The CMA’s final report challenges infant formula makers with new rules on labelling, retail display, and brand influence, targeting high consumer prices. While the regulator rejected to impose price caps, the new measures are likely to impact Nestle and Danone’s brand reputation and impact their gross margins.
What’s the issue?
The UK Competition and Markets Authority (CMA) has concluded its year-long market study into the infant and follow-on formula sector, finding that market conditions continue to produce poor outcomes for consumers. The final report, published in February 2025, confirms that high prices, weak competition, and heavy reliance on branding—rather than nutritional differences—persist across the market.
The CMA finds that the UK formula market remains highly concentrated, with the top three manufacturers—Danone, Kendal Nutricare, and Nestlé—controlling between 90–100% of supply. Despite an influx of lower-cost entrants, the dominant players have been able to maintain price premiums and high gross margins. Notably, Danone’s Aptamil, the top-selling brand, can cost parents over £700 in the first year of use, while a cheaper product like Little Steps costs around £400, with no nutritional inferiority.
Chart 1: Estimated Annual Cost of Infant Formula (UK, 2024)
| Brand | Annual Cost (Est.) |
|---|---|
| Aptamil | £700 |
| SMA Advanced | £740 |
| Little Steps | £400 |
What’s at stake?
While the CMA has opted not to open a full market investigation, it has issued a comprehensive package of regulatory reform recommendations aimed at reshaping the competitive landscape. These are not mere procedural fixes: they target deep structural levers, including consumer decision-making, labelling standards, and information asymmetries.
Key recommended measures include:
- Mandatory standardised labelling for all infant formula, emphasising that cheaper options are nutritionally sufficient.
- Restrictions on vague or emotive brand language, such as “advanced” or “research-inspired.”
- Limiting brand influence in NHS hospitals through non-branded packaging or white-label procurement.
- New display rules requiring retailers to cluster all infant formula products together, separated from follow-on and toddler milks.
- Voluntary pilot programmes for in-store and online information displays to be followed by mandatory regulations.
These interventions signal a regulatory shift from pure enforcement to behaviourally informed structural change. The CMA explicitly rejected both price controls and removal of advertising restrictions, deeming them either disproportionate or ineffective in the current policy context.
Table 1: UK Market Share in Baby Formula (Estimated, 2023)
| Brand | Company | Market Share |
|---|---|---|
| Aptamil | Danone | ~40% |
| Cow & Gate | Danone | ~25% |
| SMA | Nestlé | ~20% |
| Others | Various | ~15% |
What’s at stake for Danone and Nestle?
The most immediate regulatory risks fall on Danone, which commands between 50–60% of market supply and has historically led pricing. The CMA noted that Danone was able to raise prices with “limited regard for competitors” and maintained gross margins in the 50–75% range during the 2021–2024 inflationary period.
Chart 2: Infant Formula Manufacturer Gross Margins (2019–2024)
| Manufacturer | Gross Margin Range (Est.) |
|---|---|
| Danone (Aptamil) | 50–75% |
| Nestlé (SMA) | ~60% |
| Kendal Nutricare | Lower, but rising |
Kendal Nutricare, maker of Kendamil, has grown from a [0–5%] share in 2019 to [20–30%] in 2024 and is now the UK’s second-largest supplier. While Kendal is currently aligned with many of the CMA’s objectives (offering lower-cost, British-made products), its branding strategies—particularly for follow-on milks—may also come under scrutiny if advertising restrictions are tightened.
Retailers (Tesco, Sainsbury’s, Boots, etc.) are also affected. Although their margins have stayed steady at 18–22%, they may now face new regulatory obligations around product display and consumer guidance—potentially increasing compliance costs and altering supplier relationships.
What’s next?
The CMA has handed off implementation to the UK’s four governments (England, Scotland, Wales, and Northern Ireland), who are now responsible for translating the recommendations into enforceable regulations. Measures are expected to roll out in two phases:
- Voluntary pilots (starting 2025): In-store signage, standardised hospital practices, and retailer display changes.
- Mandatory regulation (from 2026 onward): New labelling rules, advertising restrictions, and enforcement mechanisms.
The CMA has signalled that price controls remain a backstop if market outcomes do not improve. This conditional threat adds long-term pressure on incumbents to lower prices or risk direct intervention.
Note for investors
This report represents a material threat to margin structures and branding strategies in a high-value consumer goods segment. In 2023, Danone’s global Specialized Nutrition division delivered a 20%+ operating margin, while Nestlé’s infant nutrition portfolio is considered a core strategic focus. For Danone, whose UK Specialized Nutrition division delivers an estimated €1.6 billion in revenue, the risks are twofold:
- Reduced pricing power from label standardisation and advertising restrictions.
- Increased competition if parents are nudged toward low-cost brands like Kendamil or Aldi’s Mamia.
The CMA’s behavioural framing also matters. Rather than proving consumer harm through abuse of dominance or collusion, it is focused on “vulnerabilities” and “emotive pricing”—a precedent that could extend to other sectors where brand perception trumps functional differentiation (e.g., over-the-counter medicines, premium pet foods).
Meanwhile, Kendal Nutricare may see increased investor interest as a reform-aligned challenger. However, it too may face restrictions on brand-based differentiation if the CMA’s full package is adopted.
| Company | Potential Impact |
|---|---|
| Danone | High: Margin compression, brand erosion |
| Nestlé | Moderate: Follows Danone’s pricing lead |
| Kendal Nutricare | Mixed: Growth upside, branding limits |
| UK Retailers | Moderate: Compliance costs, margin squeeze |
Sign up to our weekly newsletter to get access to members-only content
