The competition regulator is suing Coles and Woolworths over allegations they misled shoppers by offering “illusory” discounts on hundreds of common supermarket products. The Australian Competition and Consumer Commission (ACCC) chair, Gina Cass-Gottlieb, said on Monday the regulator would seek a “a significant penalty” after the major retailers allegedly profited from the sale of tens of millions of products sold through promotions the regulator claimed breached consumer law. “Many consumers rely on discounts to help their grocery budgets stretch further, particularly during this time of cost of living pressures,” Cass-Gottlieb said. “It is critical that Australian consumers are able to rely on the accuracy of pricing and discount claims.” Coles told shareholders on Monday it intends to defend the proceedings, while Woolworths said it would review the claims. The major retailers are accused of inflating the prices of groceries for a short period, before placing them in their “Prices Dropped” or “Down Down” promotions. The promotional prices were misleading, according to the regulator, because they were higher than or the same as the product’s regular long-term price before the temporary price spike. “We allege that each of Woolworths and Coles breached the Australian consumer law by making misleading claims about discounts, when the discounts were, in fact, illusory,” Cass-Gottlieb said. “We also allege that in many cases both Woolworths and Coles had already planned to later place the products on a ‘Prices Dropped’ or ‘Down Down’ promotion before the price spike, and implemented the temporary price spike for the purpose of establishing a higher ‘was’ price.” The ACCC alleges the conduct involved 266 products for Woolworths and 245 products at Coles, affecting everything from chocolate biscuits to instant coffee and tissues. The regulator provided an example of the alleged conduct by Woolworths, using its pricing of a 370g Oreo family pack. Woolworths offered the product for $3.50 from January 2021 to November 2022 in its “Prices Dropped” promotion. The Oreo pack price was increased to $5 for 22 days, and then returned to the ‘Prices Dropped’ promotion for $4.50. Shoppers were told this was a discount from the $5 “was” price, when it was actually 29% higher than its long-term regular price of $3.50. Fallout Shares in Coles and Woolworths both fell more than 3.5% in early trading on Monday as investors reacted to news of the court actions. Coles said in a statement the claims, which it intends to defend, relate to a period when the supermarket was receiving a large number of price increases from suppliers. “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.” Woolworths said it would “carefully review the claims”. “Our customers are telling us they want us to work even harder to deliver meaningful value to them and it’s important they can trust the value they see when shopping our stores,” Woolworths said. The ACCC has started separate proceedings against the supermarket chains in the federal court. Cass-Gottlieb told media on Monday that the penalty had to be significant. “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,” she said. The ACCC is also seeking community service orders that Woolworths and Coles each fund a registered charity to deliver meals to Australians in need. Cass-Gottlieb said the regulator was first alerted to the promotional conduct by consumers, which sparked an in-depth investigation.