British supermarkets cleared of profiteering but could do more on prices

Operating profits in the UK grocery sector fell by 41.5% last year, while average operating margins narrowed from 3.2% to 1.8% as retailers’ costs rose faster than revenues

The UK competition regulator is investigating grocers after food prices soared and supermarkets faced accusations of profiteering. 

Britain’s competition regulator has cleared the country’s biggest supermarkets of profiteering from high food costs, but said some retailers were not doing enough to allow customers to compare product prices.

The Competition and Markets Authority said that operating profits in the grocery sector fell by 41.5% last year, while average operating margins narrowed from 3.2% to 1.8% as retailers’ costs rose faster than revenues. This indicated that costs have not been passed on in full to consumers, the body said. 

However, the CMA said some retailers did not display prices as clearly as they could, making it hard for shoppers to determine value. For example, some tea bags are priced per 100 grammes for some products but per tea bag on others.

“We’re writing to these retailers and warning them to make the necessary changes or risk facing enforcement action,” said Sarah Cardell, chief executive of the CMA. The watchdog is investigating grocers after food prices soared and supermarkets faced accusations of profiteering. 

The grocers say they are passing on any easing of price pressures to consumers wherever possible. 

Recent price cuts have included pasta, cooking oils, toilet paper, and dairy products. 

Profits declined

Speaking in front of MPs last month, representatives for Tesco, Sainsbury, Asda, and Morrisons highlighted that their profits have declined in the past year as they tried to minimise price increases.

Tesco chief executive Ken Murphy warned last month that grocery prices are unlikely to return to where they were before Russia’s invasion of Ukraine.

The CMA said it had found missing or incorrectly calculated unit price information in stores and online, for example, a 250ml hand wash costing £1.19, but unit priced at £476 per 100ml. It also said unit price information was difficult to read, with text on labels being too small. Some retailers also do not display any unit prices for products on promotion.

“With so many people struggling to feed their families, it’s vital that we do everything we can to make sure people find the best prices easily,” said Ms Cardell. 

She said the CMA is going to do further work to examine competition and prices in 10 specific categories including baby formula, milk, bread, pet food, poultry, mayonnaise, baked beans, chilled desserts, ready meals, and lemonade.

Earlier this week, the latest Kantar data showed that British grocery inflation eased for a fourth month in a row in the four weeks to July 9, falling 1.6 percentage points to 14.9%.

The CMA report confirms the efficiency of the UK grocery market, said Helen Dickinson, chief executive of the business group British Retail Consortium.

This fierce competition between British supermarkets has also been a key reason why the UK continues to deliver among the cheapest groceries in Europe.

Meanwhile, Bank of America analysts have said that Britain's inflation problem has eased but that the "entrenched inflation problem remains". 

Its assessment comes as official figures this week showed the UK rate of inflation eased to below 8% in June, but remained significantly above the 5.5% rate in the eurozone. 

"Perhaps being past the worst does not mean the UK's entrenched inflation problem is fixed," Bank of America said.

"We forecast core inflation still at 6% at year-end. This is a highly problematic outlook," the bank said. 

• Bloomberg and Irish Examiner