Coles (ASX:COL) loses Down Down case on a 12-week technicality, not gouging

The Court cleared the price rises as commercially justified, but the promotional tickets still landed Coles in trouble.

Coles Group (ASX:COL) has finally received the Federal Court decision in the ACCC’s Down Down case, and the outcome is more nuanced than the headlines will suggest. The Court found that all 245 price increases were genuinely driven by supplier cost rises and were commercially justifiable. That is the part the bears wanted, and they did not get it.

What the Court did find is narrower. After a cost price increase, Coles needed to hold the new higher price for at least 12 weeks before slapping a Down Down ticket on the product. It did not, so the down down tickets were ruled misleading.

For investors, this is a meaningful distinction. The case that ran for almost two years was framed in the press as price gouging. The judgment says the opposite on pricing and instead lands on a promotional mechanics issue around timing. The shares had been carrying an ACCC overhang since September 2024, and today’s outcome partly clears the air without fully closing the file because penalties and a potential appeal are still ahead.

Why the 12-week rule changes the narrative, not the supermarket model

The most important sentence in today’s release is that the Court accepted Coles’ core defence on pricing. Cost increases from suppliers were real, and the higher shelf prices reflected those costs. That removes the most damaging version of this story, which was that Coles was inventing price rises purely to fabricate discounts.

Instead, the finding is procedural. Coles moved products onto Down Down too quickly after a cost-driven price reset, and the Court has effectively defined a 12-week minimum establishment period as the new standard. That is a change in promotional process, not a change in the business model.

We think the practical impact on margins is small. The Down Down program will continue, just with a longer lag between a supplier cost increase and the promotional ticket appearing on shelf. The bigger uncertainty is the size of the penalty, which the Court has not yet handed down.

Penalty quantum and a possible appeal are still on the table

Today’s announcement is liability, not penalty. The Federal Court still has to set the fine, and ACCC matters of this scale can run into eight or nine figures. Coles has also said it is reviewing the judgement, which leaves an appeal open.

The sceptical read is that the reputational damage was the real cost, and most of that has already been absorbed during the trial in early 2026. The supportive read is that with the price gouging narrative knocked back, any fine becomes a one-off line item rather than a structural problem for the brand.

Worth noting, the ACCC also has Woolworths in its sights on similar issues, so this judgment sets a template that affects the entire supermarket sector. The 12-week rule, if it stands, becomes the new industry baseline.

How this fits the wider Coles vs Woolworths scoreboard

Coles has spent 2026 playing catch-up to Woolworths after seven straight quarters of outperformance reversed at the most recent half. Sales growth in the first seven weeks of CY26 came in at 3.7% for Coles against 5.8% for Woolworths, and the share price has reflected that gap.

Removing the worst-case ACCC outcome should help sentiment at the margin. It does not fix the sales growth differential, and it does not solve the liquor division problem where revenue fell 3.2% and EBIT collapsed 37.3% in the most recent half.

Our take is that today’s news is a clean-up event rather than a catalyst. It lets investors focus back on the operating performance, which is genuinely the bigger debate.

The Investors Takeaway for Coles Group

Coles has come out of this Federal Court decision on the down down case in better shape than the pre-trial commentary suggested. The pricing defence held, the finding is procedural, and the program can continue with a longer establishment window. Investors who were sitting on the sidelines waiting for ACCC clarity now have most of what they needed.

What still needs work is the operational story. Closing the sales growth gap to Woolworths, stabilising liquor, and converting the 27% ecommerce growth into margin will matter far more to the next 12 months of share price performance than today’s down down judgment. The penalty quantum is the remaining loose thread, and we would want to see that resolved before calling the overhang fully cleared.