The CMA said today that soaring food prices have not been driven by weak retail competition, vindicating supermarkets’ rejection of claims they have been profiteering during the inflation crisis. However, the regulator stated that rules on unit pricing should be tightened, and retailers must comply so that shoppers can compare prices more easily.
In May, the CMA launched an investigation into how retail competition is working in the grocery sector, particularly between supermarkets such as Asda, Morrisons, Sainsbury’s and Tesco, as well as discounters, including Aldi and Lidl.
The initial stage of its review focused on the extent to which rivalry between retailers ensures they keep their prices as low as possible and whether consumers can shop around to get the best deals. Although food price inflation is at historically high levels, the regulator stated that the evidence collected to date indicated that competition issues have not been driving this.
It noted that operating profits in the retail grocery sector fell by 41.5% in 2022/23, compared with the previous year, while average operating margins fell from 3.2% to 1.8%. It found that retailers’ costs had increased faster than their revenues, indicating that rising costs have not been fully passed on to consumers.
The CMA also confirmed that consumers are shopping around to get the best deals, noting that Aldi and Lidl have gained share from their competitors, restricting the ability of the leading multiples to raise prices without losing business.
Now that some input costs are starting to fall, the CMA suggested that grocery retailers are planning to start rebuilding their profit margins. It plans to monitor this in the months ahead to ensure that consumers benefit from lower prices as input costs fall.
The CMA noted that its review so far has focused on overall indicators of effective retail competition. It has not yet examined competition for individual product categories or across the wider grocery supply chain. In its update today, the regulator said it had identified 10 product categories (including milk, bread, and baby formula) that merit further analysis to gain a deeper understanding of competition and price dynamics. The CMA stated that it could make recommendations to address any competition issues it finds or take a closer look at any areas which justify further scrutiny.
Meanwhile, a separate investigation into unit pricing, launched by the CMA at the beginning of the year, looked at 11 supermarkets and seven variety retailers that operate in the UK. It found compliance concerns with the Price Marking Order (PMO) amongst all those it reviewed, although for some retailers, these were said to be relatively minor. The CMA noted that compliance was worse amongst some variety retailers.
The CMA’s concerns included consistency i.e. different measurements being used for similar types of products, making it hard for consumers to compare deals on a like-for-like basis. For example, tea bags being priced per 100 grams for some products and others being unit priced per each tea bag.
Another issue was transparency, where there was missing or incorrectly calculated unit pricing information both in-store and online. Another area of concern was legibility, with unit pricing information being difficult to read e.g. text on labels being too small or shelf edge labels being obscured by promotional information or by shop fittings.
The CMA also found that some retailers were not displaying unit prices for products on promotion. Back in June, Tesco was reported to the CMA by consumer watchdog Which? over its alleged failure to provide detailed pricing information on its Clubcard loyalty card offers.
In its report today, the CMA set out recommendations on the unit pricing rules and called on the government to reform the legislation to ensure that shoppers can spot the best deals. The regulator has also written to those retailers that are not fully complying with the PMO and asked them to make changes to address its concerns or risk enforcement action.
More broadly, the CMA called for all retailers to give consumers the unit pricing information they need to make meaningful comparisons, particularly for products on promotion, even before any reforms to the PMO are introduced.
“With so many people struggling to feed their families, it’s vital that we do everything we can to make sure people find the best prices easily. We’ve found that not all retailers are displaying prices as clearly as they should, which could be hampering people’s ability to compare product prices,” said Sarah Cardell, CEO of the CMA.
“We’re writing to these retailers and warning them to make the necessary changes or risk facing enforcement action. The law itself needs to be tightened here, so we are also calling on the government to bring in reforms.”
She added: “We’ve also looked at how competition is working across the grocery retail market more widely. The overall evidence suggests a better picture than in the fuel market, with stronger price competition between all of the supermarkets and discounters. In the next phase of our work, we will examine competition and prices across the supply chain for the product categories we’ve identified. We’ll also continue to monitor the situation to ensure that competition remains effective as input costs start to fall.”
In recent months, some politicians, consumer groups and trade unions have accused the supermarkets of making excessive profits during the cost of living crisis, a charge grocers, including Tesco and Sainsbury’s, have dismissed as nonsense.
Commenting on today’s findings, Gareth Mills, Partner at City law firm Charles Russell Speechlys, said: “The current cost of living crisis has led to competition regulation and politics becoming increasingly intertwined, with the CMA’s investigatory findings and subsequent ministerial announcements to the press threatening greater regulation or oversight becoming almost weekly occurrences.
“Supermarkets should expect new levels of scrutiny and regulatory oversight as political parties of all stripes aim to position themselves as the protector of consumers.
“As increasing prices continue to be felt by the public across the country, the role of regulators in ensuring that competition is acting in the interest of consumers is likely to become more prevalent over the coming months.”
Meanwhile, the British Retail Consortium (BRC), which represents the supermarkets, welcomed the CMA’s report.
“Retailers have gone above and beyond to try and protect consumers from rising costs in the supply chain,” said BRC Chief Executive Helen Dickinson.
NAM Implications:
- UK food retail is one of the most competitive markets in existence.
- Always a no-brainer…
- However, unit pricing is another ballpark.
- The issue is that shoppers don’t fully understand the concept.
- Compounded by ‘some’ retailers’ mission to confound rather than clarify.
- This needs bold, simple strokes.
- With severe penalties for those failing to fall into line.
- Fast…
