Consumer Update: CJEU confirms that price reduction claims must be based on lowest price in last 30 days

In a preliminary ruling following a referral by a German Court in a claim brought against Aldi's discount practices, the Court of Justice of the EU (CJEU) held that a price reduction claim announced by a trader, by way of percentage or other promotional statement highlighting the advantageous price on offer, must be determined on the basis of the lowest price applied by the trader during a period not shorter than 30 days prior to the application of the price reduction.

The case arose in the context of a challenge by a German consumer association against Aldi Süd's advertised price reductions in its weekly brochures, including the prices for Fairtrade organic bananas and Rainforest Alliance pineapples.

Aldi had calculated its price reduction for bananas as a percentage of the latest sale price before the offer, which was listed prominently as a crossed-out price in the advert. The advert also included, in smaller print, the lowest price over the last 30 days. The advertised reduced price in this case was equal to that lowest price over the last 30 days.

For pineapples the 'Price Highlight' was similarly compared against the latest sale price prior to the offer, and the lowest price over the last 30 days in this case was actually lower than the advertised Price Highlight.

Last selling price. Lowest price in the last 30 days

Last selling price. Lowest price in the last 30 days

The relevant EU legislation and guidance

Directive 98/6/EC on Consumer Protection in the Indication of the Prices of Products offered to Consumers (Price Indication Directive) is designed to enable consumers to easily assess and compare the price of products on the basis of uniform and transparent information, in order to allow consumers to make better informed choices.

Article 6a of the Price Indication Directive sets out specific rules around transparency of price reduction announcements, to ensure that such reductions announced by traders are genuine.  It prevents traders from artificially inflating the reference price and misleading consumers about the amount of the discount.

• Article 6a(1) provides that: Any announcement of a price reduction shall indicate the prior price applied by the trader for a determined period of time prior to the application of the price reduction.
• Article 6a(2) provides that: The prior price means the lowest price applied by the trader during a period of time not shorter than 30 days prior to the application of the price reduction.

Exceptions are available for perishable goods, goods that have been on the market for less than 30 days and goods for which the price reduction is progressively increased (in which case the prior price is the price without the price reduction before the first application of the price reduction).   

The Commission has also issued separate Guidance on the Interpretation and Application of Article 6a of the Price Indication Directive (the Guidance).  The Guidance expands on the concept of the 'prior price' and includes some practical examples. It makes it clear that 'the purpose of the 30 days reference period is to prevent traders from juggling with prices and presenting fake price reductions, such as increasing the price for a short period in order to decrease it afterwards by presenting it as a (significant) price reduction that misleads consumers.  The 30-day period for setting the reference prior price therefore ensures that the reference price is real and not merely a marketing tool to make the reduction seem attractive'.

The German case

The German consumers association challenged Aldi's discount policy on the basis that it was misleading consumers and therefore unfair, and asked the German court to order Aldi to desist from advertising price reductions that are not based on the lowest price charged in its stores during the previous 30 days.

The German court disagreed with the consumer association's view that the basis for determining the price reduction must be the prior price and held that it cannot be inferred from the Price Indication Directive, which in essence determines the information that must be provided to consumers, how that information must be provided.  It did however recognise that in certain cases the indication of a price reduction which does not refer to the prior price within the meaning of the Price Indication Directive can be unfair and in breach of the Unfair Commercial Practices Directive 2005/29/EC.

The German court therefore decided to stay the proceedings and asked the CJEU whether Article 6a(1) and (2) of the Price Indication Directive must be interpreted as meaning that it requires that a price reduction announced by a trader in the form of a percentage or a promotional statement,  must be determined on the basis of the 'prior price' as defined in Article 6a(2).

The CJEU ruling

The CJEU agrees with the German court that the wording of Article 6a(1) of the Price Indication Directive does not in itself make it clear whether the price reduction in an announcement must be calculated on the basis of the prior price as defined in Article 6a(2).  However, when interpreting the meaning and scope of a provision of EU law it is necessary to take into account the specific objectives of the legislation of which it forms part.

The Price Indication Directive is intended to improve consumer information and to facilitate comparison of the selling price offered by traders, in order to allow consumers to make informed choices.  To interpret Article 6a(1) as meaning that it is sufficient to mention the prior price in a price reduction, without it forming the basis for calculating that reduction, would risk undermining those objectives.  In addition, the Commission's Guidance makes it clear that Article 6a is intended to prevent traders from deceiving consumers by increasing the price charged before announcing the reduction, thereby displaying false price reductions.

Article 6a(1) and (2) must therefore be interpreted as meaning that, in a price reduction claim, the reduced price must be determined by reference to the prior price of the product within the meaning of Article 6a(2), ie the lowest price charged during the last 30 days before the application of the price reduction.  It follows that the reduced price in the announcement can therefore not be the same or higher than the prior price.

The UK position

In the UK, the Price Marking Order, which implemented the EU Price Indication Directive, regulates how retailers display prices for consumers. The aim of the Order is to ensure that the necessary information is presented to consumers, clearly and upfront, in order to allow them to make informed decisions about the products they purchase.  As a result of Brexit, the UK is no longer bound by the EU consumer protection legislation and in September last year the Department for Business and Trade launched a consultation that aims to update the Price Marking Order in order to improve price transparency and product information for consumers.

The Guidance for Traders on Pricing Practices, issued by the Chartered Trading Standards Institute (CTSI), provides guidance for traders relating to pricing practices to assist them to comply with the principles of fair dealing.  On the use of reference prices, the CTSI guidance contains a non-exhaustive list of factors that should be considered when determining whether a price reduction is genuine. These include:

• How long the product was on sale at the higher price compared to the period for which the price comparison is made.
• The number and type of outlets the price comparison will be used in compared to those at which the product was on sale at the higher price.
• How recently the higher price was offered compared to when the price comparison is being made.
• Where products are only in demand for short periods each year, are price comparisons being made with out-of-season prices.
• Were significant sales made at the higher price prior to the price comparison being made, or was there any reasonable expectation that consumers would purchase the product at the higher price.

The CTSI guidance is less prescriptive than the approach under the EU Price Indication Directive and requires traders to take into account a range of factors in order to ensure their pricing does not mislead consumers.

In August 2024 the CMA also issued Guidance on Discount and reference pricing principles for sales of mattresses online.  The guidance was issued following the CMA's investigation into online sales practices by Emma Group and Simba Sleep, but the CMA makes it clear that the principles set out in this guidance will be relevant to reference pricing in other sectors of the economy, while taking into account the specific characteristics of those sectors.

A price advantage claimed by a trader must not be misleading or unfair.  Where a trader chooses to use a reference price it must reflect a genuine price and any comparison between the reference price and the discounted price must reflect a genuine price advantage.

The CMA makes it clear that whether a price comparison is genuine depends on:

• The duration of an offer: the 'was' price must be offered for a sufficient period of time on the same website, immediately before the discount begins. That duration cannot be shorter than that of the discounted offer (the duration requirement principle).
• The volume of an offer: a sufficient number of sales should have been made at the 'was' price.  At least one product should have been sold at the 'was' price for every two products sold at the discounted price (the volume requirement principle).

Making misleading or unfair price announcements will be a breach of the Consumer Protection from Unfair Trading Regulations, which have been restated in the Digital Markets, Competition and Consumers Act 2024 (DMCC Act) as primary legislation.  Once the consumer protection provisions of the DMCC Act take effect, which is expected around April 2025, the CMA will have powers to directly enforce the legislation itself and will be able to impose fines of up to 10% of worldwide turnover on businesses that breach these provisions.