Coles was ordered to cough up a $2.5 million penalty in the Federal Court on Friday afternoon, ending a two-year battle with the consumer watchdog over the false and misleading claims it made about its “freshly baked” bread.
The Australian Competition and Consumer Commission commenced proceedings against the supermarket giant in June 2013, alleging Coles had engaged in false, misleading and deceptive conduct by promoting its bread as “Baked Today, Sold Today” and “Freshly Baked In-Store”, when the bread was actually partially baked and frozen in Ireland then transported to Coles stores and “finished” in store.
The ACCC had previously called on the court to fine Coles double the amount handed down on Friday, but ACCC chairman Rod Sims said in a statement the fine as it stood would act as a strong deterrent.
“This penalty sends a strong message to companies that they should not use broad phrases in promotions that are deliberately chosen to sell products to consumers but which are likely to mislead consumers,” said Sims last week.
But the penalty has prompted criticism from independent bakers and grocers who see the fine as a slap on the wrist for the grocery giant.
Tony Smith, executive officer of the Baking Association of Australia, told SmartCompany he thought the fine was “laughable”.
“That sort of money is a drop in the ocean for them,” Smith says.
“If it was that important to take the issue as far as they did, there should have been more of a stand taken.”
Jos de Bruin, chief executive of Master Grocers, says he applauds the ACCC for taking action against Coles but agrees a $2.5 million penalty was “nothing” to Coles.
“Clearly this behaviour is unconscionable,” says de Bruin.
“They have behaved in a way that deliberately set out to take away business from their competitors. They misled the public to believe they had a unique product, and being a big guy, they think they can get away with it,” he says.
“The fine clearly demonstrates that when you are a large organisation, you can be quite belligerent when dealing with the laws of the land,” de Bruin adds.
However, competition lawyer and Hall & Wilcox partner Sally Scott told SmartCompany although the fine is relatively small for a company the size of Coles, the law restricts penalties for misleading conduct to $1.1 million per offence.
“This is unlike penalties for competition law offences, such as price fixing, where penalties can be linked to the size of a company and the size of the benefit obtained by the unlawful conduct,” says Scott, using the Visy price-fixing scandal as an example.
Scott says misleading conduct penalties cannot be linked in the same way and are strictly limited to $1.1 million for each offence.
“When determining the size of a penalty for misleading conduct, the court takes into account the size of the company, the impact of a penalty on the company and others, and whether the conduct was intentional,” says Scott.
“These factors determine whether a penalty for each offence is $1.1 million or less.”
Meanwhile, Coles was also restrained by the Federal Court from making similar comments on its products and promotional material for three years and ordered to place a corrective notice on its website and in its in-store bakeries.
Scott says such non-financial penalties can be just as harmful for a company.
“This can put a company at a disadvantage compared with its competitors,” says Scott.
“Similarly, the publicity can be very damaging. The public has been made very aware that Coles’ bread is not ‘fresh’. This can have a greater impact on a company than a penalty.”
A Coles spokesperson said in a statement to SmartCompany the company’s conduct was not deliberate.
“In talking to customers about our bread range we did not deliberately set out to mislead anybody, but we accept that we could have done a better job in explaining how these products are made,” said the spokesperson.
“Last year we changed our packaging and in-store signage to improve our message to customers.”
“We are proud of the quality of our bread, whether baked from scratch in-store or ‘par baked’ by our Australian suppliers and finished in our ovens,” the spokesperson added.