CMA: big grocery brands hike prices more than their costs as households struggle

Big-name food and drink manufacturers have hiked the prices of many popular products by more than the amount their production costs have gone up, the regulator has found. 

This has led to higher food price inflation, according to the Competition and Markets Authority (CMA).

The regulator found that most shoppers had been able to switch to cheaper own-label products – but in the case of baby formula there are limited own-label alternatives, and shoppers don't switch as often. 

The CMA is now looking into the baby-formula market in more depth. It will also launch an investigation into supermarket loyalty pricing. 

This comes after Which? highlighted its concerns about loyalty pricing at Tesco and Sainsbury's earlier this year and asked the regulator to investigate.

Manufacturers' profits up on baby formula, baked beans and mayo

High grocery inflation has been driven largely by the rising manufacturing costs of elements such as energy and fertiliser, the CMA said.

But it also found that, over the past two years, around three-quarters of branded suppliers of products such as infant formula, baked beans, mayonnaise, and pet food increased the profits on each item sold – contributing to higher food price inflation.

Overall, however, profits have fallen across most branded manufacturers since 2021, mainly because shoppers are switching to cheaper own-label alternatives, which have lower profit margins, and therefore buying less from the big brands.

Brands told the CMA that if their manufacturing costs did fall, they would aim to offer more promotions rather than cut the standard prices of their products.

The Which? monthly food price inflation tracker has shown how different product types have been hit to varying extents by inflation, and our data was used as evidence in the CMA report.

• Find out more: food price inflation tracker

Concerns over convenience stores

Which? research has shown that supermarkets' smaller convenience stores rarely stock the cheapest own-brand ranges of groceries. 

The CMA's findings reinforce our concerns that shoppers who rely on convenience stores may struggle to find affordable food.

Which? is calling on supermarkets to ensure they stock a range of budget items to support a healthy diet in all shops, including convenience stores.

• Do you want to see you supermarket take action? Sign the petition

Baby milk prices up 25%

The CMA said prices for baby formula in the UK have risen by 25% over the past two years – and big brands have increased their prices by more than the rise in their manufacturing costs.

It found families could save more than £500 a year by buying cheaper brands of baby formula, such as Aldi's range. But it added that, unlike many other products, there was little evidence of parents switching to cheaper alternatives and pointed out that there was a very limited range of own-brand options available.

The CMA plans to look into this further and publish an update in mid-2024.

• Find out more: formula milk – where to buy and what you need to know

Loyalty prices investigation launched

The CMA also announced it was launching an investigation into supermarket loyalty pricing (for example, Sainsbury's Nectar and Tesco Clubcard prices, which give loyalty scheme members access to lower prices that are not available to non-members).

It comes after a Which? investigation conducted in June tracked the pricing history of dozens of member-only offers at Tesco and Sainsbury's over six months, and found that almost a third were at their 'regular' price for less than half that time. 

Our research found instances where supermarkets' loyalty offers could have given shoppers the impression that savings were more substantial than they really were. We shared our findings with the CMA in September and asked them to investigate.

The regulator's investigation will look at how the growth in loyalty pricing is affecting consumers and competition in the groceries sector.

Sue Davies, Which? head of food policy, said: 'The CMA’s findings that leading brands have raised their prices by more than their cost increases during the cost-of-living crisis will be shocking for many people who have been struggling to deal with food price inflation. 

'Its findings reinforce Which?’s concerns that shoppers relying on convenience store branches of the big supermarkets, which rarely stock the cheapest own-brand ranges, may struggle to find more affordable food.'

• Find out more: Which? uncovers dodgy-looking supermarket loyalty discounts