UK competition authority to investigate infant formula market

The news comes after the Competition and Markets Authority (CMA) found evidence that branded formula suppliers had increased their prices by more than their input costs, essentially increasing profit margins at consumers’ expense.

UK formula prices have risen by 25% over the past two years, but the CMA found that shoppers rarely if ever switched to a lower-priced product, particularly when compared to other inflation-hit grocery items.

According to CMA’s report Price inflation and competition in food and grocery manufacturing and supply, there is ‘very weak own-label presence’ in the market, with discount supermarket chain Aldi the only retailer to produce its own brand of formula. Product prices are also stable across UK retail – CMA found that branded products did not vary across the major supermarket chains and Boots, the UK’s largest pharmacy chain, in November 2023, though Iceland offered such products cheaper than the majors and Aldi’s own-brand product was the cheapest per 100g on the market.

The findings raise questions over suppliers’ incentives to offer formula at competitive rates and whether consumers have the right information when they need it to make effective buying choices. At the same time, the regulator stressed that all formula products regardless of their pricing provide the essential nutrients required for infant health and development.

“Unlike other products examined, there is little evidence of parents switching to cheaper branded options as prices have risen and very limited availability of own-brand alternatives,” the CMA stated.

The regulator said that the UK infant formula market is ‘highly concentrated’, with two brands owning 85% of the market share. Danone has the largest share of the UK market with its brands Aptamil, Cow & Gate and Nutritia, accounting for around 71%. Other key players are Nestlé through SMA Nutrition and Little Steps (14%), Kendamil (9%) and HiPP Organic (5%). CMA analysis of Kantar data showed that own-label products account for 5% of the market for infant formula and follow on formula by volume. Danone is also looking to venture into the vegan formula market through a multi-stage partnership with Else Nutrition, as reported by sister publication FoodNavigator​.

Only 5% of parents make decisions based on pricing

Unlike in the US, where infant formula brands can be marketed to consumers directly, UK regulations limit how consumers receive information about formula as to not discourage breastfeeding. But this practice can limit how shoppers make buying decisions, the CMA found. “Despite the lack of published research, we heard concerns from stakeholders that consumers may not have the right information at the right time to make well-informed purchasing choices,” the CMA wrote in the report. “In particular, we heard concerns that there is low consumer awareness that all infant formula products provide all of the nutrients a healthy infant needs until complementary feeding is introduced.”

The biggest drivers as identified by CMA are friends and family recommendations, advice from health professionals, brand awareness, previous experience with a particular brand, and seeing and using a particular brand in a healthcare setting. The regulator said it had evidence that around three quarters of consumers choose a formula product pre-birth or at birth, eg. In hospital – ‘a particularly vulnerable time’, further highlighting the need for timely information on the product choices available on the market.

“Despite the fact that all infant formula products provide all the nutrients a healthy infant needs, until complementary feeding is introduced, and the significant price differences between the cheapest and most expensive products, we heard that lower prices were not a significant factor in consumer decision-making,” the CMA said. “One supplier sent us survey data received from MetrixLab in 2023 showing that only 5% of parents make decisions on infant formula based on pricing.”

The same survey data showed evidence of limited switching between brands, with 65% of parents using one brand – and when they do switch, it was more often because their child ‘was not happy’ (35%) rather than due to pricing (18%).

According to First Steps Nutrition Trust data, the price per 100ml of reconstituted powdered cow’s infant formula based in August 2023 varied from 13p per 100ml for the cheapest product (Cow & Gate First Infant Milk, 1200g pack) to 35p per 100ml for the most expensive (Aptamil 1 First Milk Tabs, 552g pack).

“It is important that consumers who decide to use infant formula are equipped to make well-informed choices, and that suppliers face incentives to offer infant formula products at competitive prices,” the CMA concluded.

“The evidence that we have seen to date raises potential concerns as to whether this is happening. With this in mind, we plan to carry out further work in the infant formula market. As part of this, we will gather further evidence to better understand: consumer behavior, the drivers of choice and the information and advice available to consumers to support their decisions; barriers to entry and expansion for infant formula manufacturers, [and] the role of the regulatory framework and its enforcement in influencing market outcomes.”

The CMA is set to carry out its review now and release its conclusion in mid-2024.