The super-complaint against the supermarkets: what does it mean for suppliers?Print publication
Background – what is a super-complaint?
On 21 April 2014, the Competition & Markets Authority (the CMA) announced that it has received a super-complaint from Which? in relation to perceived concerns about misleading and unclear pricing practices in the groceries sector.
Under section 11 of the Enterprise Act 2002 a designated consumer body may make a statement (a “super-complaint”) to the CMA explaining how any feature or combination of features of a market in the UK for goods or services is (or appears to be) significantly harming the interests of consumers. The CMA must publish a response to such a complaint within 90 days, stating what, if any, action it proposes to take. The Consumer Association (now known as Which?) was designated as a super-complainant in 2004.
Super-complaints are rarely used, reportedly just 14 times since their introduction over a decade ago, but they can be an effective mechanism for forcing official action to stem perceived consumer detriment. The most famous instance to date was the super-complaint made by Citizens Advice in 2005 in respect of PPI mis-selling which has, ultimately, cost the banks around £20 billion in compensation.
Which? has stated that during the past seven years it has indentified a range of misleading and confusing pricing tactics by supermarkets – such as multi-buy offers which are less cost-effective than purchases of individual products, shrinking product size for the same price and baffling sales offers that exaggerate discounts. Which? claims that many retailers are creating the illusion of savings that do not exist and are manipulating consumer spending by misleading people into choosing supposedly promoted products. The super-complaint can be viewed here.
Consumers spent around £115 billion on groceries and toiletries in 2013, and about 40 per cent of groceries by revenue sold in the UK are currently sold on promotion. Which? said that this means that consumers could be “collectively losing out to the tune of hundreds of million of pounds” even if only a small number of those promotions were misleading.
The pricing practices of concern that Which? has identified and that it would like the CMA to investigate are:
- confusing and misleading special offers that make extensive use of price framing, including reference pricing, volume offers and free offers
- a lack of easily comparable prices due to the way unit pricing is undertaken
- shrinking pack sizes without any corresponding price reduction.
Which? claims that the cumulative impact of all these different pricing tactics means that it is virtually impossible for people to know if they are getting a fair deal. Which? considers this is particularly true when prices vary frequently, when consumers are in a rush or they are buying numerous items of relatively low value.
Which? sent examples to the CMA, including:
- seasonal offers: higher prices only applied out of season, when consumers are less likely to buy them. It found a Nestle Kit Kat Chunky Collection Giant Egg was advertised at £7.49 for 10 days in January this year at Ocado, then sold on offer at £5 for 51 days
- was/now pricing: the use of a higher “was” price when the item had been available for longer at the lower price. Acacia honey and ginger hot cross buns at Waitrose were advertised at £1.50 for just 12 days this year before being offered at £1.12 “was £1.50” for 26 days
- larger pack/better value: the price of individual items in the bigger pack are actually higher. Tesco sold four cans of Green Giant sweetcorn for £2 last year, but six cans were proportionately more expensive in its “special value” pack priced at £3.56.
The CMA states that it will shortly invite interested third parties to provide evidence that may be useful to its assessment.
The CMA has 90 days to publish a response to the super-complaint. Possible action the CMA could take includes recommending improvements in the quality and accessibility of information for consumers; encouraging businesses in the market to self-regulate; recommendations to government for legislative changes, for example; instigating a market study or a full market investigation; taking competition or consumer enforcement action against individual companies; and giving a clean bill of health. This list is not exhaustive and a super-complaint could generate more than one outcome depending on the issues raised.
Pricing and promotional practices
The super-complaint brings into focus “The Principles of Food Pricing Display and Promotional Practices”, guidance originally published by the CMA’s predecessor, the Office of Fair Trading, and now adopted by the CMA. The Principles give a number of illustrations of good and bad pricing and promotional practices and are designed to help traders avoid contravening the Consumer Protection from Unfair Trading Regulations 2008. These Regulations prevent traders from using unfair commercial practices towards consumers which prevent consumers from making free and properly informed decisions when purchasing consumer products – a commercial practice is misleading if “it or its overall presentation in any way deceives or is likely to deceive the average consumer”.
As compliance with the Principles by retailers becomes subject to enhanced scrutiny, suppliers may need to change their own practices to comply with retailer requirements. Suppliers whose brands rely heavily on price-based promotions or where the brand is on a permanent multi-buy promotion are particularly likely to be affected. It is possible that in individual cases identified in the super-complaint that the pricing applied by a retailer was in fact recommended by the supplier as part of the terms of a promotion.
How we can help
The Walker Morris Competition Team regularly provide training to suppliers in the Food and Drink sector on the do’s and don’ts of pricing and promotions and on competition law compliance and Groceries Supply Code of Practice to help ensure that supplier practices are not anti-competitive or misleading and to help raise awareness of the legal obligations to which retailers are subject. We understand the pressures facing suppliers in the sector and our training is realistic and commercially-focused. Please contact us if you would like to arrange a training session for relevant staff or if you should like more information regarding our Competition Team and, or more generally, our Food & Drinks Sector focus group.