Goldman Sachs warns ACCC legal action against Coles, Woolworths may weigh on consumer sentiment

The competition watchdog’s seismic legal action against Coles and Woolworths could further damage the supermarkets’ already-battered reputations and negatively hit sales, a prominent analyst has warned.

Goldman Sachs analyst Lisa Deng on Tuesday said it viewed the negative consumer sentiment as the key risk.

“We see risk from negative consumer sentiment towards the major supermarkets from the announcement, which may negatively impact sale,” she told investors in a note.

“Given both COL and WOW has been named, it is too early to tell potential market share impact.”

The Australian Competition and Consumer Commission on Monday announced it would haul Coles and Woolworths to the Federal Court for allegedly misleading customers about “illusory” cut-price offers on hundreds of products — including Tim Tam, Arnott’s Shapes and Colgate toothpaste.

Ms Deng takes a similar view as Coles’ and said the price increases in 2022 and 2023 were driven by significant underlying cost inflation.

She says it’s too early to assess any potential penalties and noted the maximum penalty for breaching Australian consumer law is $50 million per breach.

Separately on Tuesday, ACCC chair Gina Cass-Gottlieb said the watchdog would seek “significant” penalties on both supermarkets that were “higher than the cost of doing business” if the legal action was successful.

“They need to be specifically deterred and in fact generally we want retailers to generally understand that all price representations and discount representations need to be genuine and accurate,” she told ABC Radio National.

Ms Cass-Gottlieb said social media platforms were a key source of reports that informed the ACCC’s investigation.

“We had a heads up that came from consumers calling in,” she said.

“But then when we looked at social media, we found hundreds of reports.

“On TikTok, Reddit, lots on Reddit . . . and what people there were doing was they were monitoring prices … it was a very key indicator to us.”

The ACCC will allege Coles and Woolworths sold items at regular prices for up to six months before lifting the prices by at least 15 per cent and then slapped on a Prices Dropped and Down Down discount.

Earlier this month, Coles and Woolworths ranked among Australia’s most distrusted brands amid stubborn cost-of-living pressures and accusations of price-gouging.

Rosie Thomas, director of campaigns at consumer group Choice, said regardless of the outcome, the impact of the legal action would be wide-ranging and affect all major businesses.

“If the ACCC is successful, it will be very clear that using tricky pricing tactics like those alleged in the court case are against the law,” she said on Tuesday.

“This will mean these practices will have to stop and everyone will have more confidence that prices and discounts are fair.

“There is also always the potential for refunds or compensation for affected consumers via class actions.”

Coles shares closed down 3 per cent to $18.03 and Woolworths down 2.9 per cent to $32.80.