Oct 31 2007
Supermarkets and the Prevention, Distortion and Restriction of Competition
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| Not a supermarket |
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Early reporting on today’s long awaited publication of the provisional findings of the Competition Commission’s 17-month (and counting) investigation into the groceries market gave the impression that the Commission (CC) had given the major mulitiple retailers a clean bill. “Competition inquiry to reprieve supermarkets” pronounced the FT.
There is real criticism of supermarket practices in the CC’s provisional findings, with suggested remedies that might just tackle some of the problems. But the CC also suggests changes to the planning system which would be nothing less than a bonanza for the larger retailers and spell further disaster for town centres and the small independent operators.
Uncompetitive Features
Read the report and you’ll find the CC stating clearly that “there is an adverse effect on competition”, identifying a number of uncompetitive “features” (a sanitised expression for damaging practices) of the market:
- “A significant number of local markets have high levels of concentration, and these high levels of concentration have persisted over a number of years”
ie there are “Tesco Towns” (and Sainsbury suburbs etc) whose inhabitants suffer from a lack of choice of food shops - “The control of land in highly-concentrated local markets by incumbent retailers acts as a barrier to entry”
ie the supermarkets are in possession of landbanks that restrict the development of competing stores - “the exercise of buyer power [...] through the adoption of supply chain practices that transfer excessive risks and unexpected costs to [...] suppliers [...] prevents, restricts or distorts competition”
ie the supermarkets do treat some of their suppliers unfairly
These are strong criticisms and bear out accusations that the supermarkets have repeatedly denied.
Landbank? What landbank?
In their submission to the CC’s enquiry, Tesco strongly denied the existence of strategic landbanks. Answering the suggestion of “deliberate investment in undeveloped assets – the so-called ‘landbank’ – to be held against the competition, rather than for the purpose of grocery retailing”, Tesco states clearly, “There is not”. Tesco’s Chief Executive, Sir Terry Leahy, denied the existence of any sort of landbank to the Guardian, protesting “Why would we do that? We are a retailer”.
Further Complaints
Many would have like the CC to have gone further, but’s it’s hardly surprising that many of the complaints lodged with the enquiry haven’t made it into the provisional findings. As James Hall points out in the Telegraph’s Tales from the High Street Blog, the CC has a very narrow remit to investigate - surprise, surprise - issues of competition, and not “to stick up for the little guys, defend inefficient farmers” etc.
Be Satisfied with Supermarket Shelves
But, even within the confines of such a remit, the CC takes a somewhat desultory view of what’s best for consumers, apparently believing that a choice between two or more local supermarkets is all the choice we might want.
This is why the loss of small and independent retailers goes on unchecked. As far as the CC is concerned, it’s not diverse neighbourhood shops but sufficient supermarket shelves that are necessary for the good of consumers.
Drivetime
The CC repeatedly defines the accessibility of alternative stores in terms of “drivetime”. There’s passing mention that only 16% of people walk to the shops, while 10% take public transport, but this quarter of the population is then disregarded. In any case, confidence in these figures is undermined by the bizarre companion statistic that only 36% of the population report driving to a supermarket (the figures are referenced to an IGD report priced £595).
The CC seems willfully blind to the fact that many people - in both urban and rural areas - can’t, don’t or won’t drive. It betrays their vision of a society in which we drive from superstore to hyperstore to superstore, enjoying the manifest choice of the rows of gleaming shelves.
Remedies
Still, there’s some hope in the CC’s notice of possible remedies to the problems they’ve identified. Some of the supermarkets’ most uncompetitive practices might be more tightly restrained in future. The CC talks of curbing the control of land, and of strengthening and more tightly enforcing the Supermarkets Code of Practice.
What Future for Town Centres?
Against this, there’s the very worrying prospect that planning laws might be relaxed to facilitate competition amongst large retailers, at the continuing expense of local stores and town centres as a whole.
The suggestion of recommended “changes to the planning system that would facilitate greater availability of land for development outside the town centre” is surely the best news the large retailers could have hoped for. Hardly surprising that Tesco shares closed up almost 3.5% on the day.
It’s all rather depressing. I need to read the report in full before I can pass real comment. However, I was outraged to see an ad on TV last night for Morrisons where Diamuird Gavin goes on about fresh bread. The gist of it is that you can’t get freshly-baked bread on the highstreet anymore, and isn’t Morrison’s great for providing it… when of course the whole reason you can’t get freshly baked bread on the high street is that the supermarkets have muscled in and taken all the food business out of the high street!
As much as possible, I shop locally (I’m lucky to have a local butchers, fishmonger and green grocer that I can walk to) for a few reasons - for one, I want to support my local retailers, secondly I want to support my local producers (all my butcher’s meat is local), thirdly I hate supermarkets and finally, the quality of food I get locally is superior (at no extra cost) to that in Sainsburys. I just wish everyone else felt the same.
It’s a difficult one. I wholeheartedly support small local businesses, BUT, sometimes these can simply provide old food at higher prices. It’s entirely not their fault, but comes about through a lack of finance (and support from the local community).
Like Richard I need to read the report in full before commenting as I’m rather adept at sounding like a twit at the best of times.
Something which has been bugging me recently is that people would argue that you went to the supermarket to stock up on food once a week, and the food would last until your next shop and that food from local/smaller shops wouldn’t last as long. However I find in the supermarket that if you don’t pick everything up and check the date, more often than not it will run out within a day or atleast a few days. I think they’ve done this on purpose. Ensuring you have to go back more often, and everyone knows that you can’t just pop into the supermarket and come out with a pint of milk. At least I can’t. I wonder if this was all part of a plan. Close down smaller shops then make sure everybody has to come in a few times a week. I’m possibly paranoid?
We are lucky in that we have a village butcher and half decent general shop which has bread delivered from a bakery in another nearby village, we also get a veg box. If I am supermarket shopping it tends to be Waitrose as our other option is Sainsbury’s - a small, ancient one with tiny aisles which are a complete pain to navigate! Not to be a hypocrite I also admit to getting Ocado deliveries every so often, though the service can be hit and miss.
Nick,
Where’s your blog gone? Such a great start and now you seem to have forgotten us!
This is a great blog, but you really should think about changing the green text - it is almost impossible to read against the grey background.