BOGOFs and multibuys could make way for more sophisticated promotions as supermarkets comply with new guidelines to stamp out confusing and misleading deals.
The Office of Fair Trading’s decision to put a stop to misleading promotions is a predictable end to a long-running issue in the grocery sector.
Under the OFT principles revealed last week, eight supermarkets – Tesco, Sainsbury’s, Morrisons, Waitrose, The Co-operative, Lidl, Aldi and Marks & Spencer – have agreed to a raft of guidelines. Asda has so far refrained from signing the OFT code, stating that its Everyday Low Price strategy means it is not relevant.
The guidelines are necessary for consumers, believes OFT chief executive Clive Maxwell. He says: “Household budgets are under pressure, and shoppers should be able to trust that special offers and promotions really are bargains. Prices and promotions need to be fair and meaningful so shoppers can make the right decisions.”
The guidelines include: only selling products at a discount for the same or less time than the product was first sold at the initial price; prices should not be inflated to make discounts more attractive; and on-pack value claims such as ‘bigger pack, better value’ should ensure that there is no cheaper way of buying the same volume of the product elsewhere in the same store.
The principles also say that previous selling prices stated when prices are cut should be recent and not from several months earlier.
In reality, the writing was on the wall for grocers employing promotions tactics. The proliferation of photos of misleading ‘deals’ posted on Twitter has regularly exposed the practice, leaving retailers with a careful choice to be made between bad PR and sales gained from the deals.
A BBC Panorama programme a year ago exposed the practice to widespread public vitriol and was followed by a Which? survey in May that analysed more than 700,000 prices. It suggested that in some cases discounts ran for much longer than the original price.
Working out the real cost
Shore Capital analyst Clive Black says: “If supermarkets did not read the smoke signals they are blind and deaf. I do not think it’s unreasonable that consumers are aggrieved if they are manipulated. It’s not acceptable, and the industry should not be doing it in the first place.”
The guidelines may provide peace of mind for shoppers who struggle to work out how good deals really are. With more than half of products on promotion in terms of volume in UK grocery, the average shopper could be forgiven for not knowing the price of a pack of dishwasher tablets. And with price matching commonplace, offers have become a key price differentiator for grocers. “People know the price less than they used to,” says Black.
However, pricing is arguably more transparent now because of websites such as price-comparison site Mysupermarket.co.uk. And there has been a move away from BOGOF deals as shoppers shun them in favour of buying what they need in the immediate term. Mark O’Hanlon, manager at consultancy Kurt Salmon, says shoppers have developed a “healthy cynicism”.
He says: “People understand that the most expensive prices are put at eye level to attract their attention and that the real value of a product is somewhere between the normal selling price and the promoted price.”
The OFT’s announcement has been welcomed by many retailers, but some had already begun to address the issue. A Co-operative spokesman said the retailer is “committed to providing clear and accurate labelling for our customers”, while Morrisons announced in September that it would introduce larger and more consistent unit pricing.
That allows shoppers to easily compare prices of small and large packs and promotions against the standard price. The changes will be fully rolled out next year and mean most products will be labelled with the price per kilogram for solids, or the price per litre for liquids.
Some retailers will also be relieved about the rules as margins are tight and the pressure to compete against rivals’ promotions has intensified.
Suppliers are also likely to welcome the OFT’s principles as they have long bemoaned the number of promotions in supermarkets. “Several companies have come out and said they are worried about the volume of lines on deals. Lots of brands believe they have been devalued by long-running promotions where people have forgotten their original price,” says O’Hanlon.
In reality, promotions will remain widespread, but customer data will inform new and more sophisticated offers. Retailers are creating localised deals, using loyalty cards to personalise promotions and proximity marketing to offer deals to those already in stores.
The OFT guidelines could prove a key step in supermarkets regaining the trust of shoppers and, with low volume growth in the market, fighting for spend through strong customer relationships is vital.
The new guidelines
- Retailers should never artificially manipulate a price to make future planned discounts more attractive.
- Products should be sold at discount for the same or less time than the product was sold at the initial price.
- References to previous selling prices should only be used where they give a relevant and meaningful basis for comparison.
- Retailers should not run promotions on smaller units that work out better value than larger packs of the same product when bought in bulk.
Comment: Deal fatigue
Danielle Pinnington, managing director, Shoppercentric
The OFT’s announcement that eight retailers have agreed to a set of principles following concerns about offers on food and drink is surely a welcome move, although I suspect shoppers will wonder why it took so long.
For the past couple of years, stores have been awash with promotions to demonstrate that they are delivering value to today’s hard-pressed shoppers. Yet all too often these offers turn out to be anything but. Almost every shopper has a personal anecdote of deals that were either plain wrong or a rip-off. The ‘price reduction’ flashes that on closer inspection turn out not to be a saving; the buy two for £2 ‘deals’ on a product that costs 98p a pack; or the ‘bigger, better value’ flash on a pack that has a higher price per unit than the smaller pack.
Because these are personal experiences, it means that shoppers increasingly treat promotions with a degree of cynicism, and trust is being eroded to such an extent that customers feel they have to read the small print or carefully check the offer against the standard price before making a decision. All of this takes time, which is not something many people have a lot of these days, least of all when they have a whole supermarket to get round.
Perhaps the worst offenders are those offers that run on and on for such a length of time that the promoted price effectively becomes the real price in shoppers’ minds. Shoppers are now much more price aware because of the recession, and an extended-period offer can overwrite the real price in their minds, in which case is it really a deal anymore?
So, the OFT agreement is good news – as long as it leads to change. The fact that the supermarkets that have signed up appear to feel they are already using these principles might mean visible change takes a while to emerge.
Alcohol multibuys and minimum pricing
Why are we talking about this now?
With retail promotions very much in the spotlight, last week the Home Office opened a 10-week Alcohol Strategy Consultation, proposing a ban on multibuy deals for alcohol and a minimum price for a unit of alcohol in an attempt to stem the effect of excessive drinking on both crime levels and people’s health in England.
It will mean retailers will have to adjust their pricing strategies in accordance with the law if it comes into force.
Why is the Government proposing the regulations?
The Government believes that by upping the price of alcohol and taking drinks off promotion it will tackle the problem of “drink-fuelled antisocial behaviour and crime blighting our communities”, as well as rising NHS costs and liver disease.
Ministers have proposed a 45p minimum price per alcohol unit, 5p higher than that suggested in March.
The 45p minimum would mean a can of strong lager could not be sold for less than £1.56 and a bottle of wine for less than £4.22. Research from Sheffield University suggests a 45p minimum price would reduce the consumption of alcohol by 4.3%, resulting in 2,000 fewer deaths and a 66,000 drop in hospital admissions after 10 years.
Multibuy deals, such as two-for-the-price-of-one, could be banned.
Scotland has recently put forward similar proposals. How successful has that been?
Scottish ministers want to set a minimum price of 50p per unit to tackle the country’s alcohol-related health problems.
The act received the royal assent in June but has not yet been put into force because of concerns from the European Commission, which said the move would be disproportionate to the impact on the country’s health. There has also been a legal challenge by the Scotch Whisky Association and wine-producing EU nations.
What do retailers think of the proposals?
The British Retail Consortium (BRC) and the Association of Convenience Stores have slammed the new proposals, saying minimum pricing will mainly hit responsible drinkers. The BRC said retailers have already taken action to tackle drinking problems, including supporting the Drinkaware campaign and using Challenge 25 to ensure all shoppers who look under 25 are asked for identification when buying alcohol, despite the drinking age limit being far younger at 18 years.
How likely is it regulations will be implemented?
There remains a long way to go before proposals are passed. Even if the 10-week consultation recommends a ban, the law has to be passed and the EC, as in the case of Scotland, may take issue.