Supermarket probe leaves plenty of questions

IT'S taken two years, provoked some fierce lobbying and emotional responses from grocery retailers large and small but the Competition Commission's lengthy probe into the country's £95bn grocery sector has finally reached its conclusion.

Not that it's the first. Since 2000, concerns over the growing power of the UK's big four supermarkets – in particular Tesco – has prompted a string of investigations and reports.

But it was suspected anti-competitive practices highlighted by the Office of Fair Trading that lead to the Competition Commission being appointed in 2006 to look at the relationship between food retailers and their suppliers, the level of competition between retailers in a consumer's local area, the planning regime and land banks.

Since that time the inquiry panel has studied some 14,000 stores, received 550 submissions, attended 65 hearings, authored 26 working papers and conducted three surveys. In early 2007, the commission announced that local markets and planning issues were to take centre stage – the results of which were announced last October.

As predicted, the proposed recommendations revealed by commission chairman Peter Freeman focus on changes to current planning “tests” based on those first round findings.

They include:

• Changes to the current “needs” test which will see local authorities base their decisions on encouraging competition rather than local requirement and population levels using a 50,000 people to one supermarket formula;

• Changes to a “sequential” test in an effort to boost supermarket build on the edge of town. Currently the rule favours building in town centres, then edge of towns then out of town;

• The introduction of a new competition test, which will see planners consider the identity of a supermarket and its local market share before granting planning permission.

If approved, the competition test will force local authorities to take into account how many outlets a supermarket already has, and if it decides there are too many, support could be lent to an application from a rival. Under the commission's recommendation, the council would assess the number of supermarkets owned by one chain in a 10-minute driving radius for an urban area, or fifteen-minute radius in a rural one.

According to the commission's findings 200 geographical hotspots where consumers have little choice of where to shop including Bicester in Oxfordshire, which boasts no fewer than six Tesco stores.

It also discovered that a fifth of 520 landbank sites owned by the supermarkets had been bought strategically to stop other rivals moving in on their patch.

The supermarkets have broadly welcomed the commission's recommendations, although appear to be split on the benefits of the competition test.

Asda for example said that the new test would give shoppers “lower prices, more choice and better quality” while Tesco said it believed that it was nothing but a cap on successful retailers.

Someone to watch over Big Business

But it's not just the proliferation of supermarkets that has had the commission concerned. Long have suppliers complained of unfair treatment by the leading supermarkets.

As well as bearing the brunt of price cutting promotions such as BOGOF (buy one get one free), suppliers claim that they are the victims of a practice called retrospective pricing where they are forced to accept lower unit prices if a store decides to buy more produce ignoring any agreed contract prices.

Similarly, farmers are expected to compensate any risk on new products commonly paying a “slotting allowance”, which means paying for a product to appear on the shelf. Even popular products attract a hidden fee known as “pay-to-stay”.

As a result, the commission has proposed a new code of practice in how supermarkets must deal with suppliers, which will be overseen by an independent ombudsman.

And it won't just be the big four that the new rules will apply to. All grocery retailers with turnovers in excess of £1bn will have to be compliant, which sees the inclusion of M&S, Waitrose, Lidl, the Co-op, Iceland and Somerfield for the first time.

The recommendation is already attracted scathing scepticism. According to the British Retail Consortium, the proposals will make no difference to consumers.

Independent think tank The New Economics Foundation has accused the commission's proposals of being “perverse” and that supermarkets would “go to bed happy in the knowledge that have a largely compliant regulator”.

The proposals have also angered environmental campaigners. According to Sandra Bell, supermarkets campaigner for Friends of the Earth, even the competition test will fail to protect small shops.

“The Competition Commission has made it clear that it wants planning policy to be weakened to make it easier for big supermarkets to build new stores on the edge of and outside of town centres and may recommend scrapping key planning tests to achieve this,” she says.

“Such a move would come at the expense of specialist shops and real choice, and would be in direct conflict with government commitments to boost town centres and reduce car use.”

The Campaign to Protect Rural England said that the commission had a “narrow obsession between a few giant retailers” adding that the proposals could “spell disaster” for local shops and communities.

What the public's perception of the proposals will be is even more interesting. After all, it's their interests that lie at the heart of the investigation. Over the past few years a groundswell of resentment over the supermarket's domination has grown with operators such as Tesco particularly in the firing line.

Harrogate Borough Council's recent decision to not grant Tesco planning permission in the tow was in no small way influenced by a public campaign (and a well subscribed blog) to damage its efforts. The market share of independent retailers has halved in the last 10 years, but conversely convenience and price still rule – a trend much in the supermarkets favour. Whether the proposed recommendations, which will now go out to consultation with a decision expected in May, will have the desired effect is anyone's guess.

But the war isn't over and a new enemy at the supermarket doors has suddenly appeared. This week, the European Parliament declared that supermarket chains across Europe were potentially abusing their market position to drive down prices paid to suppliers.

It added that a small number of chains had become “gatekeepers” by controlling the access of farmers and other suppliers to the EU's 490 million consumers.

As a result, an investigation into the practices of Europe's biggest supermarket chains to be carried out by EU competition body – the European Commission – is being called for to protect consumer choice and the environment.

It seems that the supermarkets are forever destined to become victims of their own success.