Watchdog finds grocery companies put prices up faster than costs during pandemic

The Competition Watchdog has concluded it's review

Beans
Published 29th Nov 2023

Three in four companies that make branded baked beans, mayonnaise, infant formula and pet food have hiked their prices faster than their costs have gone up during the cost-of-living crisis, a new review by the competition watchdog has found.

The Competition and Markets Authority (CMA) also said that it would launch a new review into supermarkets which only offer discounted prices to customers who sign up to their loyalty schemes.

The watchdog plans a separate probe into the highly concentrated baby formula market, where just two companies account for 85% of sales.

The CMA said on Wednesday that most of the food price inflation in recent years has been driven by the rises in costs that companies have faced.

Everything from energy prices to fertiliser costs to the wages they pay their staff have soared for many food suppliers.

But it said there was evidence that some branded producers were adding extra profits on top of the price rises caused by their cost increases.

Over the last two years, three in four suppliers of infant formula, baked beans, pet food and mayonnaise have added to their profit, it found.

However in all but one of these cases customers have switched to cheaper alternatives as a result. This had led to an overall decline in these brands' market shares and their profits.

"This switching is positive for competition and allows those able to switch to lessen the impact of high food price inflation," the CMA said.

But the one exception is infant formula, the CMA said. The watchdog announced that it would start a separate review into the infant formula market.

Just two suppliers account for 85% of infant formula sales, it said, and there is "very limited availability" of own brand alternatives.

This means that few parents have switched as prices have risen. The CMA said that infant formula prices were up 25% over two years.

"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," said CMA chief executive Sarah Cardell.

The watchdog also said that it would look more closely at supermarket loyalty schemes.

In recent years shops like Tesco and Sainsbury's have launched schemes which give loyalty card holders significant discounts on some items in their weekly shop.

"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," Ms Cardell said.

She added:

"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."

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