NZCC v Bunnings – Lowest prices guaranteed!

On 3 September 2021 the District Court dismissed 45 charges the New Zealand Commerce Commission (NZCC) filed against Bunnings Limited (Bunnings) for alleged breach of the Fair Trading Act 1986 (FTA).

Bunnings operates large warehouse type stores throughout New Zealand which sell gardening and hardware items. From June 2014 to February 2016 it made “lowest price” claims such as:

• signs and posters stating “lowest prices are just the beginning…”, “lowest prices everyday”, “lowest prices”, “lowest price guarantee”
• similar website, television, radio and print advertising, including that “nobody beats our prices”
• a lowest price guarantee (LPG) that “If you happen to find a lower price on the same stocked item, we’ll beat it by 15%*. * Excludes trade quotes, stock liquidations and commercial quantities.”

The NZCC alleged Bunnings:

• engaged in conduct liable to mislead the public about the characteristics (price) of goods in breach of section 10 of the FTA by leading the public into thinking Bunnings’ prices were the lowest prices on offer in the market, when they were not
• made representations that were both false and misleading in breach of section 13(g) of the FTA

Background

Bunnings has had a “lowest prices” marketing model since 2002. In 2011, the NZCC warned Bunnings and a competitor who engaged in similar advertising that their claims to have the “lowest prices” could breach the FTA. The competitor then discontinued such advertising. Bunnings did not.

In 2014, the competitor indicated concerns to the NZCC that “Bunnings was continuing to claim that it had the lowest prices on its products when its own prices on identical products were often lower”. There was no evidence of any complaints from the general public, which the court noted “was somewhat remarkable given the length and prominence of the advertising campaign”.

The NZCC opened an investigation and conducted two initial informal price checking surveys. Several other sets of price comparison survey data were then obtained.

• The NZCC commissioned a survey company to conduct a price comparison survey between Bunnings’ shelf prices and those of its competitors. The results indicated Bunnings were not the lowest price about 25% of the time.
• Internal Bunnings price audits indicated Bunnings did not have the lowest prices on approximately 32.5% of the occasions recorded.
• Bunnings also instructed a market research company to undertake price comparisons which indicated Bunnings offered the lowest prices on approximately 13% of the products tested.
• The competitor provided survey data which showed that Bunnings was not the lowest price for approximately 27% of the surveyed products.

The District Court found none of the surveys were representative of Bunnings’ full range and each had differing degrees of considerable shortcomings from insufficient sample size to bias to human error. The court was persuaded by Bunnings’ statistician witness that reliable inferences could not be extrapolated from price surveys if the surveyed items were not representative of Bunnings’ entire range, or the entire range to which the LPG applied.

The NZCC also considered the LPG to be misleading because it communicated to the customer that it would be a “rare event for Bunnings to be beaten on price”. The District Court disagreed with the NZCC’s interpretation of the LPG because “[t]he words are expressed in colloquial language which does not carry with it the meaning [asserted]”.

Bunnings did not consider its advertising was false or misleading. Bunnings had for years built its marketing strategy around the tagline ‘lowest prices are just the beginning’ meaning that consumers could expect to get lowest prices as a matter of course. To implement this policy:

• Bunnings reviewed its prices twice a year and had also conducted and commissioned further reviews because of the NZCC investigation
• Bunnings monitored its competitors’ prices using external surveyor agencies
• Once Bunnings learned a competitor was offering a lower price for a product, it would either initiate a temporary price reduction or a permanent price change after verifying the product offered for sale was identical or ‘like for like’
• Bunnings had the LPG to ensure consumers could get the lowest price

District Court’s analysis

In assessing whether the conduct was liable to mislead, the District Court asked “whether an average member of the consumer class targeted would derive from [the conduct] a message which is liable to mislead”.

• What is the relevant consumer class? The relevant class of consumers targeted by Bunnings’ advertising were adults in New Zealand “interested in ‘do it yourself’ and home improvement products as general ‘living’ products such as outdoor furniture, plants and the like”.
• What message was derived? The court did not accept that these consumers would understand Bunnings to be offering each individual product at the lowest price in all of its stores at all times. Instead they would understand that Bunnings was an everyday low price retailer. A purely literal reading would be unlikely. The LPG is a clear signal to consumers that not every product will be the lowest price. Consumers can be trusted to use common sense and most of the targeted consumers would be aware of the huge number of SKUs Bunnings sold such that it would not be possible for Bunnings to know on a daily basis exact competitor prices for individual items. They would expect systems to be in place and for prices to be adjusted accordingly but time would be needed for Bunnings to be able to react. The LPG also performs a remedial function.
• What is an acceptable percentage of times for Bunnings not to have the lowest price? Taking into account the huge number of SKUs, volatility of pricing in the industry, the potential for manipulation of prices by a competitor and that the LPG in the form it was advertised was available, the court considered an acceptable range would be approximately 15%. The court later commented “Much of the argument among the experts was where would the threshold be for an acceptable percentage of times when Bunnings was not the lowest price … I have arbitrarily selected one as would appear reasonable in all the circumstances.”
• Did Bunnings exceed this threshold? The NZCC did not produce any survey evidence of consumer’s understanding of the claims nor proper statistical price comparisons. The standard of proof required, beyond reasonable doubt, was not met.

In assessing whether false or misleading representations were made, the District Court found the tagline claims in themselves were no more than holistic statements and were not necessarily representations. To the extent such claims were accompanied by displays of specific products for sale with prices specified (thereby constituting a representation):

• They were not misleading. For the same reasons as above, consumers would not understand the representation literally.
• They were not false. The LPG remedies the position and no evidence was produced that on any single one of the items identified for sale did Bunnings not offer the lowest price.

The District Court therefore dismissed the charges. In its closing comments, the court emphasised the need to prove beyond reasonable doubt that the mind of a consumer would be misled:

[137] … As Dr Lang correctly said there was no ‘hard proof’ consumers would believe Bunnings had the lowest prices across the range of its products. One way which might have been helpful would be to lead evidence of a series of consumer complaints about Bunnings prices not being the lowest as claimed for the same products. There was no such evidence

The NZCC’s media release on the judgment does not indicate it intends to file an appeal. The NZCC chair also commented on the importance of good systems to support comparative price representations, especially with the prohibition against unsubstantiated representations now in force:

“the Commission would like to remind businesses that they must consider how consumers are likely to interpret what they are told about goods and services, their prices and available savings … While we have been unsuccessful in this case, it reinforces the importance of having good systems in place to support any comparative price representations – systems that enable traders to take account of changes in the information underlying their price comparisons and respond accordingly.”

Links
NZCC media release
NZCC case register