Why the impact of loyalty scheme pricing on consumers merits close attention: Greg Wright

The new review by the competition watchdog has found that three in four companies that make branded baked beans, mayonnaise, infant formula and pet food have hiked their prices faster than their costs have gone up during the cost-of-living crisis,

The Competition and Markets Authority (CMA) also said that it would launch a new review into supermarkets which only offer discounted prices to customers who sign up to their loyalty schemes. The watchdog plans a separate probe into the highly concentrated baby formula market, where just two companies account for 85 per cent of sales.

The CMA acknowledged that most of the food price inflation in recent years has been driven by the rises in costs that companies have faced. But it said there was evidence that some branded producers were adding extra profits on top of the price rises caused by their cost increases.

Over the last two years, three in four suppliers of infant formula, baked beans, pet food and mayonnaise have added to their profit, it found.

However in all but one of these cases customers have switched to cheaper alternatives as a result. This had led to an overall decline in these brands’ market shares and their profits.

“This switching is positive for competition and allows those able to switch to lessen the impact of high food price inflation,” the CMA said.

But the one exception is infant formula, the CMA said. The watchdog announced that it would start a separate review into the infant formula market.

Danni Hewson, AJ Bell head of financial analysis, said shoppers are unlikely to be surprised by the competition watchdog’s findings.

She added: “Anyone who has wheeled a trolley around a supermarket over the past couple of years will have noticed the growing gulf between the prices of branded goods and own label alternatives. Whilst food manufacturers have consistently argued that they have not been profiteering and in fact have absorbed some of the price increases that would otherwise have hit their shoppers even harder, the CMA hasn’t been convinced.

“It’s found evidence that ‘unit profitability’ has increased on goods from mayonnaise to baked beans, a strategy it says has contributed to the food inflation that has hurt so many households. Unsurprisingly it found that shoppers have made the switch in their droves, trading down from brands they would normally pull from shelves without a second thought and forming new habits that could cost producers dearly in the long run.”

“Supermarkets had been seen as public enemy number one as they’re the point of sale – the place where people get a rude wakeup call when they reach the checkout. They’ve already been cleared of so called ‘greedflation’, but the watchdog is concerned about how loyalty schemes work and whether they really operate in the best interest of shoppers.”

The impact of loyalty scheme pricing on millions of consumers certainly merits close attention.

Greg Wright is the deputy business editor of The Yorkshire Post