Baby food firms accused of ‘exploiting’ parents to make £367m for shareholders

Companies accused of artificially inflating the costs of baby formula to profit off of struggling parents paid out £360m to shareholders in 2022, openDemocracy can reveal.

Around three-quarters of branded food manufacturers “pushed up the prices they charge to retailers by more than the rise in their input costs”, according to a new report by the Competitions and Market Authority (CMA).

The regulator said parents in particular were being forced to swallow soaring costs, with the price of branded infant formula rising by 25% between March 2021 and April 2023.

Nestlé and Danone, which together account for 85% of the baby formula market in the UK, paid out £191.4m and £175.6m in dividends to shareholders respectively last year, according to accounts filed on Companies House.

SMA and Little Steps baby formula brands are owned by Nestlé, while Danone produces Aptamil and Cow & Gate.

Max Lawson, the head of inequality policy and advocacy at Oxfam, described the shareholder payouts as “a transfer of wealth from ordinary people who are having to pay more at the till to the bank accounts of wealthy investors”.

He added: “It's not like these corporations are taking these profits and then reinvesting or paying their workers more. Instead, we’ve seen an explosion in share buybacks to drive up their stock prices and then dividends.”

Some supermarkets reportedly began security tagging infant formula this year in response to what staff said were thefts driven by desperate parents struggling with the rising costs.

The CMA’s report noted that “unlike many other product categories, consumers often have no choice but to purchase infant formula”. It said it is concerned that there is too little competition to drive down prices.

Clare Murphy, the chief executive of reproductive healthcare charity BPAS (the British Pregnancy Advisory Service), said: “The growing cost of formula is an area of huge concern and it is high time action was taken to address the needs of women and their families, many of whom are struggling to cope with the significant increases at a time when other costs have also risen.”

Prices and profits rise

Some £293m was also paid out to the shareholders of companies that produce other household items whose prices have increased significantly beyond inflation for what the CMA deemed “unclear” reasons.

Branded manufacturers of baked beans, mayonnaise and pet food have “typically increased their unit profitability since 2021 (in other words, for every kilo or litre of product sold, they have made a larger profit)”, according to the CMA’s report.

The regulator told openDemocracy that it was “unable to share the names of branded manufacturers due to commercial sensitivities”, though some products and companies were identified in its report.

One example the regulator gave was the cost of a can of dog food, which rose by 52% between January 2022 and September 2023. 

Brands owned by Mars and Nestlé account for around a third of sales of pet food in the UK. Mars Petcare UK paid out £80m to its shareholders in 2022 after its profits rose by 14%, according to accounts filed on Companies House.

The price of branded baked beans, including those made by companies like Heinz, rose by 42% between January 2022 and September 2023, the CMA said. Heinz handed its shareholders £100m over the same period, according to accounts filed by its UK subsidiary on Companies House. 

Heinz told the CMA that price rises were due to rising energy, packaging and ingredient costs.

Last year, products including Heinz Beanz, ketchup and a number of pet food brands were temporarily not stocked in Tesco due to pricing disputes between the supermarket chain and Heinz and Mars Petcare.

Lemonade was another product where the CMA said it was unclear why prices had risen by 43% from January 2023 to May 2023. The market leader Coca-Cola, which produces Schweppes, paid dividends of £120m to its shareholders from its UK subsidiary in 2022, according to accounts filed on Companies House.

Fran Bernhardt, the commercial determinants co-ordinator at food campaign group Sustain, said openDemocracy’s findings “demonstrate that food manufacturers are taking advantage of families during the cost-of-living crisis in order to generate profits for their shareholders”.

The CMA opened its inquiry into food price inflation after it detected signs of profiteering following an earlier probe it carried out of rising prices in groceries. 

Although the regulator found some evidence of companies contributing to price inflation, it concluded that competition was not under threat because consumers were able to substitute most branded products for cheaper alternatives. 

Only infant formula proved an exemption to this and the CMA said on Wednesday that it would “examine further” whether weak competition had contributed to parents paying too much.

Murphy of BPAS said: “No woman should be priced out of choosing how to feed her baby. We welcome the CMA’s initial findings and commitment to further investigation.”