7th December 2023
Rising Inflation and the Shift to Own Label Products
The CMA’s recent study highlights a persistent issue in the UK Grocery Market: despite a slight dip to 10.1% in October 2023, food price inflation remains notably high. This trend is largely fuelled by escalating input expenses, such as energy and fertilizers. Notably, in sectors like infant formula and pet food, approximately 75% of brand-name suppliers have raised prices beyond their increased costs, exacerbating the inflationary trend. These suppliers have also seen an increase in unit profitability, indicating that price hikes may not be solely due to increased production costs. In response to these rising prices, consumer behaviour has shifted markedly towards more cost-effective alternatives, namely own label products, offering more budget-friendly options. This shift has led to a decline in the market share and profits of branded products, signifying a positive trend for competition and consumer choice.
“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”.
Sarah Cardell, CMA Chief Executive
The Baby Formula Market
The CMA expresses particular concern about the baby formula market, where prices have surged by 25% over two years. The market is notably concentrated, with a few firms dominating. This lack of consumer shift towards cheaper or own-brand alternatives, combined with consistently high-profit margins for major brands, has prompted further investigation. The CMA points out that families could potentially save over £500 in the first year of a baby’s life by choosing more affordable baby formula options. This fact underscores the importance of the CMA’s investigation into better understanding consumer behaviour in the baby formula market, including factors influencing choice, and barriers to entry and expansion for new and existing manufacturers.
Loyalty Scheme Pricing and the Clubcard Scandal
The rise in supermarket loyalty schemes, offering discounts exclusively to card members, has also caught the CMA’s attention. The Clubcard scandal, specifically, has sparked debate and scrutiny. Accusations against Tesco include misleading customers with unclear Clubcard pricing and creating unfair market advantages. The CMA plans to investigate these schemes’ impact on consumer behaviour and market competition, with the inquiry set to commence in early 2024. The investigation will also examine consumer access to these programs and potential barriers they create, such as technological requirements and data sharing, which could affect market inclusivity and competition among supermarkets. More information and the full report can be found on the CMA Groceries case page
“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.”
Sarah Cardell, CMA Chief Executive
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