Loyalty schemes used by supermarkets such as Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY) to lure customers with discount deals face a further probe by the UK’s competition watchdog.
The Competition and Markets Authority (CMA) plans a review of loyalty scheme pricing by supermarkets, considering its impact on consumers and competition in the groceries sector.
Sarah Cardell, chief executive of the CMA, said there has been an increase in the use of loyalty scheme pricing by supermarkets, which means that price promotions are only available to people who sign 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,” she said.
Following a review of price inflation and competition in the sector, the CMA also plans to examine further whether ineffective competition in the baby formula market could be leading to parents paying higher prices.
While the report found that some branded suppliers have pushed up prices by more than their costs increased, in most cases shoppers can find cheaper alternatives.
However, the report said it found evidence suggesting that branded suppliers of baby formula have increased their prices by more than their input costs.
On top of this, the market is highly concentrated, with two companies having 85% of the market (France's Danone (OTCQX:DANOY) SA has 71% of the market through its Aptamil and Cow & Gate brands, while Nestle brands SMA and Little Steps infant formula products accounted for 14%) and brands able to maintain high profit margins over the last two years.
Unlike other products examined, there is little evidence of parents switching to cheaper branded options as prices have risen and very limited availability of own-brand alternatives, the CMA noted.
The CMA found some branded suppliers have pushed up prices by more than their costs increased, but in most cases, shoppers can find cheaper alternatives.
“In all but one of the relevant product categories the CMA looked at, as food prices have risen, many consumers have switched away from brands towards own label alternatives, or reduced their consumption, leading to a decline in brands’ market shares and profits.”
“This switching is positive for competition and allows those able to switch, to lessen the impact of high food price inflation.”