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A new report from the Competition and Markets Authority (CMA) has found that high food price inflation has not been driven by retail competition.
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, evidence collected to date by the CMA indicates that competition issues have not been driving this. In particular, operating profits in the retail grocery sector fell by 41.5% in 2022/23, compared with the previous year, while average operating margins fell from 3.2% to 1.8%. This is due to retailers’ costs increasing faster than their revenues, indicating that rising costs have not been passed on in full to consumers.
At the same time, the CMA found that consumers are shopping around to get the best deals, and the lowest-price retailers, Aldi and Lidl, have gained share from their competitors. This suggests retailers are restricted in their ability to raise prices without losing business.
However, not everyone is able to benefit fully from strong competition, particularly those who cannot travel to large stores or shop online, and therefore may rely on higher-priced convenience stores.
The CMA’s review so far has focused on overall indicators of effective retail competition. It has not yet examined competition for individual product categories or across the wider grocery supply chain.
The review looked at 11 supermarkets and 7 variety retailers (stores that sell homeware and household goods with a more limited range of groceries) that operate in the UK . 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.
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.
In addition to the report, the CMA has now set out recommendations for the Government to reform the legislation as well as calling on all retailers to give consumers the unit pricing information they need to make meaningful comparisons.
Sarah Cardell, CEO of the CMA said: “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. 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.
“We’ve also looked at how competition is working across the grocery retail market more widely. The overall evidence suggests a better picture than in the fuel market, with stronger price competition between all of the supermarkets and discounters.”
