UK CMA Continues Focus on Groceries with Market Study into Baby Formula

The market study follows on from an earlier report into price inflation and competition across the sector (the "Price Inflation Report"), where the CMA identified baby formula as a particularly high-margin category that had generated increasing unit profits for manufacturers during the recent period of high inflation. 

The Price Inflation Report, which was published in November 2023, found that own-label margins were low for most product categories and had fallen in the prior financial year. This was in contrast to branded products, where approximately three-quarters of brands that provided data to the CMA had increased their unit profitability during the same period. The absence of significant own-label options in the baby formula segment in the United Kingdom made the product category a particular outlier. 

A positive note for suppliers in other product categories is that the CMA identified that the switching and overall profitability trends observed across most product categories, together with evidence of effective competition in own-label supply, mitigated the concerns that might otherwise arise from unit profitability growth among some branded manufacturers. Despite this observation, the results of the report mean that there is likely to be greater scrutiny of branded suppliers in the months to come that will have implications for merger reviews, antitrust investigations, and consumer protection reviews in the sector. 

The baby formula sector has also faced recent scrutiny in the United States, with the Federal Trade Commission announcing last year that it had begun looking into potential collusion or coordination in bids to provide formula for the U.S. Department of Agriculture's "Women, Infants and Children" program, which provides free formula to low-income families.

These developments come in the context of two additional CMA investigations into the grocery sector announced in the last month, the first relating to unit pricing practices and the second relating to loyalty pricing.  

During this period of heightened focus on the grocery sector, suppliers contacted by the CMA should ensure they have a coherent antitrust strategy that takes account of the various lines of inquiry being pursued by the CMA across all of its investigations. In particular, where an information request is received in the context of one of these investigations, responses should be framed recognizing that any information or views provided may be used by the CMA in a range of contexts unrelated to that specific investigation.