Taking a punt on a punnet: Tesco fined £300,000 for misleading the public

Tesco Stores Limited was prosecuted on 19 August 2013 at Birmingham Crown Court and ordered to pay a fine of £300,000 and legal costs of £65,000 after entering four guilty pleas for offences in contravention of Regulations 5 and 9 of the Consumer Protection from Unfair Trading Regulations 2008. Under the Regulations, a trader is guilty of an offence if he engages in commercial practices which are misleading. A commercial practice is misleading if “it or its overall presentation in any way deceives or is likely to deceive the average consumer”.

Tesco was found guilty of unfair commercial practices after a case was brought against the supermarket by Birmingham City Council, following a complaint received by Trading Standards from a pensioner, Daphne Smallman, in the summer of 2011. Tesco had sold 400g punnets of British strawberries for £1.99 marked as ‘half price’, together with the previous prices of £2.99 and £3.99 crossed out, at all of its stores across England and Wales. The strawberries had been sold for £1.99 for more than 14 weeks after they had been on sale for the full price of £3.99 for only a week (and for £2.99 for a further week).

The Pricing Practices Guide, updated and published by the Department of Business, Innovation and Skills in November 2010, contains clear provisions in relation to reference pricing and in particular, comparisons with the trader’s own previous price (section 1.2). These provide that “the period of time for which the new (lower) price will be available should not be so long that the comparison becomes misleading”. Although the guidelines accept that the length of time will depend on all the circumstances, it suggests that, in the absence of special circumstances, the period of time for which the ‘discount’ or ‘offer’ is available should not be longer than the period during which the product was sold at full price to avoid the comparison against previous prices becoming misleading to customers. Tesco was alleged to have artificially inflated the price of the strawberries to £3.99 in order to encourage an increase in sales at the ‘discounted price’ of £1.99 during the summer, which the court heard significantly contributed to Tesco’s £2.3 million profit in strawberry sales.

Tesco had tried to throw out the case in the preliminary hearing by arguing that the council lacked jurisdiction to prosecute for offences occurring outside of Birmingham City, but did not succeed. Whilst Judge Michael Chambers accepted that it was not Tesco’s intention deliberately to mislead its customers, he stated that the case was “shocking by its very nature” as Tesco had breached the “high degree of trust” that customers have in national chains.

Having taken into account the financial damage caused to Tesco’s reputation, he imposed a fine of £300,000, condemning the offer as “not a genuine bargain” but “false and misleading”. He stated that the offer should never have been made and was “patently wrong”, with the effect of misleading “thousands of customers”. Tesco issued an apology for its mistake, together with a promise of additional training for colleagues to ensure that the guidelines of pricing are adhered to, after stating that the mistake was the result of a one-off error made by an employee as opposed to “deliberate mis-selling”.

In November last year, Tesco signed up to the Office of Fair Trading’s (OFT) principles on food pricing display and promotional practices along with seven other supermarkets and agreed to adopt these into its own policies (click here). The principles were the result of an investigation by the OFT into retail food pricing and promotional practices in the supermarket sector last year, and state that prices should not be artificially inflated and should not be marked at a discount for longer than the higher price which was originally charged.

The case will no doubt be a blow to Tesco, which has recently invested in a major marketing campaign to seek to increase consumer confidence in the supermarket chain. It is also a warning to those retailers currently embarking on similar practices and a stark reminder for the major players in the consumer products sector that Trading Standards will not shy away from high profile prosecutions – indeed, they may positively welcome them and the publicity they are likely to be accompanied by. Whilst this is a clear victory for consumers, it raises interesting questions for retailers of perishable goods. Although the Pricing Practices Guidance provides an exception under section 1.2.9 for perishable goods reduced for a quick sale due to diminishing shelf life, this has to be proportionate to the amount of time needed to clear the stock and will not exempt retailers from the general guidance that the period for which the goods are sold at a discount should not exceed the period for which they are sold at full price. Following this case, it is also clear that councils will not be prevented from pursuing claims for offences committed outside of their borders. Retailers should therefore make sure that they are compliant with the guidance and living up to the promises made in November last year, or face the consequences.