CMA releases update on review of competition in the grocery sector
The Competition and Markets Authority (CMA) has released its latest findings and next steps in its ongoing review of the grocery sector.
The move follows an initial assessment that identified 10 product categories, including milk, baked beans and baby formula, for further analysis in a second phase of work.
Although the CMA acknowledged that high inflation in the grocery sector has been driven largely by rising input costs, its latest evidence suggests that around three-quarters of branded suppliers for products such as infant formula, baked beans, mayonnaise and pet food have contributed to higher food price inflation in the last two years by increasing their unit profitability.
In all but one of the relevant product categories, the CMA found that many consumers have switched away from brands towards own-label alternatives which it said was positive for competition.
However, the organisation found very little evidence of parents switching to cheaper branded options in the baby formula sector where two companies have around 85% of the market share.
The organisation will now undertake further work to better understand barriers to entry and expansion for baby formula manufacturers and to consider whether any changes to the regulatory framework could help the market work better.
Sarah Cardell, chief executive of the CMA, said: “Food price inflation has put huge strain on household budgets, so it is vital competition issues aren’t adding to the problem. While in most cases the leading brands have raised prices more than their own cost increases, own label products are generally providing cheaper alternatives.
“The picture is different when it comes to baby formula, with little evidence that people are switching to cheaper products and limited own label alternatives.
“We’re concerned that parents may not always have the right information to make informed choices and that suppliers may not have strong incentives to offer infant formula at competitive prices.
“We will investigate this further and consider whether changes to regulations are necessary to ensure parents can get the best deal possible.”
The CMA’s work will also examine how the growth in loyalty scheme pricing is affecting consumers and competition in the groceries sector.
Cardell added: “We have also seen an increase in the use of loyalty scheme pricing by supermarkets, which means that price promotions are only available to people who sign up for loyalty cards. This raises a number of questions about the impact of loyalty scheme pricing on consumers and competition and the CMA will launch a review in January 2024.”
