UK – The UK Competition and Markets Authority (CMA) is set to investigate the baby formula market after revealing a staggering 25% increase in infant formula prices over the past two years.

The surge, occurring at a pace faster than the cost increases borne by companies, has prompted concerns of potential market manipulation and profit-maximizing strategies during the ongoing cost of living crisis.

The CMA’s findings highlighted a duopoly in the market, with just two major suppliers, Danone and Nestlé, accounting for a substantial 85% of infant formula sales.

Furthermore, the watchdog expressed apprehension about the limited availability of own-brand alternatives, restricting consumer choice in the market.

The investigation announcement coincided with the CMA’s publication of its findings on inflation in the grocery sector.

The report indicated that over the last two years, approximately three-quarters of companies in various categories, including baby milk, have raised prices more than their costs, leading to significant profit margins.

Sarah Cardell, the Chief Executive of the CMA, expressed concern about the lack of diversity in the baby formula market and suggested that parents could save over £500 in the first year of a child’s life by exploring alternative, cheaper options.

The investigation aims to determine whether regulatory changes are necessary to ensure competitive pricing and informed consumer choices.

The baby formula market is dominated by Danone, holding a commanding 71% share, and Nestlé, with a 14% share.

The only British producer, Kendamil, has a 9% share, while HiPP holds a 5% share. The CMA emphasized that differences in formula brands primarily stem from costs, as manufacturers must adhere to stringent government rules on ingredients.

Notably, the CMA identified baby milk as a sector of particular concern, with a detailed report on the findings expected to be released next year.

Both Danone and Nestlé responded to the investigation, expressing openness to dialogue. Danone highlighted its efforts to navigate cost increases while minimizing price hikes, while Nestlé welcomed the review and affirmed its commitment to keeping products affordable.

The broader context of rising food prices and increased inflation has prompted consumer advocacy groups like those to scrutinize the profit-increasing tactics of major brands.

“There are growing concerns that consumers relying on smaller-sized shops and convenience stores may struggle to find more affordable options, especially as supermarket prices are estimated to have increased by over a quarter in the last two years.”

In addition to the baby formula market investigation, the CMA intends to launch a probe into loyalty scheme pricing in January, focusing on the impact of supermarkets offering deals exclusively to customers enrolled in their loyalty programs.