CMA update on action to help contain cost of living pressures
The CMA today updated on the action it is taking to help contain rising cost of living pressures in road fuel and groceries.
Whilst many of the factors driving price increases are not competition related, the Competition and Markets Authority (CMA) has a vital role to play in giving consumers assurance that competition in critical markets is working well, so they can exercise choice with confidence.
Road fuel
The CMA is today providing an update on the Road Fuel market study it began last year.
While the evidence shows that the majority of fuel price increases are due to global factors, such as the Russian invasion of Ukraine, indications are that higher pump prices cannot be attributed solely to factors outside the control of the retailers. Based on evidence gathered as part of the Road Fuel market study, the higher prices drivers are paying at the pumps appear in part to reflect some weakening of competition in the road fuel retail market.
Evidence gathered by the CMA indicates that fuel margins have increased across the retail market, but in particular for supermarkets, over the past 4 years. As a result of these increasing margins, average 2022 supermarket pump prices appear to be around 5 pence per litre more expensive than they would have been had their average percentage margins remained at 2019 levels.
Although supermarkets still tend to be the cheapest retail suppliers of fuel, evidence from internal documents indicates that at least one supermarket has significantly increased its internal forward-looking margin targets over this period. Other supermarkets have recognised this change in approach and may have adjusted their pricing behaviour accordingly.
The CMA is also concerned that it may be seeing evidence of weaker competition in diesel, as compared with petrol, since the beginning of 2023. While some degree of variation in diesel retail margin is to be expected given the high levels of volatility in diesel wholesale prices, the high margins in 2023 appear to have gone on longer than would be expected. The CMA needs to understand whether weaker competition is part of the explanation for this.
Whilst the level of engagement with the study has varied across supermarkets, we are not satisfied that they have all been sufficiently forthcoming with the evidence they have provided. In particular, important information has only been received late in the day and after several rounds of information gathering. Given the concerns we have about a market of such importance to millions of drivers it is vital we get to the bottom of what is going on.
The CMA will now conduct formal interviews with the supermarkets’ senior management in order to get to the heart of the issues. We will issue our final report no later than 7 July 2023, covering the full range of issues we have considered in this market and setting out any further action that we think is needed.
Groceries
As cost of living pressures have grown, the CMA has been working to understand how well markets in essential goods and services are working. Along with road fuel, we identified groceries as an early priority, and we started work earlier this year looking into unit pricing practices online and instore.
While global factors have also been the main driver of grocery price increases, and at this stage the CMA has not seen evidence pointing to specific competition concerns in the grocery sector, it is important to be sure that weak competition is not adding to the problems.
Given ongoing concerns about high prices, we are announcing the stepping up of our work in the grocery sector to understand whether any failure in competition is contributing to grocery prices being higher than they would be in a well-functioning market.
The prices that consumers pay for their groceries are the result of competition at three main levels of the market:
- Competition between retailers, where consumers shop for their products.
- Competition between suppliers who make the products and sell them to the retailers.
- Competition between raw material providers who provide the inputs to food suppliers.
Given the need to provide findings swiftly, the CMA will do this work in a targeted way, focusing on those areas where people are experiencing greatest cost of living pressures.
This new phase of our work will therefore cover:
- First, completing work to assess how competition is working overall in the grocery retail market, drawing on publicly available data and other information.
- Second, in parallel, identifying which product categories, if any, might merit closer examination across the supply chain.
The CMA will engage with a wide range of industry participants, experts, and other stakeholder groups to inform our assessment. We will provide an update on this work over the coming months.
Sarah Cardell, Chief Executive of the CMA, said:
The rising cost of living is putting people and businesses under sustained financial pressure. The CMA is determined to do what it can to ensure competition helps contain these pressures as much as possible.
Our Road Fuel market study is nearly complete. Although much of the pressure on pump prices is down to global factors including Russia’s invasion of Ukraine, we have found evidence that suggests weakening retail competition is contributing to higher prices for drivers at the pumps. We are also concerned about the sustained higher margins on diesel compared to petrol we have seen this year.
We are not satisfied that all the supermarkets have been sufficiently forthcoming with the evidence they have provided in our Road Fuel market study, so we will be calling them in for formal interviews to get to the bottom of what is going on. It is a priority for the CMA to publish a full and final report, including recommendations for action, by the beginning of July.
Grocery and food shopping are essential purchases. We recognise that global factors are behind many of the grocery price increases, and we have seen no evidence at this stage of specific competition problems. But, given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well and people can exercise choice with confidence.
Notes to editors
- The CMA has today published a document on its work to contain cost of living pressures.
- More information is available on the CMA’s Road Fuel market study.
- The CMA started a programme of work looking into unit pricing practices online and instore in the groceries sector in January 2023.
- For media enquiries, contact the CMA press office on 020 3738 6460 or [email protected].
- Issues and evidence relating to the CMA’s groceries work can be sent to [email protected].