The Competition and Markets Authority (CMA) is continuing to focus its enforcement activities across multiple sectors to protect consumers and support the government’s growth agenda. The grocery industry remains in its crosshairs as the authority aims to tackle anti-competitive practices in an area of essential spend for consumers.
Armed with new powers under the Digital Markets, Competition and Consumers Act (DMCC), the CMA may launch more investigations into companies in the grocery sector. These lengthy probes often begin dramatically with unannounced “dawn raids” that can turn a quiet Tuesday morning into chaos, write Kate Newman, Partner and Head of Competition, and Nicola Holmes, Principal Associate, at Mills & Reeve.
What is a dawn raid?
Dawn raids are unannounced inspections allowing the CMA to search for evidence of suspected anti-competitive agreements or conduct. They typically signal the beginning of a protracted investigation; to gain a warrant to conduct a raid, the CMA must already possess substantial information to back up its suspicions.
The raids are typically hugely disruptive, placing enormous pressure on organisations. And under the DMCC, they’re about to become even more intrusive – and personal.
The impact of the Digital Markets, Competition and Consumers Act 2024
The DMCC enhances the CMA’s dawn raids powers, including extending “seize and sift” powers to domestic premises, allowing for the off-site examination of seized personal devices, like laptops, and reflecting the rise in remote working. Its powers to interview people have also been expanded – the CMA can now require any individual to attend an interview or answer questions, not just those connected to a business under investigation.
Additional long-awaited new powers under DMCC mean that the CMA can now also enforce consumer protection laws directly and impose fines for breaches in line with its competition powers.
How dawn raids are evolving
Dawn raids aren’t just for big corporations – any sized business can be targeted at any time. They’re also not limited to company headquarters, and can target wider business locations, including directors’ homes.
These operations are now heavily IT-focused. The CMA arrives with its own hardware and search tools, plugging directly into company systems to harvest data electronically. They scrutinise all communication channels – not just emails, but Teams, WhatsApp, and instant messaging.
Most shocking for many is that the CMA will be able to seize or review personal mobile phones if these have been used for work. In a raid, individuals could be without their phone for extended periods and feel like a very private part of their life has been intruded upon – a reality few anticipate.
The potential outcomes from an investigation
If the CMA finds law-breaking, it can impose financial penalties up to 10% of global group turnover without court approval.
Those alleged to have committed cartel offences may also face criminal prosecution, although only three successful prosecutions have occurred since this power began in 2003. Instead, the CMA has focused on using its power to seek court orders to disqualify individuals from directorships, and these are now considered in all cases.
That said, to align with the government’s growth agenda, we’ve seen some signs that the CMA is increasingly exploring faster and more novel resolutions through the likes of early settlements and agreed compensation arrangements.
Why is the spotlight on the grocery industry?
The CMA is under pressure to use resources efficiently while supporting the government’s growth agenda, focusing primarily on eight key sectors outlined in the UK Industrial Strategy, published in June.
Though the grocery industry isn’t among those eight, it’s likely to remain under intense scrutiny. Food and drink represent essential consumer spending, and with persistent food inflation, cost-of-living pressures, and the government identifying food security as a national security issue, the sector can’t escape attention.
Using its consumer law powers, the CMA will likely target price displays, drip pricing, false advertising, fake reviews, and misleading marketing claims. New simplified guidance has been published in draft and is expected to be finalised this autumn, with enforcement to follow.
The CMA will likely focus particularly on situations where consumers receive false information or where aggressive sales practices harm vulnerable consumers. Loyalty schemes and price matching may also come under the microscope.
Dawn raid warning signs
The CMA isn’t in the business of telegraphing its intentions ahead of time, but warning signs exist that threat levels may be rising. It’s advisable to take heed of these.
For example, enforcement activity in your sector – both domestically and internationally – should put you on alert. Monitor press reports and annual reports mentioning investigations or fine provisions.
The CMA also sometimes sends warning letters to companies or entire sectors when it spots potential competition issues. You can track these via the CMA’s “heat map” for early warnings.
Stay vigilant about your own business activities too, particularly in areas under CMA scrutiny. One current CMA priority area that may be particularly pertinent to the grocery industry is “labour market” competition issues, for example wage-fixing or no-poach arrangements between competing employers.
Top tips for dawn raid preparedness
In practice, companies often lack preparedness for competition investigations and dawn raids. During stressful raids, individuals can struggle to locate critical information that may be buried in physical files, computer systems, or company intranets, precisely when they need it most.
With so many changes and new threats, now is a particularly important time to update dawn raid policies. These policies should be designed to provide practical support and guidance in a user-friendly way, to support companies in two ways:
1. Ensuring the CMA stays within its legal powers.
2. Enabling a rapid understanding of what’s happening, in order to develop a strategic response.
Fundamentally, documented dawn raid policies and manuals, which provide checklists and guides, and which detail CMA powers and raid handling procedures, are a must. Increasingly, this can be supplemented by digital tools such as the app we have developed (on Apple’s App Store and Google Play).
Customised training for different roles is advisable, with reception and security staff receiving first contact protocols and basic “do’s and don’ts”’, and senior executives gaining knowledge on personal responsibilities and risk management, for example.
To test these policies and procedures, it may even be sensible to carry out a “mock dawn raid”. We have supported a number of clients in delivering these intensive training exercises, in which we send out a team to play the role of officials from the CMA, and review the company’s responses.
Time to prepare
The CMA will want to flex its new muscles with the grocery sector squarely in its sights. Dawn raids remain a key part of their investigation toolkit, and with expanded enforcement and inspection powers, the need to prepare has never been greater.
So don’t wait for the knock at the door. We’d advise any company in the sector to have a robust dawn raid strategy in place, to put you in the best position should the unthinkable happen.
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