The competition regulator will investigate big brand owners such as Heinz, Unilever and others over concerns that shoppers are paying too much for their groceries.
The Competition & Markets Authority said that its investigation into increasing grocery prices would look at international food conglomerates. This is likely to include Coca-Cola, Mondelez (owned by Cadbury) and Mondelez-owner Cadbury.
CMA’s new phase comes after its initial investigation, which found no evidence that supermarkets were profiting from consumers despite concerns over “greedflation .
As part of its next phase, the CMA will “increase our focus on metrics of financial performance for branded and private-label food suppliers”.
The watchdog cited higher profit margins for the sector than that of grocers, as a phenomenon which warranted further study.
In its report, the CMA stated: “Associated British Foods, which produces various branded goods, such as Kingsmill bread and Silver Spoon Sugar, has achieved operating margins of between 10pc to 12pc.
“International brand suppliers such as Mondelez Unilever Coca-Cola do not report their UK business performance, so it is impossible to assess their UK businesses using publicly available data.
The operating margins of these companies are higher than 15pc at the consolidated level. To give you some context, historically the operating margins of retailers have ranged between 1pc and 5pc.
According to the CMA, its investigation revealed that supermarket profit margins have fallen from 3.2pc (in 2022) to 1.8pc (in 2023).
In recent months, some retailers and suppliers have been at odds over price hikes.
Heinz pulled their baked beans and Ketchup from Tesco shelves in June of last year, after the supermarket promised to protect its consumers from “unjustified price increases”.
Tesco finally caved in to the pressure, and agreed that Heinz would receive more for its products.
The CMA stated: “Overall it appears that large retailers have the knowledge and bargaining power needed to ensure that prices paid to their own-label suppliers remain competitive, but may not have as much ability to negotiate with large suppliers of brand goods.”
The CMA chose a few product categories to examine to make sure the supply chain works well for consumers. Baby formula, breads, pet foods, milk, and mayonnaise are all products that the CMA has investigated.
The CMA stated that supermarkets should pass the savings from falling wholesale costs on to customers by lowering their prices.
The wholesale cost of ingredients such as dairy and wheat has decreased. This is “some evidence” that the grocers have rebuilt their profit margins.
Premier Foods (which owns Mr Kipling’s, Bisto gravy, and Sharwoods sauces) also announced on Thursday that it would not be raising prices this year, as the cost inflation had peaked.
The official figures released on Wednesday revealed that inflation dropped faster than expected to 7.9pc in June.
The rate of food inflation has slowed down, but prices are still 17.3pc higher than a year earlier. Office for National Statistics reports “dramatic” drops in the raw material costs for business.
Coca-Cola Unilever and Heinz are available for comments. Mondelez’s spokesman stated that the company would be willing to cooperate with any future review.