The Commission found that the dominance of the groceries market
by the four biggest supermarkets is not harming consumers, but they
might be harming their suppliers. It also found that there was not
enough competition in some markets.
The Competition Commission (CC) has conducted a full
investigation into the grocery market after complaints that the
four biggest chains – Tesco, Asda, Sainsbury and Morrisons –
controlled too much of the food market.
The report found that there was enough competition to create
benefit for consumers. "In many important respects, consumers are
receiving the benefits of competition, such as value, choice,
innovation and convenience," said Peter Freeman, chairman of the
Inquiry Group and of the CC. "But we need to take appropriate
action to address those areas where they could be served better and
where their interests could be damaged in future."
Though consumers have benefited from low prices this has
sometimes come at the expense of suppliers to the supermarkets who
suffer because of the huge buying power of very big retailers, said
the report.
"Some aspects of the way retailers deal with their suppliers
could, if left unchecked, also harm consumers," said Freeman.
The Commission has invented a code of practice, the Groceries
Supply Code of Practice (GSCOP) for retailers whose revenues are
over £1 billion a year. They must comply with an over-arching
requirement that they deal fairly with suppliers, and must hire
in-house compliance officers with the new Code who must report
either to the audit committee or a non-executive director of the
company.
Other requirements under the GSCOP will be that retailers will
have to enter binding arbitration to resolve supplier disputes and
keep written supplier records which must be supplied to the
ombudsman who will be appointed to monitor GSCOP under the new
proposals.
The CC has called on retailers themselves to organise and
appoint an ombudsman but has told the Department for Business,
Enterprise and Regulatory Reform (BERR) that it should create an
ombudsman if the companies themselves do not do so quickly
enough.
The report is largely positive for the big retailers, said Giles
Warrington, a competition law expert with Pinsent Masons, the law
firm behind OUT-LAW.COM, because it rejects the fiercest criticisms
labeled at the four biggest chains.
"The CC has largely given the sector a clean bill of
health," said Warrington. "The CC has rejected many of the
arguments raised by third parties, in particular the Association of
Convenience Stores (ACS). In particular, the ACS and others argued
that the 'big four' multiples are able to exercise their bargaining
power with suppliers to obtain significantly lower prices than
other retailers and wholesalers."
"[The ACS said that] Tesco's market position was so strong as to
be anti-competitive. Given that the reference to the CC by the OFT
in the first place came about largely as a result of an appeal by
the ACS against the OFT, it will be interesting to see whether the
ACS seeks to appeal the CC's decision," he said
As well as creating new rules governing the supermarkets'
relationships with suppliers, the CC identified some market
problems which gave large retailers too much power. It ordered
retailers to release property developers from 30 identified
covenants, essentially guarantees that it will be the only grocery
retailer in a certain commercial development. It also ordered
another 30 to last no more than five more years.
The CC also recommended to local planning authorities that they
do not allow the granting of exclusivity for more than five years
in developments. It also recommended that there be a 'competition
test' for applications for planning permission for new development
which would involve the Office of Fair Trading in planning
decisions.
The CC said that the picture for smaller retailers was not as
gloomy as some had made out. "Whilst we have been sympathetic to
those finding themselves under pressure in this market,
particularly independent retailers, this does not mean that
competition is not working well – it is often the effects of
rivalry between retailers which benefit the consumer," said
Freeman..
"Competing with large retailers is difficult but our evidence
does not show that independent retailers or the wholesalers that
supply them are in terminal decline. It is not impossible for them
to compete and in the current economic climate the benefits of
vigorous competition are as relevant as ever," he said.
