There was much fluttering in the liberal dovecotes this week over the prices being charged by the big supermarkets. It’s shocking, the way they have raised their prices further than their costs, and there oughta be a law against it. Well, there is one, sort of, under the Competition and Markets Authority, which started the rumpus.
The fault, if that’s the word, lies not with the supermarkets themselves, which operate with tiny margins, but with the suppliers. During the great inflation, some of them saw the opportunity to fatten their own profit margins and, shockingly, have taken it. The CMA doesn’t approve of this sort of behaviour, but is obliged to add rather limply, that in most cases, cheaper alternatives are available.
The single exception the authority can find is in baby formula, where the competition is described as “ineffective.” Baby formula is effectively a duopoly. Such markets are never healthy, but the barriers to entry here are high, and for what it’s worth, the participants say they compete vigorously.
As for baked beans, mayonnaise and pet food, the CMA is reduced to general grumbling about how over the last two years, manufacturers have raised their prices by more than the increase in their production costs. With food inflation galloping along, such conduct is considered very poor form.
Is it? There are brand leaders in most food categories, whose positions have been built up over many years providing a consistent product and persuading customers to pay premium prices. Short of some sort return to price controls (fortunately ruled out last summer) there is no reason why Heinz should keep the cost of baked beans down, if people are prepared to pay up. Indeed, were Unilever to squeeze its margin on Marmite, as a gesture towards a cost of living crisis, us shareholders might suggest that the management is failing to look after our interests. Losing market share for higher profits is a legitimate policy, although a poor strategy.
The task of the CMA is to try and ensure that there is proper competition, not to dictate what is a reasonable profit margin. If I choose to pay up to pamper the pooch with premium chow while I downgrade to own-label lemonade, that is up to me.
The CMA’s sideswipe at categories where it admits there is reasonable competition is simply playing to the gallery. It is encouraging the popular view that state interference is always a good thing, and that big business is a conspiracy against the consumer. Goodness, without the protection of the state’s knights in shining armour, we would be royally ripped off.
If the CMA did not exist, something like it would have to be invented, and there are plenty of examples of markets where competition is “ineffective” but less likely to grab the headlines. Its boffins have now moved on to picking the bones out of the supermarket loyalty card industry. That’s an altogether harder nut to crack, so best of luck.
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