“In addition to this crackdown, I will also work closely with states and territories to progress this reform of planning and zoning regulations as fast as possible so that we can boost competition in the supermarkets sector by opening up more sites for new stores.”

PETER:

The biggest thing, according to the draft report of the ACCC inquiry, that stops people going to a competitive supermarket, apart from inertia, is that there isn't one. And that's because regulations make it hard to start a new one. And in some instances, and the commission named two, suspicion of land banking. That is to say that Coles and Woolworths buy a spot, they might say that one day they're going to have a supermarket on it, but the key effect in the meantime is that no one else can.

And there's even something bigger that certainly the Greens and the Coalition, as it happens, wants. And that's that the ACCC, applying to the Federal Court, gets the right to force supermarkets to divest. Maybe sell 10% of their stores, maybe sell stores in some states, maybe find an entire arm of a business and hive it off. The Coalition supports that. Labor does not.

It happens in the US and it's happened in the UK. What's so different about Australia? Why should Australia be less, I suppose, free market in the sense of promoting competition by breaking companies up than the US or the UK?

RUBY:

And just finally, so we've heard Jim Chalmers say that cracking down on supermarkets, that's about relieving cost of living pressure. So do you think that what has been announced, so this ACCC funding boost and more land potentially becoming available for new supermarkets? Do you think these measures are going to do that to make the cost of living more affordable for people?

PETER:

I do think they'll have an effect. if they're surrounded by pressure from all sides and, you know, frankly the government's announcing a new thing every few days and there'll be the major inquiry reporting in February. If they're surrounded by pressure on all sides, they have the ability to listen. It's a bit like Qantas. Qantas charges high fares, but it can cut them when there's competition or when it's under scrutiny.

RUBY:

Peter, thank you so much for your time.

PETER:

A great pleasure.

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RUBY:

Also in the news today,

Israel’s military has launched ground raids in the border area of southern Lebanon that the IDF says are against Hezbollah targets and infrastructure.

The raids follow two weeks of intensive airstrikes by Israel on targets in Lebanon.

And, the ABC’s managing director has apologised to staff who experienced racist treatment after a review found overwhelming evidence of racism at the public broadcaster.

The Listen Loudly, Act Strongly review detailed anonymised examples of racism and discrimination from current and former staff and made 15 recommendations to improve the workplace.

I’m Ruby Jones, this is 7am. Thanks for listening.

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