- Evidence to date indicates high food price inflation has not been driven by weak retail competition, but competitive pressure is important as input prices fall
- Next phase of CMA probe will examine competition and prices across the supply chain for the product categories identified
- Rules on unit pricing should be tightened and retailers must comply to help shoppers compare prices easily
The Competition and Markets Authority (CMA) has today published an initial update on its ongoing work to tackle cost of living pressures in groceries with the publication of two reports: an assessment of retail competition in the groceries sector and a review of unit pricing practices across major retailers.
At a time when food and other grocery prices are rising it is crucial that people can be confident that competition is working effectively to keep price rises as low as possible and that people can shop around and compare prices easily and with confidence.
Groceries
Over the past two months, the CMA has assessed how retail competition is working in the UK grocery sector, particularly between supermarkets such as Asda, Morrisons, Sainsbury’s and Tesco as well as discounters, including Aldi and Lidl. Looking at the effectiveness of retail competition across the market, this stage of the CMA’s review has 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, evidence collected to date by the CMA indicates that competition issues have not been driving this.
In particular:
- 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%. This is due to retailers’ costs increasing faster than their revenues, indicating that rising costs have not been passed on in full to consumers.
- Consumers are shopping around to get the best deals, and the lowest-price retailers – Aldi and Lidl – have gained share from their competitors. This suggests retailers are restricted in their ability to raise prices without losing business.
However not everyone is able to benefit fully from strong competition, particularly those who cannot travel to large stores or shop online, and therefore may rely on higher-priced convenience stores.
Now that some input costs are starting to fall, there are some signs that grocery retailers are planning to start rebuilding their profit margins. The CMA will monitor this carefully in the months ahead, to ensure that people benefit from competitive prices as input costs fall.
The CMA’s 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. This will be an important focus for the next phase of its work. Today’s update identifies 10 indicative product categories (including milk, bread, and baby formula) that merit further analysis to gain a deeper understanding of competition and price dynamics. Our choices are not an indication of any provisional concerns that competition for these products is ineffective.
As part of its ongoing work, the CMA could make recommendations to address any competition issues it finds or take a closer look at any areas which justify further scrutiny.
Unit Pricing
At a time when shoppers are looking for the most competitive deals, unit pricing provides critical information to ensure people can compare prices effectively.
The review looked at 11 supermarkets and 7 variety retailers (stores that sell homeware and household goods with a more limited range of groceries) that operate in the UK .
The CMA has found compliance concerns with the Price Marking Order (PMO) amongst all those it reviewed, however for some retailers these were relatively minor. The CMA has identified that compliance is worse amongst some variety retailers.
Some of the problems stem from the unit pricing rules themselves, which allow unhelpful inconsistencies in retailers’ practices and leave too much scope for interpretation. As a result, shoppers may be finding it hard to spot and compare the best deals.
The CMA’s concerns relate to:
- Consistency – different measurements are 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.
- Transparency – missing or incorrectly calculated unit pricing information both in store and online. For example, 250ml handwash costing £1.19 but unit priced at £476.00 per 100ml and unit pricing information unavailable online until items were selected.
- Legibility – unit pricing information being difficult to read, for example text on labels being too small or shelf edge labels being obscured by promotional information or by shop fittings.
- Promotions – some retailers not displaying unit prices for any products on promotion.
In its report, the CMA has set out recommendations on the unit pricing rules and is calling on the government to reform this legislation, to help shoppers spot the best deals. The CMA has also written to those that are not fully complying with the PMO and expects them to make changes to address its concerns or risk enforcement action.
More broadly the CMA is calling on 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.
The CMA will publish the findings of its consumer research into the use of unit pricing in Autumn 2023.
Sarah Cardell, CEO of the CMA said: 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. 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.
“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.
More information and full reports can be found on our
Unit Pricing and Groceries pages.
24
0
20
