Between 21 April 2015 and 16 July 2015 the Competition and Markets Authority (CMA) have investigated pricing practices in the grocery industry following a super-complaint by Which?. The CMA's response was heralded by the executive director of Which? as confirming that "hundreds of misleading offers on the shelves […] do not comply with the rules" and that supermarkets are now put on notice to "clean up their practices or face legal action". This is somewhat overstated, as the general tenor of the CMA's response gave a positive view of the competition prevailing in the grocery industry and the promotional and pricing practices adopted. The CMA did identify certain retailers and/or practices that caused concern, but stated that the prevalence of the problematic practices was relatively low. Whilst the CMA did not rule out enforcement actions in the future, the focus of its recommendations was the issuing of new guidelines for consumers and retailers as well as clarifying the applicable legislation.

Nevertheless, the response does illustrate that even markets characterised by high levels of competition and price transparency are not immune to issues of consumer confusion being caused by misleading practices. The CMA's recommendations are intended to increase consumer confidence in the pricing and promotion practice in the grocery market, and thus further stimulate competition.

Background

The CMA received a so-called super-complaint from Which? on 21 April 2015.

A super-complaint is defined as a complaint lodged by a consumer body to the CMA alleging that "any feature, or a combination of features, of a market in the United Kingdom for goods or services is or appears to be significantly harming the interests of consumers" (as per section 11(1) of the Enterprise Act 2002). Which? as a consumer organisation working to promote informed consumer choice is one of the entities eligible to make a super-complaint to the CMA.

The Which? super-complaint concerned various aspects of the pricing and promotional practices in the UK grocery market, in particular:

  • confusing and misleading special offers;
  • a lack of easily comparable prices resulting from the limitations of unit pricing;
  • reductions in pack sizes without any corresponding price change; and
  • price-matching schemes operated by particular retailers which may cause consumer confusion by falsely leading consumers to believe that they do not need to shop around in search of a better deal.

CMA response to the super-complaint

The CMA published its response to the super-complaint on 16 July 2015, making various recommendations.

During its investigation, the CMA gathered evidence from the Trading Standards Services, the Citizens Advice, the Advertising Standards Services as well as from a wide range of traders (both retailers and manufacturers). The CMA also commissioned its own research in order to establish the prevalence of particular pricing or promotional practices.

The CMA gave a generally positive review of the state of the grocery market and the advertising and pricing practices used. Retailers were found to have a good understanding of the applicable regulatory and legislative framework. The CMA considered the prevalence of potentially misleading practices to be relatively low.

In general, retailers were found to have appropriate systems in place to prevent misleading promotional practices. The CMA did, however, encourage retailers to invest more time into addressing why compliance issues occurred and in considering whether the retailers' mix of ex ante andex post controls was appropriately balanced.

The CMA also noted that comparatively few formal consumer complaints were being made in respect of advertising or promotional practices in the market. However, consumers were found to be making increasing use of social media as a means of airing any concerns or complaints. As such, the CMA stressed that the bodies charged with enforcing trading standards must consider a wide range of sources in identifying complaints.

Finally, the CMA did encounter specific isolated examples of pricing and promotional practices that could potentially serve to mislead or confuse consumers. Such issues will be addressed by the CMA directly with the relevant retailers.

CMA response to the issue of special offers

Concerns raised by Which?

Which? expressed a concern that the way in which prices for products on special offer are displayed in grocery stores might lead consumers to believe that they are receiving a better deal than they actually are. A particular concern for Which? was the way in which retailers used so-called "was/now" pricing. This practice involves retailers presenting a previous (or "was") price as the regular price of a product in order to highlight the lower promotion (or "now") price.

CMA response to the concern

The CMA held that the available evidence confirmed that pricing and promotional practices liable to mislead consumers are not particularly prevalent in the market. However, isolated practices which did cause consumer confusion were identified. In particular, the CMA was concerned that some retailers used the "was" price point for a much shorter period than the "now" price, potentially misleading consumers into thinking that the "now" price represents a genuine promotion.

The CMA further recommended that the Chartered Trading Standards Institute (CTSI) issue guidance on how the relevant trading regulations apply to certain promotional activities. More specifically, the CMA recommended supplemental guidance on what constitutes a genuine retail price, the circumstances in which it is appropriate to change prices of individual products before and during a volume promotion as well as the circumstances when retailers should state the date on which their promotions end.

CMA response to the issue of unit pricing

Concerns raised by Which?

Which? raised three issues in relation to unit pricing: legibility of the unit price, inconsistent units being used for similar products and the absence of unit prices when products are subject to a promotion. A unit price is the price for a single unit of measure of a product, when that product itself is sold in more or less than that single unit. For example, a 1.5 litre bottle of soft drink will have a price for the whole bottle but also state the corresponding price for one litre. This allows consumers to determine whether the price of the 1.5 litre bottle represent better value for money than, for example, a 2 litre bottle.

CMA response to the concern

The CMA found that there is a willingness amongst retailers to comply with the relevant regulations on unit pricing. However, complexities and ambiguities in the underlying legislation and guidance led to retailers adopting different approaches to how unit prices should be presented.

The CMA recommended that the Department for Business, Innovation and Skills (BIS) create guidelines for best practice in terms of legibility of unit prices, that it reviews the underlying guidance and legislation (in particular in the application of unit prices to promotions) and that it clarifies the product categories where it is permissible to base unit prices on measurements other than the standard kilograms or litres. The CMA suggested that the lack of clarity surrounding the rules contributed to the inconsistency of unit pricing in practice.

Finally, the CMA has also published guidance to consumers about the use of unit pricing.

CMA response to the issue of pack sizes

Concerns raised by Which?

The super-complaint raised a concern in respect of an alleged practice in the grocery market of reducing the size of products without a corresponding reduction in price. This, in turn, could lead to consumers being unaware of effective price increases.  Which? argued that the problem was exacerbated by the inconsistent practice with regards to unit pricing.

CMA response to the concern

The CMA, however, considered that a multitude of factors could move a manufacturer or retailer to reduce the size of a product. Such factors include environmental or health concerns as well as product innovation. The cost, and risk of loss of sales, engendered by a size reduction also acted as effective constraints on the alleged practice.

Fundamentally, the CMA found little evidence to suggest that retailers were not complying with the relevant legislation when effecting changes in product size and did provide adequate information to consumers.

CMA response to the issue of price-matching schemes

Concerns raised by Which?

Which? also asked the CMA to investigate the practice of price-matching schemes, whereby a retailer guarantees to match or beat the price of certain competitors on particular products. Which? was particularly concerned that price-matching schemes might unjustifiably lead consumers to believe that they were getting the cheapest possible price, thus stopping them from undertaking further price comparisons.

CMA response to the concern

Although acknowledging that retailers operated their schemes in different ways, the CMA found no evidence that the various schemes caused consumer harm and noted that few consumer complaints were generated by the schemes. The CMA also rejected the suggestion that price-matching schemes constitute a significant factor when consumers decide whether to purchase a particular product. The fact that retailers operated their schemes in different ways was not found to be problematic. A more important aspect was that the nature of the schemes and their operation was clearly communicated to consumers. The CMA found that this was generally being done by retailers.

BIS' and CTSI response

BIS issued a response to the CMA in October 2015, supporting the recommendations made by the CMA and confirming its intention to act on them. In particular, BIS intends to focus on improving the clarity of unit pricing (including on issues of legibility) and updating guidance on the relevant legislative framework in order to assist retailers in their implementation of pricing and promotional activities.

Further, CTSI is currently undertaking a consultation process with respect to its own pricing guide. In its consultation document, CTSI states that the previous version of its guide was sometimes being interpreted by retailers in a way that conflicted with the retailers' underlying legal obligations. The new guide seeks to remedy this. The deadline for submitting responses to the consultation is 6 January 2016.