Coles is fighting claims by the consumer watchdog it misled customers by artificially increasing prices before reducing them and claiming it as a discount.
The grocery chain faced the first day of trial on Monday in the Federal Court, where the Australian Competition and Consumer Commission alleged Coles had used "utterly misleading" prices in its "down down, prices are down" campaign.
The ACCC's barrister Garry Rich SC said Coles was trying to avoid losing customers by offering misleading discounts, after it was forced to increase retail prices on some products because of a rise in wholesale supplier costs.
"Inevitably, by increasing the retail price of its products, Coles risked a fall in sales of those products and hence of its revenues and of its profits," he told the court.
He alleged Coles decided to address that risk by "telling its customers that prices were down, not up", using the "down down" promotion.
"Coles disguised those price increases as discounts," Mr Rich said.
He said Coles had "spiked the retail price much higher" for a short period of about four weeks and then reduced the price to what became the regular price of the produce.
"Why on earth are you telling your customers that your prices are going down? They're not," he told the court.
"The particular promotion they chose was a promotion that hinges on convincing customers that the price of this product has gone down.
"An utterly inappropriate promotional mechanic to use in circumstances where everyone within Coles knows the price is going up."
He opened the hearing using the example of a 1.2kg can of Nature's Gift adult wet dog food, which he said was sold for $4 from April 2022 to February 2023.
Mr Rich said Coles had increased the product's price to $6 for a week, before it was sold as reduced to $4.50.
"Coles's statement was utterly misleading," he said.
"Coles had increased its price to $6 just seven days before the promotion and for 296 days before that, the price was $4."
Using a giant red hand, the "down down" campaign began in 2010 and claimed prices on everyday household products had been reduced and were staying low.
Coles said it was helping Australians keep their grocery costs down as part of its commitment to lower the cost of living, Mr Rich said.
However, he alleged that in reality Coles had misled customers on prices for 245 similar products, including toothpaste, soft drink, shampoo, band-aids and laundry powder.
"You're not lowering the cost of living, you're not driving prices down, in circumstances of the kind we have here," he said.
Representing the supermarket chain, barrister John Sheahan KC said in mid-2021 there was a "sudden, unanticipated and quite dramatic" rise in inflation.
He said this led to an "unprecedented" number of requests from suppliers to increase their wholesale costs, including from major brands like Coca-Cola and Colgate.
This increase was passed onto the customer via an increase in the retail price.
"Ordinary, reasonable consumers know they're in an inflationary environment and they know that means the price of things is changing in an upward direction," Mr Sheahan said.
The ACCC's claim Coles said prices were going down when they were going up had distorted the perspective of the ordinary consumer, he added.
The 10-day trial before Justice Michael O'Bryan continues on Tuesday.
