Some brands pushing up prices more than their costs increase: CMA

Most makers of popular grocery and household brands are indulging in ‘greedflation’ by increasing prices faster than rises in costs, the country’s competition regulator has stated.

According to the latest release from the Competition and Markets Authority (CMA) published today (29), 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.

Baby formula is a product category where different dynamics seem to apply. The prices for baby formula in the UK have risen by 25 per cent over the past 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, states CMA.

CMA’s assessment released today (29) follows an initial assessment in July that focused on retail competition in the groceries sector. 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.

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.”