CMA to probe supermarket loyalty 'member-only' deals

The Competition & Markets Authority is to launch a major review of loyalty scheme pricing by supermarkets, insisting that the growth in member-only deals “raises a number of questions” about competition in the groceries sector.

Tesco was the first company to adopt the strategy when it launched Clubcard Prices in 2019 but since then it has been been followed by Sainsbury’s, Morrisons, and the Co-op, which have also set up similar offers available exclusively for loyalty club members.

Just this week, Co-op claimed the member-only deals had triggered a huge rise in sign-ups.

However, in September, Which? claimed some retailers were using “dodgy” pricing tactics to make their loyalty discounts seem better than they really are, while making huge profits from customer data.

Its investigation found that, over a six-month period, nearly a third (29%) of the promotions at Tesco and Sainsbury’s were at their ‘regular’ price less than half the time. For Clubcard, this was 24% of 70 products, while for the Nectar Card, it was 34% of 71 products, showing that customers were often not saving money.

The CMA probe, which will begin in “early 2024″, has been announced as part of an autumn update of the ongoing grocery market review which has revealed three in four companies that make branded grocery products have hiked their prices faster than their costs have gone up.

The CMA examined 10 different categories, including baked beans, baby formula and pet food, and found that while certain price hikes were warranted to offset escalating costs, like energy and ingredients, there was evidence of profiteering.

In a statement, it said: “The evidence collected by the CMA indicates that, over the last two years, around three-quarters of branded suppliers have increased their unit profitability and, in doing so, have contributed to higher food price inflation.”

However, the CMA said these price hikes have probably been counterproductive, as consumers had clearly opted for cheaper alternatives, such as supermarket own brands, in a bid to save money.

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

One exception is infant formula, the watchdog said, with just two suppliers accounting for 85% of infant formula sales, with “very limited availability” of own brand alternatives.

The CMA said that infant formula prices were up 25% over two years and will now also launch a probe into the baby formula market.

CMA chief executive Sarah Cardell said: “Food price inflation has put huge strain on household budgets, so it is vital competition issues aren’t adding to the problem. While in most cases the leading brands have raised prices more than their own cost increases, own label products are generally providing cheaper alternatives.

“The picture is different when it comes to baby formula, with little evidence that people are switching to cheaper products and limited own label alternatives.

“We’re concerned that parents may not always have the right information to make informed choices and that suppliers may not have strong incentives to offer infant formula at competitive prices.”