He is right - it’s a good price for a brand new bike. An equivalent ex demo is £1000 (I know because Leisure Lakes are advertising their bikes for that and it comes with a pannier!).
Also it’s an old model - the newer one has 650b wheels and different colours.
I am in 2 minds about it - I like it but it’s a bit irritating not to have been told and slightly dishonest I feel.
it’s also has a couple of small chips
I would decide what you would be happy to pay for a demo bike, then ask them to credit you the difference. In fact ask for more as they will likely try to negotiate. And ensure you still have warranty as a new bike would.
They can only say no, then its up to you to either keep it or let them have the cost of it being sent back and having to refund you.