The Colonel Gets Caught Short - A Cautionary Tale on Short Term Price Promotions in Franchise Systems
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A recent adjudication by the Advertising Standards Authority (ASA) raises interesting issues for franchisors who conduct national price promotions on behalf of their franchise network.
By way of background, KFC ran a price campaign for its new Family Burger Box with a voice-over claiming that the Box cost £14.99, representing a saving of £5. On-screen text clarified that if the individual items of the Box were bought separately the cost would be £20.51, hence the saving.
Like most franchisors, KFC were aware that they could not fix the prices charged by their franchisees. In their response to the ASA KFC explained that "the prices varied between stores as they were legally unable to fix the pricing within all the franchisee stores, and could only recommend pricing". For this reason, when running price promotions on behalf of their franchise estate, most franchisors typically include caveats such as "prices may vary" (as used by KFC in this instance) or "at participating outlets only" to encourage consumers to check whether the price promotion applies to the outlet they visit. That caveat is usually sufficient when promoting one price. However, in this case, the ASA decided that KFC's advertisement was misleading because it referenced two different prices – the price of the Box itself and the aggregate price of the individual items comprising the Box if bought separately. The ASA determined that simply stating "prices may vary" was insufficient to make clear that both prices might differ from store to store. The fact that most stores (835 out of 850) did, in fact, charge the advertised prices made no difference to the ASA's decision. This decision reinforces the care that needs to be taken when preparing advertising copy and, in particular, when using exclusions or limitations.
Perhaps the most interesting aspect of this decision, however, is that KFC appear not to have made use of the price campaign exemption that is referenced in the guidelines to the Block Exemption Regulation for vertical agreements (Commission Regulation (EU) No. 330/2010) (BER). Although the BER contains a strict prohibition against price fixing, the guidelines reference a possible exemption where franchisors may fix their franchisees' resale prices provided it is done as part of a coordinated short term low price campaign across the network for the benefit of consumers. Short term is generally regarded as being anywhere between two to six weeks. Although most franchisors are aware of the general prohibition against price fixing, many are still unaware of this useful exemption – either because it is still relatively recent or they do not have the contractual right to require their franchisees' participation or they are simply unsure how to structure their price promotion so as to fall within the exemption.
If you would like more information about this exemption or more generally about how to operate national promotions and advertising campaigns without falling foul of the regulators, please contact David Bond or Sonal Patel.