RIPPED OFF: Drivers still paying too much for road fuel, says CMA

Increases in retail fuel margins cost drivers over £1.6bn in 2023

The Competition and Markets Authority (CMA) has published an update today on the widespread action it is taking to ensure that people can get the best possible choices and prices in the face of ongoing cost of living pressures.

New analysis highlights how the cost to drivers of weakened competition in the fuel sector persists, but competition in the groceries sector appears to be more effective in bearing down on retail margins.

Road Fuel 

In its third interim monitoring update, the CMA has found that:

• Retailers’ fuel margins – the difference between what a retailer pays for its fuel and what it sells at – are still significantly above historic levels.
• Supermarkets’ fuel margins are roughly double what they were in 2019.
• The total cost to all drivers from the increase in retail fuel margins since 2019 was over £1.6bn in 2023 alone.
• Competition among fuel retailers is failing consumers, just as it was in July last year when the CMA published its road fuel market study.

When the CMA published its road fuel market study report, it recommended that a smart data driven fuel finder scheme be set up to make prices available to motorists across the UK in real time, such as through map apps and sat-navs. This will be backed up with ongoing monitoring by the CMA to hold the sector to account. This scheme could save drivers up to £4.50 each time they fill up, as it would make it easier to find cheaper fuel in their area.

The CMA is currently monitoring developments in the fuel market using information provided voluntarily by fuel retailers. It has created a temporary price data-sharing scheme, and it is positive that some major players have started to integrate this into consumer-facing products, like apps. However, the current scheme covers only 40% of fuel retail sites and is not comprehensive enough to be utilised by map apps or sat-navs to bring accurate, live information to people – and this is what would have a substantial impact on the market.

The proposed introduction of the Digital Information and Smart Data Bill by the new government could provide the legislative basis to set up a compulsory and comprehensive scheme that would change this – which the CMA would welcome.

Legislation – which is needed to establish the scheme fully – may take time to come into force. So that motorists can start to benefit from quicker, easier access to fuel prices through everyday apps sooner, the CMA encourages the government to introduce an enhanced interim voluntary scheme that is as close to the final scheme as possible.

Groceries

Many households have been struggling to put food on the table. Last year the CMA launched a wide-ranging project looking at competition and prices in the groceries sector, to make sure that people can get the best deals possible when they are shopping for essentials.

Retailer profitability analysis

In the CMA’s review of the sector in July 2023, it did not find widespread evidence of weak competition: profit margins were historically low; consumers were switching to get the best deals; and the lowest-price retailers were gaining market share from others. But the CMA committed to have another look at this and monitor margins as costs came down. 

Overall, the updated retailer profitability analysis that the CMA has published today should provide shoppers with reassurance that competition in the groceries sector appears to be effective in bearing down on retail margins.

Grocery retailer revenues, profits and margins have increased slightly, in aggregate, in the most recent year (FY 2023/24), as inflation has eased. However, the CMA found that the average operating margin for grocery retailers was less than 3% last year, which remains below pre-pandemic levels. Overall, this does not give the CMA cause for concern about the general state of competition in the groceries sector.

Pricing  

The CMA has also been investigating a range of pricing issues, to help shoppers access clear and accurate pricing information:

• When shoppers are looking for the best deal possible, they need to be able to easily compare the prices of similar items. Unit pricing can help with this, but a lack of consistency or accuracy can cause confusion. The CMA has identified a number of concerns with retailers’ unit pricing practices, some of which stem from the legislation itself – the Price Marking Order (PMO) 2004, which allows for inconsistences in retailers’ practices, including when products are on promotion. The CMA has recommended changes to the PMO and the Northern Ireland PMO which will help people access better information when they shop, and encourages the government to implement these changes.
• Alongside this, the CMA has published guidance aimed at independent retailers to help them display clear and accurate prices in general.
• Shoppers are looking for deals more than ever, and, increasingly, supermarkets offer special prices only for customers that use their loyalty schemes. The CMA has been assessing whether the savings on offer through loyalty schemes are genuine. The analysis – involving tens of thousands of loyalty price promotions – is ongoing, but the results to date suggest it is unlikely to identify widespread evidence of loyalty promotions that mislead shoppers. The CMA has commissioned a consumer survey to understand consumer attitudes and the impact of loyalty pricing on how we shop around and compare prices. The CMA will report on this work in November.

Infant formula

Infant formula is a vital part of the weekly shop for many parents and carers.

Through our review of the groceries sector, the CMA identified significant price rises for infant formula (over 25% between 2021-23) and launched a formal market study in February. Five months into the study, the CMA has concerns that the combined effect of the current regulatory framework, the behaviour of suppliers, and the needs and reactions of consumers buying formula, may be resulting in people paying more than they need to.

The CMA will publish an interim report in October setting out in full the concerns it has in this market and its provisional recommendations for action to improve it.

Sarah Cardell, Chief Executive of the CMA, said: “At a time when household budgets are under huge strain, it’s our job to make sure people can be confident they are getting good deals and that they are not being harmed by weak competition or unfair sales practices.

“Despite inflation falling to 2%, many people are still struggling to pay for everyday items – whether it’s filling up at the pump, buying groceries, feeding babies, treating ill pets, or having somewhere to live.

“Last year we found that competition in the road fuel market was failing consumers, and published proposals that would revitalise competition amongst fuel retailers. One year on and drivers are still paying too much.

“We want to work with government to put in place our recommendation of a real-time fuel finder scheme to kick-start competition among retailers. This will put the power in the hands of drivers who can compare fuel prices wherever they are, sparking greater competition.”

A full list of the CMA’s work to help tackle cost of living pressures – including any recommendations already made – can be found on its collection page.