'Unacceptable': Coles, Woolies sued for alleged price gouging

Both supermarket chains have responded to the claims, with Coles pointing the finger at its suppliers for price increases.

It is alleged the supermarkets temporarily increased the prices of certain products before reducing them to amounts higher than the regular price and promoting them as discounts.

Prime Minister Anthony Albanese said the serious allegations were not in "the Australian spirit".

In one case, a pack of Oreos that was sold for $3.50 for several years was temporarily increased to $5 for 22 days, before Woolworths placed it on a "Prices Dropped" promotion for $4.50.

The Australian Competition and Consumer Commission has commenced separate proceedings in the Federal Court against the two supermarket giants.

It is alleged the companies breached Australian consumer law by misleading customers on discount pricing for hundreds of products.

ACCC chair Gina Cass-Gottlieb said over many years Coles and Woolworths had been using the "Down, Down" and "Prices Dropped" promotions respectively to highlight a sustained reduction in regular prices for common grocery items.

"However, in the case of these products, we allege the new 'Prices Dropped' and 'Down Down' promotional prices were actually higher than, or the same as, the previous regular price," Ms Cass-Gottlieb said.

"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."

Mr Albanese told reporters in Canberra the allegations, if found to be true, were "completely unacceptable".

"This is not the Australian spirit. Customers don't deserve to be treated as fools by the supermarkets," he said.

"They deserve much, much better than that."

The Prime Minister was asked whether the alleged misleading pricing had contributed to inflation.

"When you're charging more for products than you should it, of course, has an inflationary impact by definition," he said.

The federal government has begun consultation on an exposure draft to introduce a new, mandatory food and grocery code.

Mr Albanese said the current voluntary code had "not been good enough".

The ACCC said the alleged misleading conduct involved 266 products at Woolworths over a period of nearly two years and 245 products for Coles over more than a year.

It found the supermarkets sold the products at a regular price for at least 180 days. Prices of these items were then increased by at least 15 per cent for a short period and were then placed on the "Prices Dropped" or "Down Down" program.

The products usually had discount pricing tickets that displayed a "was" price, which was the short-term spike price, not the regular price.

Ms Cass-Gottlieb said it is alleged in many cases Coles and Woolworths had planned the temporary price spikes for the purpose of establishing a higher "was" price.

In another example, Coles advertised a packet of Strepsil lozenges at a regular price of $5.50 for about two years. The price temporarily rose to $7 for about a month, before it was placed on a "Down, Down" discount price of $6.

In a statement, Coles Group said it intended to defend the claims.

"The allegations relate to a period of significant cost inflation when Coles was receiving a large number of cost price increases from our suppliers and, in addition, Coles' own costs were rising, which led to an increase in the retail price of many products," it said.

Coles said it had sought to strike a balance between cost price increases and offering value to customers by restarting promotional activity soon after new "non-promotional" prices.

Woolworths Group also issued a statement and said it would carefully review the claims and continue working with the ACCC.

Woolworths Group CEO Amanda Bardwell said it was important customers could trust the value they see at the grocery store.

"Our 'Prices Dropped' program was introduced to provide our customers with great everyday value on their favourite products," she said.

The ACCC estimated tens of millions of products were affected across the two supermarket chains, which both received significant revenue from the sales.

The watchdog is seeking declarations, penalties and costs from the supermarkets.

It will also seek community service orders that Coles and Woolworths must each fund a registered charity to deliver meals to people in need, in addition to their existing charitable programs.

The supermarket chains could be fined $50 million for each breach of consumer law, the ACCC said.

Ms Cass-Gottlieb said it was critical that consumers could rely on the accuracy of discount claims.

"We allege these misleading claims about illusory discounts diminished the ability of consumers to make informed choices about what products to buy, and where," she said.