CMA review says retailer margins and profits have reduced, but stresses changes are needed to unit pricing

British supermarkets have not been profiteering by raising food prices over the past year, the Competition and Markets Authority (CMA) has concluded.

The CMA has been assessing how retail competition is working in the UK grocery sector, with a particular focus on Ada, Morrisons, Sainsbury’s, Tesco, Aldi and Lidl. The 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.

With food price inflation running into the high teens, there had been suggestions in some quarters that supermarkets were cashing in on the situation. However, the CMA noted that operating profits in the retail grocery sector fell by 41.5 per cent in 2022/23 compared with the previous year, while average operating margins fell from 3.2 per cent to 1.8 per cent. That is due to retailers’ costs increasing faster than their revenues, the CMA said, indicating that rising costs have not been passed on in full to consumers.

“Now that some input costs are starting to fall, there are some signs that grocery retailers are planning to start rebuilding their profit margins,” the CMA said. “The CMA will monitor this carefully in the months ahead, to ensure that people benefit from competitive prices as input costs fall.”

Shopping around

The review noted that consumers are shopping around to get the best deals, and that lowest-priced supermarkets Aldi and Lidl have gained share from their competitors. This suggests retailers are restricted in their ability to raise prices without losing business, it said.

People unable to travel to large stores or shop online may not be able to benefit from strong competition if they have to rely on higher-priced convenience stores.

Ten product categories have been identified for further analysis of competition and price dynamics, but fresh produce is not one of those categories.

Unit pricing

The supermarkets did not get a completely clean bill of health, however, and the CMA said change is needed to ensure consumers can more easily compare product prices.

The review looked at 11 supermarkets and seven variety retailers (stores that sell homeware and household goods with a more limited range of groceries) that operate in the UK. It found compliance concerns with the Price Marking Order (PMO) among all those it reviewed, although for some retailers these were relatively minor.

The CMA has identified that compliance is worse among some variety retailers.

Some of the problems stem from the unit pricing rules themselves, which the CMA said allow “unhelpful inconsistencies in retailers’ practices and leave too much scope for interpretation”. As a result, shoppers may be finding it hard to spot and compare the best deals.

The CMA’s 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
  • Transparency – missing or incorrectly calculated unit pricing information both in store and online
  • 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, to help shoppers spot the best deals. The CMA 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 will publish the findings of its consumer research into the use of unit pricing in autumn 2023.