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In our previous article we outlined some of the key proposals in the Department for Business and Trade’s (DBT) new ‘Smart Regulation’ consultation.
In this article, we will explore further changes proposed by the DBT in the consultation. Namely, reforming the unit pricing rules.
The Price Marking Order 2004 (PMO) governs the rules for the display of pricing information in Great Britain (Northern Ireland has a similar piece of legislation, the ‘NI PMO’). It requires, amongst other things, retailers to display the ‘unit price’ (i.e. price per weight or volume) of grocery products as well as the ‘selling price’ (i.e. final price for a unit of a product). The aim of the PMO is to make the display of pricing information on labels in-store and online clear and unambiguous so that consumers can make easy comparisons between alike products.
The CMA was prompted to review the unit pricing practices and rules as a result of the cost of living crisis. In the face of increasing prices, grocers were being accused of profiteering at the expense of the consumers’ purse. The CMA set out to ensure that consumers were confident that retail competition is working effectively in order to keep price rises as low as possible and that people can shop around to compare prices easily and with confidence.
The PMO is almost 20 years old and has faced criticism. The CMA conducted a review of the unit pricing rules, and in July 2023 it published an update report and sent an open letter to grocers. The CMA found that retailers have been deploying a range of marketing tactics with its pricing information and suggests that the rules are outdated and not fit for purpose in the current market. The CMA identified four main areas of concern:
1. Consistency – different units of measurements are being used for similar products, making it difficult to make a comparison.
2. Transparency – missing or incorrectly calculated unit pricing information.
3. Legibility – unit pricing information can be difficult to read due to, for example, nearby labels obstructing its view.
4. Promotions – unit price information is not being included for products on promotion.
In its July 2023 report, the CMA made several proposals to reform the PMO that will “help shoppers access information that is easier to compare and more meaningful when making choices during a shop”. The CMA is also calling for retailers to take action to address concerns before any reforms to the PMO are introduced.
The Government has considered the CMA’s findings in its July 2023 report and made several proposals to reform the PMO and introduce a new deposit return scheme within its ‘Smart Regulation’ consultation. We have explored these in more detail below.
PMO reform – changes to the rules governing the display of pricing information
The Government has acknowledged, that certain provisions in the PMO are unclear, leading to inconsistent approaches taken by traders, and anti-competitive outcomes.
The Government’s proposals of reform to the PMO include:
1. Mandating a consistent unit pricing method
2. Improving legibility of pricing information
3. Clarifying the requirement to provide unit pricing for promoted products
4. Repealing or clarifying the ‘small shop’ exemption
1. Unit pricing method
The PMO requires traders to display the ‘selling price’ and ‘unit price’ (subject to exceptions).
- Selling price – the final price of a product offered for sale, inclusive of any taxes and subject to certain exceptions (e.g. products that are not pre-packaged and are weighed by the consumer).
- Unit price – the final price of a product per metric unit (e.g. £’s per kilogram or litre).
The CMA found that the approach to unit pricing is not always consistent. Retailers deviated from using the unit of measure prescribed by the PMO – for example, displaying prices per 100 grams rather than by the kilogram.
The PMO prescribes a list of excepted products to the general rule (Schedule 1 of the PMO). However, the Government believes that the list may be out of date. Further, the list is non-exhaustive which only makes its application more problematic.
The Government proposes to simplify the PMO by requiring all products to be displayed by kilogram, litre, square metre, cubic metre or number and that one measure is applied consistently to all comparable products in any given retailer’s store.
2. Legibility and prominence
The PMO requires that the selling price and the unit price are “unambiguous, easily identifiable, and clearly legible”.
The reality is that the selling and unit prices are often undermined by nearby labels. For instance, a lower price offered to shoppers part of a loyalty scheme may be stated on a nearby label that is displayed more prominently than the price offered to shoppers not part of the scheme, which could mislead and confuse shoppers. Other practical issues include crowded or obscured shelf edge labels, or even missing labels, making it harder for consumers to discern the pricing information.
The Government proposes that the prominence of labels do not differ in respect of products with two different prices for loyalty scheme members and non-members.
3. Offers and promotions
The PMO sets out that products on offer or on promotion can have a general notice that a price reduction applies, providing it’s prominent, unambiguous, easily identifiable and clearly legible.
However, it is unclear whether that applies to certain types of price promotion, such as multi-buy discounts or prices exclusive to members of a loyalty scheme. Also, it does not require a unit price to be displayed. Therefore, it makes it difficult for consumers to compare prices.
The Government is proposing to make it a requirement that the promotional selling and unit prices are given, the applicability to types of price promotion is clarified, and certain relevant exemptions are identified. The CMA have announced plans to commence a review of the use of loyalty scheme pricing by supermarkets in early 2024.
4. 'Small shops' exemption
Small shops are exempt from the requirement to display the unit price on products which are “pre-packaged in a constant quantity ”.
‘Small shops’ are defined as shops that have a ‘relevant floor area’ – which is the internal floor area excluding any area not used for the retail sale of products or for the display of such products for retail sale – not exceeding 280 square metres.
Government is considering whether this exemption should continue to apply at all. In the alternative, whether the threshold of what constitutes a ‘small shop’ could be revisited, such as basing the exemption on annual turnover or number of employees (catching out physically small shops belonging to national chains from benefiting from the exemption).
What's next?
In November 2023, the CMA provided an update on its work in this area. It focused on the impact of price inflation and competition in food and grocery manufacturing and supply, but it also provided an update on its work and the Government’s progress on reform of the rules on pricing information.
- The CMA confirmed that they will be launching a review of the use of loyalty scheme pricing by supermarkets in early 2024.
- The CMA is seeking to work closely with Government on improving legislation on unit pricing following the Government’s consultation, which the Government is currently considering on next steps.
- The CMA will provide an update in spring 2024 on possible further action (including enforcement) following its current further review of compliance with the PMO by retailers both in-store and online to ensure stores are displaying unit prices correctly and consistently.
- The CMA is preparing to launch a public campaign in January 2024 to raise consumer awareness and understanding of unit pricing.
- The CMA is exploring working in partnership with Trading Standards in England and Wales to assess the scale of the problem with inaccurate price displays.
These developments will be an important opportunity for businesses to understand how the rules will take shape in practice.
The Government's proposals for reforming the PMO are welcome. They will likely have a significant impact on supermarkets and other grocers, which will help make pricing information more transparent and comparable for consumers. This should lead to better informed shopping decisions and potentially lower prices overall.
However, there are several practical challenges that will need to be addressed before the proposals are finalised, such as:
- Neither the Government’s consultation nor the CMA's review has provided specific proposals on how the unit pricing rules will apply to the display of online pricing. As a minimum, it is likely that online promotional pricing will need to be displayed together with the unit price in a way that is clear and easy to understand for consumers.
- Supermarkets and grocers have invested heavily in electronic labelling, but the proposals do not address how the changes will apply in this context. A prudent supermarket or grocer will want to be sure that the technology can be used without breaking the proposed new rules. The CMA’s review noted that electronic labelling makes it easier and faster to make changes to pricing information so it may be difficult to argue that the rules make it impractical, but it is unclear how integrable the technology is in this regard (particularly in relation to promotions).
- There is uncertainty surrounding promotional pricing with regards to the various types of promotions – an all-encompassing set of rules may work for traditional promotions (e.g. percentage-based discounts) but not others such as meal deals, time-limited discounts, and loyalty schemes. The Government may wish to deal with this through the implementation of different sets of rules for the different categories of promotions. There are added complications when promotions are tailored to individuals (e.g. discounts on a customer’s most frequently purchased products).
Supermarkets and other grocers should start preparing for these changes now, by reviewing their pricing practices and developing plans to comply with the new requirements. They should also engage with the CMA as they actively monitor compliance and assess what practical challenges with the display of pricing information retailers face in the real-world.
In addition to the CMA’s action and enforcement powers, Trading Standards has the power to prosecute non-compliant businesses. Individuals are at risk of prosecution too; store managers and relevant directors are amongst those that can be personally liable. Fines vary from £5,000 (per offence) to an unlimited amount. As noted above, the CMA is working with Trading Standards to assess the scale of the issues with inaccurate price displays. Therefore, businesses are currently under greater scrutiny, and therefore greater risk of prosecution, which should be as good a reason as any to ensure all price display information is accurate and complaint.
Overall, the Government's proposals for reforming the PMO are positive and should lead to a more transparent and competitive grocery market. However, there are a number of practical challenges that will need to be addressed in order to ensure reforms are implemented in a way that is fair and workable for all businesses, and businesses should start readying themselves for changes to come.
Contributors: Duncan Reed and Calum Ross
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.
Date published
21 December 2023
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