There was a broad welcome for the long-awaited inquiry, which focused primarily on the planning system and found little evidence of collusion or mistreatment of suppliers. Tesco’s shares rose after it was cleared of having a market position that other retailers could not compete with.
“We are pleased they’ve laid to rest the claims about our market position,” Tesco director Lucy Neville-Rolfe told Retail Week. “The Commission has found a market that is full of rivalry, which is good for consumers.”
In a surprise move, the report called for more supermarkets to be developed on edge-of-town sites to boost competition.
Asda executive director John Longworth was happy with the report. “We welcome their finding that the UK groceries market is delivering a good deal for consumers,” he said. However, Sainsbury’s said in a statement that it welcomed the Commission’s finding that “action is needed to improve competition further”.
Commission chairman Peter Freeman expressed several concerns about activity in the sector – notably the dominant position of certain grocers in local markets and the use of restrictive covenants preventing stores being sold to rivals. He said: “The planning system has tended to favour the incumbent operator [in an area].”
Freeman suggested reforms that could be introduced, including a competition test that would help planners favour new entrants in areas where one supermarket was dominant. According to Citi analyst James Anstead, this would help Tesco’s rivals most, but would also benefit it in areas where another grocer was dominant.
Neville-Rolfe said it would be better to make the existing system work efficiently. “They should be seeking to address the operation of the planning system. That’s the right target, not introducing more bureaucracy,” she said.
The Commission also threatened to force retailers to sell sites that are landbanked to prevent rivals developing them, but Freeman hinted that it would be unlikely to carry out this threat.
It also suggested strengthening the voluntary Supermarkets Code of Practice, although Freeman steered clear of calling for an ombudsman to regulate relationships between supermarkets and suppliers.
The Commission will now discuss its proposed remedies with interested parties ahead of the full report by May 8.
Freeman’s five threats
>Require grocery retailers to divest land holdings in areas where they are dominant
>Prohibit grocery retailers from using restrictive covenants or exclusivity arrangements that reduce the likelihood of land being used for a competing supermarket
>Recommend changes to the planning system that would provide greater opportunities for developments on the edge-of-town centres, while maintaining constraints on out-of-town schemes
>Introduce a competition test that would allow the existing local position of a grocer to be taken into account in planning decisions
>Include more retailers in the scope of the Supermarkets Code of Practice (SCOP), tighten various provisions within the SCOP and change arrangements for its monitoring.
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