How will the CMA’s investigation impact infant formula sales?

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Danone dominates the infant milk formula category with more than a 70% market share through its leading brand Aptamil

The Competition & Markets Authority (CMA) has been investigating profiteering across a number of UK food categories, and infant formula is one of the categories firmly in the spotlight. However, the CMA is now launching a full-scale review into the category, and is due to report its findings in September. The deadline for comments is 13 March.

Last November, the CMA said the average price of infant formula in the UK had risen by a quarter over the past two years, with parents struggling with high formula prices during the cost of living crisis. The CMA will review the structure of the market and look at whether there are sufficient incentives to drive competition.

Infant milk formula is a category where parents are reluctant to trade down to private label, and in the case of the UK market, Danone dominates with more than a 70% market share through its leading brand Aptamil. Like all food companies, Danone has faced severe inflation, and would probably argue it has actually limited price increases due to its own productivity saving initiatives, which have offset one-third of its cost inflation. Despite retail pricing for infant formula moving higher, it is not clear whether Danone margins in UK infant formula are higher than before the spike in inflation, which is clearly a factor of interest to watch for as part of this review.

Either way, as dairy prices have come down, Danone has announced a 7% Aptamil price reduction to the trade, which should start to help affordability even if pricing remains at historically high levels. If input costs come down further, Danone may have scope to take pricing down further.

However, looking around the market, it is interesting to note cheaper own-label infant formula alternatives have taken, in some cases, far more pricing than the branded players in percentage terms, which demonstrates that record inflation was impacting all industry players. Consumer price inflation in the UK has been running at higher levels than in other European countries, and there are many other grocery brand prices that are up by more than a quarter over the same period, but are not in the spotlight in the same way as infant formula.

In terms of the structure of the UK infant formula market, while Danone and Nestlé do dominate, we are seeing the emergence of a third branded player, Kendamil, which is gaining market share and increasing competition.

The other issue which seems different in the UK is that in many other countries, governments and healthcare providers recommend growing-up milks for babies over the age of one, rather than moving them over to solids more quickly. The NHS no longer recommends this, and says it is fine to use first-formula after breastfeeding and up to one year old. Whatever the health consequences of this view is, this is impacting the size of the stage two and stage three infant milk formula segments in the UK.

The fundamental issue is that in almost all countries in the world, there are only a handful of global infant milk formula players, and that is unlikely to change anytime soon given high barriers to entry. It will be interesting to see what conclusions the CMA comes up with, in what is obviously a complex area.