Sainsburys Aldi price match

Supermarkets have been being accused of “profiteering” in a similar vein to energy companies in evidence submitted to the ongoing CMA probe, The Grocer has learnt.

It is understood the authority has gathered a dossier of evidence from a raft of sectors in the industry, ahead of an initial report due to be published next week.

Chancellor Jeremy Hunt is reported to be meeting with CMA bosses and other regulators today, to urge them to do all they can to ensure retailers tackle inflation and report any suspicions of unfair practices.

Yesterday supermarket bosses strongly defended claims they were inflating profit margins on the back of the cost of living crisis as they gave evidence to a cross-party committee of MPs.

However, competition experts told The Grocer they expected the CMA’s recommendations to throw the spotlight on certain aspects of supermarket behaviour, and believe it could lead to a new taskforce being set up to monitor grocery pricing longer term.

The CMA announced in May it was launching an intervention into the wider grocery market after its investigation into fuel prices unearthed evidence that supermarkets had been exploiting market conditions to boost margins over the past four years.

The top four retailers told yesterday’s hearing they had submitted evidence to the CMA strongly denying allegations of profiteering, with bosses from Tesco, Asda, Sainsbury’s and Morrisons all saying they had been doing everything possible to keep prices down.

But the CMA is also believed to have received evidence from sources accusing retailers of exploiting the crisis to inflate their margins.

“Putting food up by 20%-30% on some products because of pressures from manufacturers and having ‘no choice’ and then recording whopping great profits is a bit like the energy companies, isn’t it?”

“Poor form.”

Yesterday former small businesses minister Jane Hunt raised questions over the Aldi price match schemes at the centre of several supermarkets’ price strategies.

She demanded to know why food prices had risen so sharply when figures from the UN showed the cost of commodities including oil, cereals and dairy had fallen since last summer.

She also cited Which? figures claiming own-brand budget items had risen in price by 25% year on year. “Each one of you has spoken about Aldi price match and meeting Aldi prices. Is this in fact pegging prices?” said Hunt.

Experts say it is possible the CMA will also pose questions over the various Aldi price match schemes, although warned it would open a “hornet’s nest” with the schemes seen as the main plank in supermarkets’ response to the cost of living crisis.

“I can see why the CMA might be interested in the Aldi price match scheme,” said former competition commission inquiry director Andrew Taylor, now a partner at Aldwych Partners.

“The question the CMA will be posing to itself is whether this scheme provides a vehicle for price co-ordination across the industry. That is, if a lot of the grocery retailers are price matching against Aldi, then that provides the potential for informal behaviours that allow prices to increase and for competition to soften.”

Sainsbury's Aldi Price Match January 2023 Crawley

Tom Smith, a former CMA director and now competition lawyer at Geradin Partners, who first predicted the CMA would launch a probe into the grocery sector, said: “If lots of supermarkets are promising to match each other’s prices, there’s less incentive for them to drop their prices because they know everyone else will match it, and they will realise that would leave them all worse off.

“It might be something that’s pro-competitive if only a few people are doing it, but becomes anti-competitive if there is a web of price matches covering a lot of the sector.

“It seems like something the CMA could discuss in their report and say they are going to monitor it, although it would be tough to prove it is actually pushing prices up.”

“If the CMA unearths price fixing under the guise of price matching it could be brutal.”

Smith said he expected the CMA report to pull no punches, despite accusations it has been driven by political motives and the need for the government to show it is doing something to help consumers struggling with rising prices.

“They will try very hard to say something that sounds proactive,” he said.

“They might find some profiteering for certain categories, which they can highlight. Maybe there are certain pricing practices that aren’t helping matters, which they can criticise.”

Aldwych Partners’ Taylor added: “If the CMA turns up anything of interest, it will then have to go through a process of launching a formal investigation.

“This could be a market study or, if something more serious was evidenced, an investigation into a potential breach of competition law.

“I suspect the CMA will be looking at profit margins through the supply chain and will focus on a few sectors where the supply chain is particularly concentrated in terms of having only a few manufacturers and thus probably being at greater risk of prices being increased.”

However, Ged Futter, founder of The Retail Mind, said he was convinced the CMA’s probe would find no proof of supermarket profiteering.

“There is no proof whatsoever that any retailer has been profiteering and the suggestion that the Aldi price matching could be highlighted is ridiculous,” he said.

“Aldi price matching is doing exactly the opposite of increasing inflation. Is that a practice the CMA wants to stop?”

Chancellor Hunt, however, is reported to be demanding to know what regulators are doing about any companies exploiting inflation by keeping prices artificially high.

A Treasury source said he would press them and other regulators about whether there is a profiteering problem in their sectors and what they are doing about it.

The BRC defended supermarkets, saying there had been a “regular stream of price cuts” by supermarkets despite “extremely tight” profit margins.