FoodLegal

By John Thisgaard (FoodLegal Co-Principal) and Blake Weinberger (FoodLegal Lawyer)

© Lawmedia Pty Ltd, December 2024

The ACCC has taken recent enforcement action against food businesses for allegedly misleading pricing practices. The result of this enforcement action could have sweeping consequences for food retailers and suppliers. The Australian Government is also considering a new Mandatory Grocery Code of Conduct, which would replace the existing voluntary code. This article explores these developments, and the impacts for FMCG businesses.

1.     ACCC enforcement of supermarket pricing practices

The Australian Competition and Consumer Commission (ACCC) announced on 23 September 2024 that it had initiated separate proceedings in the Federal Court of Australia against Australia’s two largest supermarkets, Woolworths and Coles, for allegedly breaching the Australian Consumer Law (ACL). The ACCC claims that both Woolworths and Coles breached Section 18 of the ACL, which prohibits misleading or deceptive conduct generally, as well as Section 29(i) which prohibits misleading representations about the price of goods.

The ACCC is alleging that both supermarkets sold products at regular prices for a minimum of 6 months (and were not short-term specials). They then allegedly increased the price of these goods by at least 15% for short periods of time, before then placing them on ‘promotion’ through the Woolworths ‘Priced Dropped’ and Coles ‘Down Down’ programs. According to the ACCC, these discounts were illusory and were based on a misleading representation of the price of the products. Below is an example of promotional discount graphics that the ACCC took issue with:

Products affected include those supplied by major Australian and international FMCG brands including Arnott’s, Doritos, Kellogg’s, Colgate, Coca Cola, Whiskas and Bega.

For example, at Woolworths, it was alleged that the Oreo’s 370g products were placed on the ‘priced dropped’ promotion with a “was” (reference) price of $5.00. The product was sold at $4.50. However, the product was allegedly sold at $3.50 (ie. Not $5.00) for 696 days prior to the original price increase. The diagram below, provided by the ACCC, summarises the price changes:

According to the ACCC, harm was caused to consumers as they had made purchasing decisions based on misleading representations about the prices of products. The following points are relevant:

·        The ACCC is not alleging any collusion, or anti-competitive conduct, occurred;

·        The ACCC is not alleging any wrongdoing by suppliers; and

·        The ACCC is alleging that a separate breach of sections 18 and 29 occurred each time a misleading price representation was made to a consumer. As this number cannot be specified with any accuracy, the ACCC simplified the calculus by submitting this number was at least equal to the number of consumers who purchased the relevant products while on promotion.

As at the date of this article (December 2024), the maximum penalty for breaches of the ACL is the greater of AUD$50 million, 3 times the value of the benefit obtained, or 30% of a company’s turnover during the period of wrongdoing. Given the high maximum penalty as well as the large number of alleged contraventions (approx. 266 Woolworths products and 245 Coles products were affected, with an un-specified number of individual purchases), the consequences could be significant if Woolworths and Coles are found to be in breach.

Both Woolworths and Coles are defending the action – Woolworths is claiming that it did not initiate the temporary price spikes whilst Coles says the ACCC argument is overly simplistic. The case has been scheduled for case management in December 2024.

In November 2024, the ACCC also announced they are taking action against travel booking site Webjet for making misleading or false pricing statements.

2.     Proposed new Grocery Code of Conduct

Australia’s grocery industry has been subject to several reviews in 2024, including separate reviews by the ACCC, the Australian Senate and the Australian Department of Treasury. A key recommendation of both the Senate and Treasury reviews was to replace the existing voluntary Food and Grocery Code of Conduct with a mandatory code.

On 23 September 2024, the Department of Treasury issued an Exposure Draft of the Mandatory Food and Grocery Code of Conduct (Mandatory Code). The Mandatory Code has the following features:

·        It would be regulated as an Industry Code under the Competition and Consumer Act, meaning that breach of the Mandatory Code would also amount to breach of the Competition and Consumer Act.

·        It would be mandatory for a ‘large grocery business’, which is a retailer or wholesaler with at least $5 billion in revenue over the previous financial year (indexed to inflation)

·        It imposes positive obligations for retailers to deal with suppliers in good faith

·        It requires supply agreements to be in writing and restricts unilateral variation

·        It contains provisions limiting delisting of supplier products, changes to supply chain procedures, supplier-funded promotions, range reviews and transfer of intellectual property rights.

The draft of the Mandatory Code was open for comment until 18 October 2024 and the final wording is being considered by the Australian Government.

On 27 November 2024, the Federal Government introduced the Treasury Laws Amendment (Fairer for Families and Farmers and Other Measures) Bill 2024  (“the Bill”). The Bill amends the Competition and Consumer Act so that any breach of the Mandatory Code, once finalised, would result in a maximum fine which is the greater of:

·        10 million

·        3x the value obtained by the contravening conduct

·        10% of turnover in the 12 months prior to the conduct

The Australian Government expects the finalised Mandatory Code to come into force on 1 April 2025.

3.     Impacts on FMCG suppliers and retailers

The action against Woolworths and Coles by the ACCC demonstrates the need for businesses to ensure that their pricing is transparent and accurate. Although the ACCC action concerns large retailers, if the ACCC is successful this case will set an important precedent. Businesses that sell direct to consumers will need to take care if using a promotion or sale, as there could be a risk that the promotion could be misleading if the product price recently increased before the promotion.

This is especially the case for e-commerce sales, where there might be additional fees or surcharges that are not reflected in the headline ‘sale’ or ‘promotion’ price.

FMCG businesses should also review the Mandatory Code when finalised and obtain advice as needed to understand their rights and obligations. Retailers will need to ensure that their supply agreements comply with the Mandatory Code and may need to undertake staff training. Compliance with the Mandatory Code is likely to be closely monitored and enforced.

Suppliers should also be aware of their rights and retailer obligations so that they are better able to make commercial decisions and renegotiate their supply agreements if needed.

FoodLegal can assist businesses in ensuring they are compliant, including by our training and establishing a tailored compliance program for your company.

This is general information rather than legal advice and is current as of 5 May 2025. We recommend you seek legal advice for your specific circumstances before making any commercial decisions.