Sainsbury’s has lost a high court challenge against a Tesco ad campaign claiming its own-label goods were cheaper.
The ruling comes as the new chief executive of Sainsbury’s, Mike Coupe, prepares to outline his plan to turn around sales amid a bitter industry price war.
Sales at Sainsbury’s, Tesco and Morrisons are falling. The supermarkets have been forced to cut prices as shoppers tighten their belts amid growing competition from the German discounters Aldi and Lidl as well as lower fuel prices and a fall in the cost of fresh produce owing to good summer weather.
On Monday, Aldi told David Cameron as he visited the company’s UK headquarters that the plans it announced in the summer to spend £600m on doubling its stores to 1,000 by 2022 would lead to the creation of 35,000 new jobs. The prime minister said the retailer’s expansion was “good news for our economy”.
But Sainsbury’s will highlight on Wednesday the pain Aldi’s expansion is causing the traditional supermarkets when Coupe is expected to announce he will lower dividend payments to shareholders to fund price cuts. He has already dropped Tesco from Sainsbury’s Brand Match price comparison scheme, which now only compares prices with Asda, and halved the number of points shoppers can earn in the Nectar loyalty card scheme.
Losing the court battle over the Tesco ad campaign makes life tougher for Coupe as the wider adoption of ethical standards such as Fairtrade by Sainsbury’s are a key part of the supermarket’s attempt to mark itself out from generally cheaper rivals. The strategy helped it to win sales last year during the horsemeat scandal.
The supermarket claimed that Tesco’s Price Promise campaign misled shoppers by failing to point out that many of Sainsbury’s own-label products have superior ethical or provenance standards. Its claim was supported by evidence from ethical trading accreditation bodies including Fairtrade, the RSPCA’s Freedom Food initiative and the Marine Stewardship Council (MSC).
But both the Advertising Standards Authority (ASA) and the watchdog’s independent reviewer, Sir Hayden Phillips, concluded that Tesco could legitimately compare the price of goods such as teabags, haddock fillets and ham because they were “sufficiently interchangeable” for the average consumer. ASA and Phillips said the essential feature being compared in the adverts was price and not quality, provenance or ethical treatment of suppliers.
Sainsbury’s went to the high court to try to win a judicial review of the independent reviewer’s assessment but on Monday, Justice Wilkie ruled that the independent reviewer “Did not … err in law or act irrationally”.
The ruling supported the reviewer’s conclusion that “Sainsbury’s can be right, that non-price elements of products are material to many customers, but that does not mean that the [ASA is] wrong to conclude that they were not material or essential or indeed important to this particular comparison”.
A Tesco spokesperson said: “This and the previous rulings by the ASA and independent reviewer demonstrate that Price Promise makes fair and reasonable comparisons between our branded and own brand products and those of our competitors.”
Sainsbury’s said it would consider its options following the ruling.
A spokesperson said: “Whilst we respect the court’s decision that the independent reviewer acted lawfully when adjudicating our complaint against Tesco, we continue to believe that it is fundamentally misleading for customers if price comparison schemes are inconsistent in taking into account provenance, quality and whether products are Fairtrade or sustainably sourced. These values continue to be at the heart of our business and it will be for customers to reach their own verdict on this issue.”
In a note previewing the supermarket chain’s half year results and strategic review on Wednesday, David McCarthy, an analyst at HSBC, said he expected profits to be down 7%.
“We expect management to distance itself from price wars, but it Tesco improves prices and quality, then Sainsbury’s will be strategically threatened through its lack of relative scale. Even if only a minority of customers are price sensitive, then losing a proportion of these will have disproportionate impact on profits,” he said.
This article was amended on 11 November to correct the name of the Advertising Standards Authority
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