Coles has defended its promotional prices in a high-profile court case brought by the consumer watchdog, arguing that shoppers would understand the supermarket’s well-known “Down Down” promotion to be “fair dinkum”.

The federal court battle between the Australian Competition and Consumer Commission (ACCC) and Coles began this week, testing allegations the supermarket breached the law by offering “illusory” discounts on many everyday products.

The legal argument will turn, in part, on what consumers understand Coles’ “Down Down” promotion to be, with the supermarket arguing that an ordinary consumer would perceive the promotion as a general, long-term discount.

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John Sheahan KC, representing Coles, said on Tuesday that consumers would accept the promotion as a real drop in price.

“What they would be concerned with when they’re walking down the aisle trying to work out what to buy today for their shopping is whether the claimed discount … was fair dinkum,” Sheahan said.

“So long as the was price is a genuine price, not contrived or ephemeral, then the consumer’s interest is appropriately satisfied.”

Coles’ defence is that the promotional prices were genuine discounts offered to shoppers after an increase in wholesale costs charged by suppliers during a period of rising inflation.

“To say prices are going down plainly means the price is lower than it would have been but for this promotion,” Sheahan said.

The case will put pricing practices across the supermarket industry under a microscope and have ramifications for a near identical case the ACCC is running against Woolworths, which is expected to be heard at a later date.

The ACCC is seeking large penalties and community service orders against Coles, which, along with Woolworths, controls two-thirds of the Australian grocery market.

The regulator alleges Coles misled shoppers because the products were sold at a regular price for at least six months before being temporarily inflated and then dropped slightly as part of a “Down Down” promotion.

On Monday, the ACCC’s representative, barrister Garry Rich SC, described the discounts as “utterly misleading” given prices were higher, or the same as, the previous long-term price.

The ACCC argues that Coles engaged in misleading conduct by briefly inflating the price of products such as dog food to a “whopping” 50% higher price for only seven days before re-introducing them as “Down Down” discounts.

While the promotional price was technically lower than the price charged the previous week, the regulator argued this was a deceptive tactic because the promotional price was higher than the prior long-term price.

The hearing continues.