- CMA probes supermarket loyalty.
- Brands raise prices unjustifiably.
- Consumer shift to own-brand.
The CMA is investigating supermarkets’ use of loyalty programs, specifically the provision of exclusive promotions to members.
“Providers of branded goods, such as pet food and baked beans, have increased prices by more than their costs,” according to the competition watchdog.
A decade-long investigation by the Competition and Markets Authority (CMA) has commenced into whether consumers who are already experiencing financial hardships due to the ongoing cost of living crisis are being defrauded.
Profiteering Amidst Rising Costs
While some increases were justified, the need to cover rising costs for energy and ingredients, among other things, evidenced profiteering.
According to the statement, the CMA’s findings suggest that approximately 75% of branded suppliers of goods, including pet food, baked beans, infant formula, and mayonnaise, have increased their unit profitability over the past two years. Higher food price inflation attributed this increase in profitability.
Nevertheless, the changes were probably partially ineffective, as customers had resorted to purchasing cheaper alternatives from the supermarket’s brand to conserve money.
The regulator anticipates that competition will contribute to a reduction in the prices of branded products.
However, in response to the inquiry, brands stated that they would offer promotions to consumers instead of reducing the standard prices of their products when their expenses began to decline.
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Further research is required, according to the CMA, even in the area of infant formula, which has been the subject of debate and has even been labeled “exploitation” of families by the World Health Organisation.
However, it discovered indications of unwarranted price hikes and expressed concern over the fact that the two firms control 85 percent of the market.
Additionally, the CMA disclosed its intention to examine supermarket loyalty programs during the subsequent stage of its inquiry.
This entails extending promotions exclusively to consumers who successfully register for their loyalty cards.
In response to the CMA’s findings, the manufacturers’ trade association proposed that pricing reflected value.
Karen Betts, chief executive officer of The Food and Drink Federation, stated, “Investment has decreased by more than a third, while insolvencies have doubled and profit margins in our industry are at their lowest level in four decades.”
“Consumers in the United Kingdom can find solace in the fact that, despite the inflation rates observed in recent months, the average cost of food and beverages remains below the average cost of groceries in the European Union.”
Branded Products and Consumer Behavior
“The grocery market in the United Kingdom is highly competitive and offers an extensive selection of products at various prices.
“In cases where branded products are more expensive than own-brand, this is due to brand owners’ ongoing investments in quality and innovation.”
Failure to make that investment in the United Kingdom will undoubtedly result in an increase in imported food and beverages, adversely affecting employment, competitiveness, and food security.
The regulator issued the update after its prior determination that increased store prices were not attributable to a lack of competition among supermarket chains.
To increase price transparency, the watchdog sought stricter regulations regarding unit pricing, which refers to the cost per item for variants of the same product.
Additionally, it was previously discovered that supermarket fuel operators increased their profit margins on unleaded and diesel sales, charging motorists an additional £900 million in 2022.
