Tag: baby milk

Infant formula: CMA outlines clear path forward to help parents save hundreds of pounds a year

The Competition & Markets Authority has set out comprehensive proposals to deliver better outcomes for parents in the infant formula market – both in terms of the choices they make and the prices they pay

  • CMA infant formula study finds that a combination of factors is leading to poor outcomes for parents, who could be saving around £300 a year by switching to a lower priced brand
  • Issues include the design and operation of current regulations and the responses of consumers to advertising which emphasises branding when, in fact, all infant formula will meet babies’ full nutritional needs
  • CMA heard concerns that parents on lower incomes are disproportionately affected due to higher rates of formula feeding
  • CMA final recommendations cover standardised packaging in hospitals; providing clear information to parents in healthcare and retail settings on the nutritional sufficiency of all infant formula; making it easier to compare prices of different brands; extending the ban on advertising to include follow-on formula; and allowing parents to use vouchers and loyalty points to buy infant formula
  • Given the steer from governments that regulatory restrictions on price promotions of infant formula support breastfeeding, the CMA is not recommending removing this ban at this stage, but stands ready to support further consideration of this option if asked

Following a market study into the infant formula and follow-on formula market, the Competition and Markets Authority (CMA) has issued its final recommendations.

Sarah Cardell, Chief Executive of the CMA, said: “Every parent wants to give their baby the best possible start in life. Many whom need, or choose, to formula feed, pick a brand at a vulnerable moment, based on incomplete information, often believing that higher prices must mean better quality. This is despite NHS advice stating that all brands will meet your baby’s nutritional needs, regardless of brand or price.

“Governments across the UK are committed to the tight regulation of infant formula for public health reasons. So, our proposals are designed to help parents make the best choices for them and their babies, with access to better information, while sharpening the effectiveness of the existing rules.

“Our proposals will also make it easier for regulations to be properly enforced, while ensuring manufacturers and retailers can be more confident in what they can and can’t do according to law.

“We strongly encourage governments to act on the recommendations to stop well-intended regulation driving poor outcomes for consumers. We’re ready to help implement the changes and support thinking around further measures, including removing the ban on price promotions, should governments consider it necessary at a later stage.”

CMA findings

Advertising and labelling of infant formula is strictly regulated. For example, advertisement and promotion, including price reductions or deals, is restricted so as not to discourage breastfeeding.

Many parents choose a brand for the first time in vulnerable circumstances – often in hospital immediately after birth – and frequently without the clear, accurate and impartial information needed to make informed decisions. People often feel under pressure, naturally wanting to do what is best for their baby. Many actively choose a more expensive product, assuming this means better quality.

However, NHS advice makes clear: “It does not matter which brand you choose, they’ll all meet your baby’s nutritional needs, regardless of price”.

Against this backdrop, rather than competing strongly on price, manufacturers place significant emphasis on building brand awareness to secure customers. For example, some regularly supply the NHS with below cost formula to reach new parents – and once parents have found a brand that works for their baby, they rarely switch.

Regulation states that the labelling and presentation of infant and follow-on formulas should be ‘clearly distinct’. Despite this, manufacturers use similar branding and labelling – including similar colour palettes, fonts and imagery – across infant and follow-on formulas. When combined with large marketing budgets, this approach indirectly supports the sale of infant formula, with CMA evidence indicating that parents are disproportionately influenced by such branding practices (be it in hospitals, online or in store).

The CMA heard concerns that parents on lower incomes are more likely to formula feed so are disproportionately impacted by infant formula pricing. While some government support is available to those eligible, most infant formulas exceed the weekly value of benefits available through schemes such as the Healthy Start and Best Start Food. This can lead to parents foregoing food in order to provide for their babies.

On pricing, differences between brands can have a sizeable impact on parents’ finances. Evidence reviewed by the CMA shows that they could make a saving of around £300 over a baby’s first year of life by switching from a popular mid-priced product to a low-priced brand.

Recommendations

The 4 recommendations from the CMA are:

  1. Removing brand influence in healthcare settings: Parents should be provided with timely, clear, accurate and impartial information on nutritional sufficiency of all infant formula products as early as possible. Where parents are given infant formula in healthcare settings, labelling should be standardised to reduce the influence of branding on their decision making. For example, branded formula could be put into non-branded containers, or the NHS could have a white-label formula.
  2. Equipping parents with the right information when they are shopping: Information about nutritional sufficiency should be displayed clearly and prominently on shelves and when buying online. In store, all brands of infant formula should be displayed together and in a separate cluster from other formula milks to enable quick and easy price comparisons.
  3. Strengthening labelling and advertising rules: All packaging should clearly display information on nutritional sufficiency. Claims that are intangible, or cannot be easily checked by parents, should be banned. Like infant formula, advertising (including price promotions and deals) for follow-on milks should be banned. To help shops, manufacturers and enforcers, government should clarify what constitutes ‘advertising’, outlining exactly what shops and manufacturers can and cannot do regarding formula milks. Parents should be allowed to use gift cards, vouchers, loyalty points, and coupons to purchase infant formula.
  4. Effectively enforce current and future rules: Strengthen the roles played by relevant authorities so they must approve the packaging of all infant formula products before sale. At present, companies can put products onto the market before the relevant authority has reviewed the label.

Public Health Minister, Ashley Dalton, said: “I welcome this report and would like to thank the Competition and Markets Authority for their thorough investigation.

“There are many benefits of breastfeeding but for those families that cannot or choose not to breastfeed, it is vital that they can access formula that is affordable and high quality. Families should not be paying over the odds to feed their babies because of outdated regulation.

“As part of our Plan for Change, we’re determined to ensure every child has the best start to life. We will carefully consider these recommendations and respond fully in due course.”

Competition and Markets Minister Justin Madders said: “The government has been clear through our new Strategic Steer to the CMA that competition and consumer protection will drive economic growth.

“That work to drive better outcomes for consumers across the infant formula market delivers on this priority. We look forward to working closely with the CMA across government to continue to deliver growth as part of our Plan for Change.”

Next steps

Recommendations are made to UK, Northern Irish, Scottish and Welsh governments, working in collaboration with other organisations, where appropriate. The CMA will now engage to explain these measures and support their implementation.

For more information on the CMA’s market study, visit the Infant formula and follow-on formula market study.  

CMA sets out Autumn update in review of competition in groceries sector

The CMA has set out the latest findings and the next steps in its ongoing review of the groceries sector today

  • Some branded suppliers have pushed up prices by more than their costs increased, but in most cases, shoppers can find cheaper alternatives.
  • CMA to examine further whether ineffective competition in the baby formula market could be leading to parents paying higher prices.
  • CMA to launch review of loyalty scheme pricing by supermarkets, considering its impact on consumers and competition in the groceries sector.

The Competition and Markets Authority (CMA) has set out the latest findings and the next steps in its ongoing review of the groceries sector today.

It follows an initial assessment that focused on retail competition in the groceries sector published in July.

That assessment identified 10 product categories (including milk, baked beans and baby formula) for further analysis in a second phase of work, to gain a deeper understanding of competition across the supply chain, with a particular focus on branded and own label food suppliers.

Competition and price dynamics in the supply chain

Food price inflation continues to be at historically high levels, despite falling to 10.1% in October 2023.

Across the food and groceries sector, the CMA found that high inflation has been driven largely by rising input costs, particularly for energy and key agricultural inputs like fertiliser.

But the evidence collected by the CMA indicates that, over the last 2 years, around three-quarters of branded suppliers in products such as infant formula, baked beans, mayonnaise, and pet food have increased their unit profitability and, in doing so, have contributed to higher food price inflation.

However, own label products often provide cheaper alternatives with suppliers of these products earning lower profit margins and competing to win and retain contracts from retailers.

In all but one of the relevant product categories the CMA looked at, as food prices have risen, many consumers have switched away from brands towards own label alternatives, or reduced their consumption, leading to a decline in brands’ market shares and profits. This switching is positive for competition and allows those able to switch, to lessen the impact of high food price inflation.

Overall profit margins have fallen across most branded manufacturers since 2021, mainly because of a fall in sale volumes due to consumers switching to cheaper alternatives.

The CMA has also heard from leading brands that they are aiming to use any future reductions in their input costs to offer customers more promotions, rather than cut the standard price they charge supermarkets for their products.

Baby formula

Baby formula is a product category where different dynamics seem to apply. The prices for baby formula in the UK have risen by 25% over the past 2 years.

Similar to other products the CMA examined, evidence suggests that branded suppliers of baby formula have also increased their prices by more than their input costs. On top of this, the market is highly concentrated (2 firms have around 85% of the market share) and brands have maintained high profit margins over the last 2 years.

Unlike other products examined, there is little evidence of parents switching to cheaper branded options as prices have risen and very limited availability of own-brand alternatives.

Families could make significant savings of more than £500 over the first year of a baby’s life, through buying cheaper baby formula options. Regulation ensures that all baby formula products, including cheaper options, provide all the nutrients a healthy baby needs.

Despite this, the CMA is concerned that parents may not always have the right information, at the right time, to make effective choices. It is also concerned that suppliers may not have the right incentives to offer infant formula at competitive prices.

The CMA will now undertake further work to better understand consumer behaviour (including what influences choice) and barriers to entry and expansion for baby formula manufacturers and consider whether any changes to the regulatory framework could help the market work better.

An update on the CMA’s work into baby formula will be published in mid-2024.

Loyalty pricing

With the rise in some supermarkets making cheaper prices only available for loyalty card members, the CMA plans to begin a review of the use of loyalty scheme pricing by supermarkets in early 2024. The CMA’s work will consider how the growth in loyalty scheme pricing is affecting consumers and competition in the groceries sector.

Sarah Cardell, Chief Executive of the CMA, said: “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.

“The picture is different when it comes to baby formula, with little evidence that people are switching to cheaper products and limited own label alternatives. 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. We will investigate this further and consider whether changes to regulations are necessary to ensure parents can get the best deal possible.

“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.”

More information and the full report can be found on the CMA Groceries case page