Coles has unveiled a new campaign dubbed 'Deeper Down Down'.

Coles has unveiled a new campaign dubbed 'Deeper Down Down'.

As the competition regulator cracks down on stacked petrol discounts, food and liquor retailer Coles is diverting funds from fuel promotions into grocery prices in a move that may trigger another price war in supermarkets.

One day after the Australian Competition and Consumer Commission took Federal Court action against Coles and Woolworths for breaching shopper-docket undertakings, Coles has announced a new round of grocery price reductions under its long-running Down Down campaign.

Unveiling a new campaign dubbed 'Deeper Down Down', Coles has cut the price of another 50 grocery items by as much as 34 per cent and further reduced the price of some products marked down previously.

"Coles' commitment to lower prices for Australian families is stronger than ever," said Coles chief operating officer John Durkan, who is set to take the helm of the grocery chain from Ian McLeod in July.

"We are constantly looking for new ways to invest even more into keeping the cost of living down," Mr Durkan said.

Analysts believe Coles is diverting marketing funds that would previously have been used to fund deep petrol discounts into groceries.

This follows undertakings made to the ACCC by Coles and Woolworths last December to cap fuel discounts linked to supermarket purchases at 4¢ a litre.

Both retailers have since been offering discounts as high as 14¢ a litre by "stacking" separate discounts from ­supermarkets and petrol station convenience stores.

But the strategy has raised the ire of the ACCC, which alleged on Tuesday that Woolworths's stacked 8¢ a litre discount and Coles's bundled 14¢ a litre discount breached the earlier undertakings because they were available only to consumers who had made qualifying supermarket purchases.

Coles and Woolworths have defended the stacked discounts and plan to challenge the competition regulator in the ­Federal Court.

The war of words grew more heated on Wednesday, with Coles accusing the ACCC of 'rewriting history' by claiming the purpose of the December undertakings was to limit petrol discounts to a maximum 4¢ a litre.

The ACCC's media statement last December said any discounts on fuel offered to supermarket customers from January 1, 2014 were not to exceed 4¢ a litre but Coles and Woolworths may still offer discounts on fuel above 4¢ a litre from their petrol stations.

All fuel discounts (including those offered by the supermarkets) must be funded from the retailers' fuel retailing operations (including convenience stores) rather than supermarkets.

Coles also says there was no statement by the ACCC in December prohibiting stacking or bundling.

Coles and Woolworths are estimated to have spent $500 million last year on fuel discounts.

"We expect a lot of the money they were spending will now be allocated to grocery discounts," said Deutsche Bank analyst Michael Simotas.

Last month both retailers started emailing loyalty card holders, offering discounts that enabled shoppers to recoup as much as 20 per cent of their grocery spending.

'Deeper Down Down' campaign ramps up

This week, Coles has ramped up the Down Down campaign, cutting the price of groceries such as Golden Circle fruit juice by 25 per cent, Huggies nappies by 15 per cent, Heinz soup by 26 per cent and Uncle Tobys Oats by 13 per cent.

Some products that were marked down a year or two earlier have been further reduced.

For example, the price of Nescafe Blend 43 instant coffee (500 gms) has been cut to $16.00 from $17.00 a year ago, well below the original shelf price of $24.29.

The price of Lipton Black tea bags has been cut to $3.50 from $4.00 more than two years ago and the original shelf price of $4.55.

The new prices -- some of which have been funded by suppliers - take effect on February 26.

A Coles spokesman said the retailer was investing in lower grocery prices as well as fuel discounts.

"While consumer prices have increased by 10.9 per cent since September 2009, food and beverages prices have increased just 6.4 per cent and Coles's food and liquor prices have fallen by 7.6 per cent over the same period," the spokesman said.

The number of goods on the "Down Down" list of price reductions has risen from 1403 since 2012 to almost 1600.

"I would have expected it would be more focused on targeted offers rather than a scatter gun approach," Mr Simotas said.