The Competition and Markets Authority (CMA) has on Wednesday 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.
The watchdog has also written an open letter to grocery retailers on the use of unit pricing, calling on them to review their unit pricing practices in light of its report, which identified several practices that the CMA considered as problematic, likely to prevent consumers from making informed decisions when comparing products.
The CMA asked retailers to:
- ensure that they unit price all their products of the same type using the same metric;
- display the unit price of each product clearly next to the product and selling price in-store and online;
- give unit prices for products on promotion for all types of promotions where this is feasible. For example, for price reductions, promotions where a loyalty price is presented alongside a standard selling price, and multi-buy promotions for products of the same price and size across both in-store and online;
- review staff practices, procedures and training so that mistakes in unit price labelling do not occur.
“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,” Sarah Cardell, CMA chief executive, said.
“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.”
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, the CMA said evidence collected to date indicates that competition issues have not been driving this.
It noted that operating profits in the retail grocery sector fell by 41.5 per cent in 2022-23, compared with the previous year while average operating margins fell from 3.2 per cent to 1.8 per cent. This is due to retailers’ costs increasing faster than their revenues, indicating that rising costs have not been passed on in full to consumers, it said.
Consumers are shopping around to get the best deals has also restricted retailers’ ability to raise prices without losing business, it added.
The CMA said competition for individual product categories or across the wider grocery supply chain will be an important focus for the next phase of its work. It has identified ten product categories for further assessment, which are: baby formula, milk, bread, pet food, poultry, mayonnaise, baked beans, chilled desserts, ready meals, and lemonade.
“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,” Cardell said.
The review of unit pricing, which provides critical information to ensure people can compare prices effectively, looked at 11 supermarkets and 7 variety retailers.
Small stores (those with a retail floor space of not more than 280 square metres), including most convenience stores, have not formed part of the review as they are exempt from having to display unit pricing information.
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.
The regulator noted that 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 has called on the government to reform this legislation, to help shoppers spot the best deals. The CMA will publish the findings of its consumer research into the use of unit pricing in Autumn 2023.
ACS welcomes findings
The Association of Convenience Stores (ACS) has welcomed the CMA findings.
“This is a timely and important report that looks at the business costs and pressures that have driven inflation for consumers,” ACS chief executive James Lowman said.
“The UK has a highly competitive grocery market in which convenience stores play an important part, especially in rural and isolated communities. The conclusion that policy-makers should draw from this report is that the best way to promote lower prices for consumers is to help retail businesses to navigate a period when their costs are extraordinarily high.”
ACS has provided evidence to the CMA as part of their investigation, highlighting the significant cost increases facing convenience stores over the last year – most notably in energy costs, employment costs and wholesale product prices. The evidence notes that gross margins in convenience stores typically run at around 20-30 per cent depending on the product mix, with net margin being all but eroded for many businesses over the last year.