Consumers are feeling the pinch of inflation in various ways, not least when it comes to their regular food shop. But supermarkets are under pressure too. Their margins are being eaten away by rising costs, and consumers are unwilling or unable to absorb the massive price hikes that would maintain the kinds of margins supermarkets are used to enjoying. Consumer behaviour is shifting in this highly price-sensitive market, and some supermarkets are under increased scrutiny to ensure they are not befuddling consumers during this difficult time.
The Competition and Markets Authority (CMA) is investigating cost of living pressures in the groceries sector. Its latest update, published today, is accompanied by two reports:
- an assessment of retail competition in the groceries sector, and
- a review of unit pricing practices across major retailers.
The CMA has been assessing how retail competition is working in the UK grocery sector. It 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. 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. However, the rate of inflation is now falling, so the CMA will keep an eye on things to see if price increases slow down in response.
The CMA’s review has not yet examined competition for individual product categories or across the wider grocery supply chain. This will be an important focus for the next phase of its work and it has identified ten product categories including milk, bread, and baby formula that it says merit further analysis.
As part of its ongoing work, the CMA could make recommendations to address any competition issues it finds or take a closer look at any areas which justify further scrutiny.
The CMA points out that unit pricing provides critical information to ensure people can compare prices effectively. Which? has recently argued that supermarkets are not complying with unit pricing requirements, particularly in relation to loyalty card pricing.
The CMA reviewed 11 supermarkets and seven other retailers (ie stores that sell homeware and household goods with a more limited range of groceries). It found compliance concerns with the Price Marking Order 2004 (PMO) amongst all those it reviewed. For some retailers these were relatively minor, but the CMA has identified that compliance is worse amongst some variety retailers.
The CMA says that the PMO itself allows unhelpful inconsistencies in retailers’ practices and leave too much scope for interpretation. Its 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 is calling on the government to reform this legislation. It has also written to those that are not fully complying with the PMO and expects them to make changes to address its concerns or risk enforcement action.
The CMA is calling on all retailers to give consumers the unit pricing information they need to make meaningful comparisons, particularly for products on promotion, even before any reforms to the PMO are introduced and refers to the requirements of the Consumer Protection from Unfair Trading Regulations 2008 not to mislead consumers (by action or omission).
The CMA says that it will publish the findings of its consumer research into the use of unit pricing in Autumn 2023. It will be interesting to see if its findings on unit pricing are reflected in the Digital Markets, Competition and Consumers Bill as it passes through parliament; if not, it could be a missed opportunity to update the rules in this area.
At a time when food and other grocery prices are rising it is crucial that people can be confident that competition is working effectively to keep price rises as low as possible and that people can shop around and compare prices easily and with confidence.