Tesco, Sainsbury’s, and Ahold Delhaize are posting profit ratios with levels and trends that could draw regulatory scrutiny. In Australia, Coles and Woolworths—operating with similarly elevated profitability—have already come under investigation by the competition regulator and are now subject to measures aimed at boosting competition in the grocery sector. A signal for other supermarkets?
Australian Supermarket Study
In its supermarket sector inquiry, the Australian Competition and Consumer Commission (ACCC) utilized several key financial ratios like net profit margin, operating profit margin and ROE to assess the profitability of major supermarket chains, including Coles and Woolworths. The specific figures are in the table below, but in summary, the ACCC’s analysis highlighted that these Australian supermarkets were among the most profitable globally, with profit margins surpassing many international counterparts. This led the regulator to raised concerns about the level of competition within the sector and impose some remedies aimed at improving transparency, promoting entry, and strengthening consumer protection.
Regulators’s detection tools
As we discussed in a previous article, leniency applications for cartel detection have dropped by 58% in recent years, prompting regulators to rely more heavily on alternative tools to uncover illegal conduct and identify markets that may not be competitive. Among these tools are market studies and the proactive screening of financial and economic data to detect abnormal returns. This shift means that sectors where companies consistently report excessive profits above certain thresholds are increasingly likely to come under investigation or be targeted for a market study.
EU Supermarkets
At Antitrust Intelligence, we set out to examine the profitability of some of Europe’s largest listed supermarket chains to see how their performance stacks up against benchmarks used by competition regulators.
The chart below displays net profit margins from 2015 to 2024 for leading supermarkets in the UK, France, the Netherlands, and Australia. At the end of the article, you’ll find the full data table underpinning this analysis.
Two familiar names stand out: Tesco and Sainsbury’s. While their strong and steady profit margins are undoubtedly attractive to investors, they also exhibit characteristics that have triggered regulatory scrutiny in other jurisdictions—most notably in Australia. In the ACCC’s recent supermarket market study, sustained and rising profitability—well above international benchmarks—was a central concern that led to regulatory intervention.
Notably, the CMA in the UK has used similar profitability-based screening in its funeral services market investigation and in its ongoing veterinary services study. Tesco and Sainsbury’s show increasing, persistent, and above-peer profits, echoing the trends that raised red flags in the Australian context. While Ahold Delhaize also shows notable margins, its figures are slightly lower and less consistent.
This analysis is, of course, limited: we focus solely on net profit margins, and do not assess ROCE, WACC, or other indicators that are typically required to form a full view of excess profitability. Still, the patterns are notable—and perhaps a signal of where regulatory attention may turn next.
Unfortunately, many of Europe’s largest supermarket chains are privately held, which limits the scope for similar analysis in other countries. But if and when data becomes available, it’s a space worth watching.
CMA’s Concerns on Fuel prices
The CMA has expressed strong concern that supermarket fuel prices remain elevated, with retail spreads and profit margins significantly above historical levels. Its latest findings show that supermarket fuel margins reached around 8.9% (or 10.5p per litre) by the end of 2024, compared to a pre-2019 average of around 6.5p per litre. The CMA believes that weakened competition—particularly since Asda and Morrisons stopped aggressively undercutting rivals—has led to Tesco and Sainsbury’s adopting passive pricing strategies, aligning prices with local competitors rather than reducing them to gain market share.
Why does this matter? Because the CMA is already monitoring the behaviour of UK supermarkets in the fuel sector—and the regulator is not particularly pleased. When you combine that with persistently high food prices, mounting consumer pressure on politicians, and profit margins that fall within ranges some regulators have previously flagged as excessive (not the UK though), the supermarket sector becomes a prime candidate for further scrutiny.
That said, it’s important to note that the CMA is not starting from scratch. It has an active monitoring function in place, and in its July 2024 report, the authority acknowledged that while profit margins had increased—and may continue to rise—they did not yet raise formal concerns. However, with continued pressure and new data coming to light, that position could shift.
Note for investors
Are other supermarkets enjoying the same profit levels as Tesco and Sainsbury’s?
Our sample was limited, so it’s difficult to draw definitive conclusions. However, among the listed companies we reviewed, Ahold Delhaize showed similar net profit margins, while Carrefour and Jeronimo Martins (JMT) reported lower net profit ratios.
That said, JMT stands out for other reasons. Despite its comparatively lower net margins, it maintained strong gross margins and has been flagged by analysts as having better earnings per share (EPS), EBIT growth, and revenue outlook than many of its peers.
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