Grocery brands accused of unjustified price rises

the lowest inflation since last June, Shop prices showed the lowest inflation since last June, according to the British Retail Consortium (BRC)-NielsenIQ Shop Price Index (PA) (PA Wire)
the lowest inflation since last June, Shop prices showed the lowest inflation since last June, according to the British Retail Consortium (BRC)-NielsenIQ Shop Price Index (PA) (PA Wire)

Top grocery brands put their prices up more aggressively than could be justified by rising costs during the inflation crisis, the competition watchdog found today.

The Competition and Markets Authority (CMA) said there was evidence that average profit per unit sold for staples such as beans, mayonnaise and pet food, has increased for branded products.

However, it also found that supermarket customers simply switched to cheaper own branded alternatives and so were not paying higher prices at the till.

But the watchdog noted one glaring exception, baby formula, where a lack of own-brand products and a reluctance to ‘trade down’ has led to manufacturers making bigger profits per unit at the expense of parents.

The Competition and Markets Authority (CMA) today published an update on a review into grocery prices that it launched in the spring. Food prices have soared in 2023, with items like bread and cheese rising by more than 20% year-on-year.

But the CMA said there was little evidence of supermarkets themselves profiteering as the high level of competition in the sector means profit margins remain low.

Manufacturers, though, were not let off the hook. The CMA said that while input costs such as energy and key ingredients have increased, prices have risen even faster than could be explained by these costs.

For supermarkets’ own-brand products, which were cheaper  to begin with, this kind of profiteering has been “less prevalent”. Customers have responded by buying more own-brand foods rather than paying more for branded products.

Yet infant formula “is an exception”, the CMA said. Here, Aldi is the only supermarket to offer an own-brand product, and parents are less likely to turn to a cheaper option as prices rise.

The price difference between the most expensive brand of baby formula in the study, Aptamil Advanced, and Aldi’s own-brand formula adds up to £500 over the first year of a baby’s life.

A spokesperson for Danone UK & Ireland, makers of Aptamil, as well as Cow & Gate which was the cheapest branded formula, said: “We recognise the challenges faced by parents due to inflation. During this difficult period, we have worked very hard to absorb the significant cost increases we have faced, make savings, and minimise any price increases. Danone is proud to offer parents - who cannot or choose not to breastfeed - a range of formula milk products at different prices.

“In order to offer parents the best value, and to ensure we are as competitive in the market as possible, we have launched new larger, better value formats. We currently offer the best value formula milk pack on the market. We have also launched a new smaller, low priced pack size to support budget-conscious families, including those conscious of their weekly budgeting.

“In Danone’s experience the formula milk market is competitive. We are committed to best practices to maintain this and will work constructively on ways we can continue to deliver value and innovation to parents. We will also continue to engage with the CMA over the coming months.”

The watchdog said rules banning the direct marketing of formula may play a role in customers sticking with expensive brands.

The CMA report said: “It is important that consumers who decide to use infant formula are equipped to make well-informed choices, and that suppliers face incentives to offer infant formula products at competitive prices. The evidence that we have seen to date raises potential concerns as to whether this is happening.”

The watchdog’s boss Sarah Cardell added: “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.”

It will launch a more in-depth probe into the formula market to gain a clearer picture of why margins are rising.

Andrew Opie, Director of Food & Sustainability at the British Retail Consortium, said: “We acknowledge the CMA’s concerns on baby formula – a market dominated by two brands. The CMA notes that consumers could make significant savings by switching to cheaper brands or own-label products, all of which provide the necessary nutrition for a healthy baby.”

The watchdog will also launch a probe into supermarket loyalty schemes. It said that as food inflation comes down, reductions are likely to be passed on to customers via special offers rather than permanent price cuts. With many offers at  major supermarkets only available via loyalty schemes, this could lead to an even more “two-tiered” system for shoppers.

Sue Davies, head of food policy at Which?, said: “It’s positive that the CMA is set to review supermarket loyalty pricing as a recent Which? investigation found these deals aren’t always as they seem.”