Coles misled Australian shoppers by promoting fake “Down Down” discounts on everyday grocery products, the federal court has ruled in a landmark decision for the supermarket industry.

Justice Michael O’Bryan handed down his judgment on Thursday, delivering a significant blow to Australia’s second-largest supermarket chain, which had argued that the discounts represented genuine savings during a period of high inflation.

The Australian Competition and Consumer Commission sued Coles and its rival Woolworths, accusing the supermarket giants of duping shoppers between 2021 and 2023 by using promotional programs to disguise price increases on hundreds of products.

O’Bryan’s verdict in the Coles case – which was heard in February – comes before his decision in a similar trial against Woolworths, which was heard in Sydney in late April and early May and which the judge will rule on later this year.

In the Coles case, the supermarket sold 245 products at one price for a median period of a year, then increased their price for a median of just 28 days, before reducing this to a third price which was more expensive or equal to the first price.

The strategy is known as “was/is” comparative pricing: Coles advertised products to shoppers with “Down Down” promotional tickets that displayed their new, supposedly discounted “is” price next to a higher “was” price.

But the supermarket did not disclose on the tickets that the “was” prices had been in place for only a short period and that the items had been sold at a cheaper price before that.

During its trial, Coles conceded that by the time it raised the price of an item from the original to the “was” price, the supermarket had already planned and agreed with the supplier on what the new “Down Down” price would be.

Legal counsel for the supermarket argued 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.

The trial examined 12 sample products in detail, including Rexona deodorant, Arnott’s Shapes, 2-litre bottles of Coca-Cola and Karicare baby formula, and 14 pricing tickets.

Reading a summary of his judgment in a Melbourne courtroom on Thursday, O’Bryan agreed the price increases were done in “ordinary commercial way” and Coles had been meeting requests from suppliers.

But the judge upheld the ACCC’s allegation that Coles falsely promoted “discounts” on 13 out of 14 promotional tickets based on increased prices that had been available for too short a period.

O’Bryan said if the average shopper had known the “was” prices on the tickets had been in place for such a short amount of time, they would not have thought the discounts were genuine.

He said the “Down Down” tickets for the sample products would not have been misleading if the products had been sold at the “was” price for a minimum period of 12 weeks.

This aspect of his judgment is likely to set a precedent for the supermarket industry, how long a price rise must apply before a discount can be promoted without legal consequence.

In the case of 1.2kg cans of Nature’s Gift dog food, one of the 12 Coles products scrutinised in court, O’Bryan said one of its promotional tickets did not actually display a “was” price and therefore couldn’t be considered misleading.

He found the supermarket giant had engaged in misleading conduct, in contravention of Australian consumer law.

The judge’s decision means Coles is expected to face penalties but the size of the fine won’t be determined until later court hearings.