By James Davey
LONDON (Reuters) -Britain’s antitrust regulator is launching a review of loyalty scheme pricing by supermarkets, such as Tesco’s Clubcard and Sainsbury’s Nectar, to consider whether it is fair that cheaper prices are available only to members.
Loyalty schemes have proved hugely successful for the UK’s biggest supermarkets, offering much lower prices for members.
The vast majority of customers now use the schemes and an increasing number of products are covered by them.
Almost 21 million UK households have a Tesco Clubcard and 80% of its sales involve them.
Tesco, which has a 27.4% share of the UK grocery market, currently offers over 8,000 products through its Clubcard Prices scheme, while Sainsbury’s, which has a 15.2% share, has rolled out Nectar Prices to over 6,000 products.
Sarah Cardell, CEO of the Competition and Markets Authority (CMA), said increased use of the schemes meant price promotions were only available to people who signed up for loyalty cards.
“This raises a number of questions about the impact of loyalty scheme pricing on consumers,” she said on Wednesday.
The CMA’s review will begin in January 2024.
Tesco and Sainsbury’s declined to comment. Shares in both were flat in afternoon trading.
UK food price inflation reached its highest since 1977 in March at more than 19%, according to official data. By October it had slowed to 10.1%, but is still a major strain on the finances of many households.
The CMA had ruled in July that Britain’s high food inflation had not been driven by weak competition among supermarkets.
Updating on its review of the whole sector, the regulator also said it had found some branded suppliers had raised prices by more than their costs increased, but in most cases, shoppers could find cheaper own-label alternatives.
It noted that profit margins had fallen across most branded manufacturers since 2021, mainly because of lower sales volumes as consumers switched to cheaper alternatives.
The CMA did find one area of concern, however, saying ineffective competition in the baby formula market could be leading to parents paying higher prices.
It plans to further examine this market, where prices have risen 25% in two years, as there was little evidence that people were switching to cheaper baby formula products and own-label alternatives.
The CMA noted two firms controlled 85% of the UK baby formula market but did not name them. Data from Euromonitor shows they are Danone and Nestle.
A spokesperson for Danone, the maker of Cow & Gate and Aptamil baby formula, said it would continue to engage with the CMA.
“In Danone’s experience the formula milk market is competitive. We are committed to best practices to maintain this,” the spokesperson said.
A spokesperson for Nestle said it welcomed the review.
“There have been significant increases in costs but we have been working to cut our costs wherever possible and only increase prices as a last resort,” the spokesperson said.
The latest phase of the CMA’s review saw it examine 10 product categories – baby formula, baked beans, bread, chilled desserts, lemonade, mayonnaise, milk, pet food, poultry and ready meals.
(Reporting by James Davey; Editing by Jan Harvey, Mark Potter, Elaine Hardcastle)
