Supermarket loyalty prices do NOT cheat shoppers, watchdog says

According to the competition watchdog, supermarkets do not rip off consumers with their loyalty prices and do not benefit unfairly.

Major supermarkets came under suspicion of profiteering when food prices began to rise at the end of 2021.

They began offering reduced prices for those signed up to loyalty programmes such as Tesco Clubcard or Sainsbury’s Nectar, while non-members paid more.

Many felt that loyalty discounts were the “real” cost of food, and that the non-discounted price represented a high markup for people who did not register.

But the Competition and Markets Authority (CMA), which launched an investigation into supermarket pricing in January, said today there was no evidence loyalty pricing was unfair.

Although the CMA’s review is ongoing, the watchdog’s update noted that it was “unlikely to identify widespread evidence of loyalty promotions misleading shoppers”.

The CMA’s investigation aims to find out whether consumers who do not subscribe to loyalty programmes are paying more than they should for products.

But the watchdog said it had concerns about whether non-loyalty scheme discounts were accurate, for example when a product has different “before” and “after” prices.

Shore Capital equity analyst Clive Black has defended supermarket loyalty programmes, saying they can be a genuine help to customers.

He also criticised the CMA’s statement that buyers were hungrier than ever for deals.

Black said: “Does the CMA think that post-World War II shoppers didn’t look for deals, didn’t look at the source of food promotions, didn’t look at poverty levels in the UK during the deindustrialisation years of the 1970s and 1980s and thought shoppers back then were dumber? What nonsense!”

‘What has changed is that there are now loyalty programs that are owned by retailers and have a digital capability that was not evident in the past.

‘Indeed, we have been on record in the past that Tesco Clubcard pricing is one of the most significant and innovative promotional and value-generating mechanisms we have seen in a long time for shoppers, suppliers and the retailer’s shareholders, and those who see it as a gimmick are sorely mistaken.’

Are supermarkets profiting?

The CMA believes supermarkets are not overcharging customers for their purchases and that competition keeps prices fair.

The CMA found that the average grocery store operating margin was less than 3 per cent in 2022/23, adding that this “gives the CMA no reason to be concerned about the overall state of competition in the grocery sector”.

These margins increased in 2023/24, but are still below the levels seen in 2019/20, before food prices began to rise.

The CMA added that “we found no widespread evidence of weak competition: profit margins were historically low; consumers were switching products to get the best deals; and retailers with the lowest prices were gaining market share from others.”

But prices could rise in the future.

The CMA believes that the big supermarkets want to increase their profit levels. There are many ways to do this, but the big two are either raising food prices or cutting costs in some other way.

The CMA will release its final report on supermarket prices in November.