Supermarkets’ loyalty schemes have been drawn into focus for their alleged inflationary impact, according to a probe by the the Competition and Markets Authority.

The regulator said it will launch a major review of the sector early next year, and will also look into the baby formula market in particular.

It made the announcement following its latest findings from a two-year ongoing investigation of the groceries sector, and its impact on competition and inflationary pressures.

Its findings include that three-quarters of branded suppliers in products such as baby formula, baked beans, mayonnaise and pet food have hiked their prices faster than their costs have gone up, and therefore contributed to higher food price inflation by increasing unit profitability.

In all but one of the categories, consumers switched from brands towards own-label cheaper alternatives – a “positive” sign for competition as consumers are able to lessen the impact of inflation.

When it comes to baby formula, the CMA highlighted that it is dominated by two major players. Sarah Cardell, chief executive of the CMA, says there’s a lack of evidence to show people are switching to cheaper products and limited own-label alternatives, as a result

“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,” she added.

“We will investigate this further and consider whether changes to regulations are necessary to ensure parents can get the best deal possible.”

In particular, the watchdog said it would look at the growth of supermarkets which offer cheaper prices only to customers who sign up to their loyalty cards, claiming the practice puts pressure on inflation.

“We have also seen an increase in the use of loyalty scheme pricing by supermarkets, which means that price promotions are only available to people who sign up for loyalty cards,” she added.

“This raises a number of questions about the impact of loyalty scheme pricing on consumers and competition, and the CMA will launch a review in January 2024.”

The CMA also launched a review into the baby formula market, which is highly concentrated in the hands of just two players.

Cardell adding that: “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.”

This comes after fresh figures showed food inflation has sharply slowed, but higher business rates and the increase in the national living wage could reverse progress.

Major supermarkets have been approached for comment.

Press Association