Weakened competition in the fuel sector persists, but competition in the groceries sector appears to be more effective in bearing down on retail margins, a new analysis by the regulator has shown.
The Competition and Markets Authority (CMA) has on Friday published an update on the action it is taking to ensure that people can get the best possible choices and prices in the face of ongoing cost of living pressures.
In its third interim monitoring update, the CMA has found that retailers’ fuel margins are still significantly above historic levels and supermarkets’ fuel margins are roughly double what they were in 2019.
The total cost to all drivers from the increase in retail fuel margins since 2019 was over £1.6 billion in 2023 alone, the regulator said.
When the CMA published its road fuel market study report in July last year, it recommended that a smart data driven fuel finder scheme be set up to make prices available to motorists across the UK in real time, such as through map apps and sat-navs. This will be backed up with ongoing monitoring by the CMA to hold the sector to account. This scheme could save drivers up to £4.50 each time they fill up, as it would make it easier to find cheaper fuel in their area.
The CMA is currently monitoring developments in the fuel market using information provided voluntarily by fuel retailers. It has created a temporary price data-sharing scheme, and the regulator said it is positive that some major players have started to integrate this into consumer-facing products, like apps. However, the current scheme covers only 40 per cent of fuel retail sites and is not comprehensive enough to be utilised by map apps or sat-navs to bring accurate, live information to people.
The proposed introduction of the Digital Information and Smart Data Bill by the new government could provide the legislative basis to set up a compulsory and comprehensive scheme that would change this, the CMA noted.
“Last year we found that competition in the road fuel market was failing consumers, and published proposals that would revitalise competition amongst fuel retailers. One year on and drivers are still paying too much,” Sarah Cardell, chief executive of the CMA, said.
“We want to work with government to put in place our recommendation of a real-time fuel finder scheme to kick-start competition among retailers. This will put the power in the hands of drivers who can compare fuel prices wherever they are, sparking greater competition.”
Last year the CMA launched a wide-ranging project looking at competition and prices in the groceries sector, to make sure that people can get the best deals possible when they are shopping for essentials.
In the CMA’s review of the sector in July 2023, it did not find widespread evidence of weak competition: profit margins were historically low; consumers were switching to get the best deals; and the lowest-price retailers were gaining market share from others.
But the CMA committed to have another look at this and monitor margins as costs came down, and the regulator said the updated retailer profitability analysis, published today, should provide shoppers with reassurance that competition in the groceries sector appears to be effective in bearing down on retail margins.
Grocery retailer revenues, profits and margins have increased slightly, in aggregate, in the most recent year (FY 2023/24), as inflation has eased. However, the CMA found that the average operating margin for grocery retailers was less than 3 per cent last year, which remains below pre-pandemic levels.
Overall, this does not give the CMA cause for concern about the general state of competition in the groceries sector.
Through its review of the groceries sector, the CMA identified significant price rises for infant formula (over 25 per cent between 2021-23) and launched a formal market study in February.
Five months into the study, the CMA has concerns that the combined effect of the current regulatory framework, the behaviour of suppliers, and the needs and reactions of consumers buying formula, may be resulting in people paying more than they need to.
The CMA said it will publish an interim report in October setting out in full the concerns it has in this market and its provisional recommendations for action to improve it.
