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The UK’s competition watchdog has accused suppliers of branded products of contributing to food price inflation by pushing up their prices by more than their costs.
The Competition and Markets Authority said on Wednesday that its inquiry into the food and groceries sector, launched in July, found that record food inflation had been driven largely by rising input costs.
But it added that about three-quarters of branded goods makers, notably baby formula manufacturers, had increased their profitability and contributed to higher food price growth.
Price growth of food and non-alcoholic beverages hit a 45-year high of 19.2 per cent in March this year, according to the Office for National Statistics. Wholesale food prices soared in the summer of 2022 following Russia’s full-scale invasion of Ukraine, hitting the poorest households hardest.
ONS and other measures show grocery inflation has since slowed, with research company Kantar registering 9.7 per cent in the four weeks to October 29.
Sarah Cardell, CMA chief executive, said food price inflation had “put a huge strain on household budgets, so it is vital competition issues aren’t adding to the problem”.
The watchdog opened its inquiry into attempts by grocery retailers to build back their profit margins as inflation fell after it detected signs of profiteering during a probe.
The inquiry came after chancellor Jeremy Hunt said he would scrutinise profits in the food industry supply chain to try to help households.
The review, which examined 10 different branded products — including infant formula, baked beans, mayonnaise and pet food — concluded that competition was not under threat as consumers could for the most part find cheaper alternatives, reducing the impact on food price inflation.
Except in the case of baby formula, the CMA found that consumers had often traded down from branded goods to supermarket own-label products, or reduced consumption entirely. This had led to a decline in the market share of large branded food manufacturers, it said.
Private-label products have been gaining share from branded goods as consumers have been looking to offset rising living costs.
Discount supermarkets meanwhile have grown sales faster than traditional retailers, with Lidl and Aldi registering annual sales growth of 14.7 per cent and 13.2 per cent, respectively, compared with a sector average of 7.9 per cent, according to Kantar.
The CMA said on Wednesday it would “examine further” whether parents were paying too much for infant formula as a result of weak competition.
The infant formula industry is dominated by consumer goods groups Danone and Nestlé, which together hold roughly 85 per cent market share in the UK.
Prices have risen 25 per cent over the past two years, and brands have maintained high profit margins in that time because parents do not have many options to trade down.
Cardell said the regulator was “concerned that parents may not always have the right information to make informed choices and that suppliers may not have strong incentives to offer infant formula at competitive prices”.
Families could save more than £500 over the first year of a baby’s life by buying cheaper infant formula, the CMA added.
A new review, to begin in January next year, will examine loyalty schemes, which grant holders of a supermarket club card access to lower prices.