External intervention in the industry often ignores the fact that retail is fundamentally driven by shopper behaviour.

How well does the Competition and Markets Authority (CMA) understand consumers? That must surely be fundamentally important if it is to protect and promote their interests.

Understanding consumers includes understanding how they consume and how they shop. The announcement of the CMA’s review of Poundland’s proposed acquisition of 99p Stores does not inspire much confidence.

I wonder how many of its members have actually ever been into a fixed-price store. Such retailers have certainly become increasingly classless over the years but reaching the CMA’s members may still elude them.

Emergence of value

In the post-debt crisis years, the big four grocers have missed out on £6bn of sales growth that was up for grabs. Some 25% of that was captured by Aldi and Lidl and the balance by retailers such as Poundland and 99p Stores, as well as B&M, Home Bargains et al.

The fact is that Poundland and 99p Stores sell the kind of core non-foods every supermarket sells. The emergence of a value sector within this market has been very significant – and the key word here is ‘within’.

This is not a separate, discrete market. History shows that the competition authorities have generally found definitions of markets challenging.

When Tesco wanted to acquire convenience chain One Stop, the authorities decided that convenience was an entirely separate market. It is consumers who decide by the way they shop whether a market is distinct in this way or not.

Convenience clearly is not separate and neither is the fixed-price sector.

“Retail is the most intensely competitive market there is and the resulting competitive tension acts 100% in consumers’ interests”

Richard Hyman

This all has wider implications than just this particular issue. Retail is massively oversupplied. Indeed, this proposed deal is part of what I believe is the start of a shake-out across the sector.

There are simply too many mouths to feed in retail and that is the main reason we have significant price deflation. Falling raw material and fuel prices have played a part but the key driver is structural, and that is why deflation will be with us for some time.

Overcapacity (both physical and online) is setting the competitive agenda and the strong are increasingly exerting pressure on the weak.

Choice and competition

Part of this shake-out will undoubtedly involve some merger and acquisition activity (and therefore the CMA) over the next few years as the industry faces substantial consolidation. A wider, more far-sighted but above all, consumer-driven definition of exactly what is in shoppers’ interests will be essential.

Choice and true competition are far more complex than simply numbers. It’s about the financial strength of the players and their ability to provide attractive, relevant offerings.

Retail is the most intensely competitive market there is and the resulting competitive tension acts 100% in consumers’ interests.

Occasionally, there maybe the need for some external intervention to ensure genuine protection. But in the overwhelming majority of instances, the market works exceptionally well because it is driven by consumers.

Let’s hope the CMA works quickly and allows a sensible transaction through, for the benefit of consumers.

  • Richard Hyman is the founder of Richardtalksretail.com