Some suppliers of branded food have raised prices faster than their costs have risen, according to the competition watchdog.
The Competition and Markets Authority (CMA) found that most inflation was caused by suppliers passing on cost increases to customers.
“Over the past two years, about three-quarters of branded suppliers in products such as baby formula, baked beans, mayonnaise and pet food have increased the profitability of their units and, in doing so, contributed to higher food prices,” the CMA said. “Economic inflation.”
Brands have also told the CMA that when their costs start to fall, they will offer promotions to customers, rather than cutting the standard costs of their products.
An initial assessment by the CMA in July identified 10 product categories for further analysis “to gain a deeper understanding of competition across the supply chain”.
Food inflation remains at historically high levels, although it will fall to 10.1% in October 2023.
In the food and grocery sector, the agency found that rising inflation was largely driven by higher input costs, especially for energy and key agricultural inputs such as fertilisers.
Many consumers have shifted away from brands towards private-label alternatives, or reduced their consumption, resulting in lower brands’ market shares and profits.
Latest numbers from what? Products at Lidl appear to have the highest levels of inflation, with prices rising 11.6 per cent year-on-year in October. It was followed by Sainsbury’s with 11.4 percent.
It should be noted that inflation is a measure of how quickly prices rise or fall, not the absolute price.
The supermarkets with the highest inflation rates may also be the cheapest (and often are).
This shift is positive for competition and allows those able to shift to reduce the impact of high food price inflation.
Gross margins have declined across most branded manufacturers since 2021, mainly due to lower sales volumes due to consumers switching to cheaper alternatives.
With some supermarkets offering cheaper prices to loyalty card members only, the CMA plans to launch a review of the use of loyalty scheme pricing by supermarkets in early 2024.
The CMA’s work will look at how the growth in loyalty scheme pricing will impact consumers and competition in the grocery sector.
Infant formula is a product category to which different dynamics seem to apply. Infant formula prices in the UK have risen by 25 percent over the past two years.
Evidence suggests that suppliers of branded infant formula have also increased their prices by more than their input costs.
In contrast to the other products examined, there is little evidence of parents switching to cheaper branded options as prices rise and availability of private label alternatives is limited.
Families can make significant savings of over £500 during a baby’s first year of life, by purchasing cheaper infant formula options. Regulations ensure that all infant formula products, including cheaper options, provide all the nutrients a healthy baby needs.
Sarah Cardell, chief executive of the CMA, said: “Food price inflation has put significant pressure on household budgets, so it is important that vital competition issues do not add to the problem.
“While in most cases leading brands have raised prices more than their own cost increases, their own brand products generally provide cheaper alternatives.
“We have also seen an increase in the use of loyalty scheme pricing by supermarkets, which means promotional pricing offers are only available to people who have signed up for loyalty cards.
“This raises a number of questions about the impact of loyalty scheme pricing on consumers and competition and the CMA will launch a review in January 2024.”