The Competition and Markets Authority (CMA) emphasizes the importance of effective competition in the UK grocery sector, especially as food and grocery prices continue to rise. The CMA aims to ensure that consumers can confidently compare prices and find the best deals. It has conducted a review on retail competition involving major supermarkets like Asda, Morrisons, Sainsbury’s, Tesco, as well as discounters like Aldi and Lidl.
In assessing the effectiveness of retail competition, the CMA focused on how rivalry between retailers helps keep prices low and whether consumers can easily shop around for the best deals. Despite high food price inflation, the evidence collected suggests that competition has not been driving these increases. Operating profits for retail grocery fell by 41.5% in 2022/23, and average operating margins declined from 3.2% to 1.8%, indicating that rising costs have not been fully passed on to consumers.
The CMA also found that consumers are actively seeking the best deals, with Aldi and Lidl gaining market share from their competitors. This suggests that retailers face limitations in raising prices without losing business. However, as input costs begin to fall, grocery retailers may plan to rebuild their profit margins. The CMA will closely monitor this to ensure competitive prices benefit consumers.
While the review has focused on overall indicators of retail competition, the next phase will examine competition within specific product categories and across the wider grocery supply chain. The CMA has identified 10 product categories, such as milk, bread, and baby formula, that require further analysis to gain a deeper understanding of competition and price dynamics. It clarifies that this does not indicate concerns regarding competition for these products.
As part of its ongoing work, the CMA may make recommendations to address any competition issues and scrutinize areas that warrant further examination. At a time when shoppers are seeking the most competitive deals, unit pricing plays a critical role in facilitating effective price comparisons. The CMA’s review covered 11 supermarkets and 7 variety retailers operating in the UK.
Regarding compliance concerns with the Price Marking Order (PMO), the CMA found issues among all reviewed retailers, although some were relatively minor. Variety retailers showed worse compliance. The unit pricing rules themselves contribute to problems, allowing inconsistencies in retailers’ practices and leaving room for interpretation. This makes it challenging for shoppers to spot and compare the best deals.
The CMA recommends reforming the unit pricing legislation to improve transparency and consistency. It calls on all retailers, even before any reforms are introduced, to provide consumers with the unit pricing information necessary for meaningful comparisons, especially for promotional products. The CMA has contacted retailers not fully complying with the PMO, urging them to make changes to address its concerns or face enforcement action.
In Autumn 2023, the CMA will publish the findings of its consumer research on the use of unit pricing. Sarah Cardell, the CMA’s chief executive, emphasizes the need to ensure that people can easily find the best prices, particularly as many struggle to feed their families. The CMA is determined to ensure clear price displays and is urging the government to tighten legislation in this regard.
The CMA’s review also assessed competition across the wider grocery retail market. Overall, there appears to be stronger price competition between supermarkets and discounters, painting a better picture compared to the fuel market. In the next phase, the CMA will examine competition and prices across the supply chain for the identified product categories, ensuring that competition remains effective as input costs decrease.
Gareth Mills, a partner at City law firm Charles Russell Speechlys, highlights the increasing link between competition regulation and politics, with regular investigatory findings and ministerial announcements. Supermarkets should anticipate heightened scrutiny and regulatory oversight as political parties aim to position themselves as consumer protectors. Regulators play a crucial role in ensuring competition acts in the interest of consumers, which will likely become more prominent as rising prices affect the public.
