Grocery inquiry: industry exonerated, but angry at proposed competition test and ombudsman

The planned competition test for new supermarkets could founder because the Government and the Office of Fair Trading are reluctant to take responsibility for it.

This week, the Commission recommended the introduction of the test in order to give consumers more choice in areas where one supermarket dominates.

Although the Commission determined that consumers generally get a fair deal from retailers, the competition test and an ombudsman to protect suppliers were both recommended.

However, it has emerged that both the Department for Communities and Local Government (DCLG) – which is responsible for planning – and the OFT have expressed grave reservations about the proposals. In its submission for the inquiry, DCLG expressed what the Commission described as “caution” about the plan, because it would change the basis of the planning system from being about use of the land to the identity of the occupier.

“It would be a significant departure from how things work at the moment,” said a DCLG spokesman. “We need to look at the costs that would be involved for retailers and councils.” He said a decision on whether to implement the plans would be made in the next 90 days.

The OFT said it was concerned that if it were required to assess the test at a local level, it could compromise its position as advisor on mergers in the retail industry.

The proposal for an ombudsman to protect suppliers also proved contentious, with inquiry panel member Professor Bruce Lyons dissenting over whether it would actually help consumers.

Tesco chief executive Sir Terry Leahy said: “We share the concerns of Professor Bruce Lyons that an ombudsman would be counterproductive and would reduce the benefits of competition.”

Other retail leaders criticised the plan. “This is very bad timing and comes despite not a shred of evidence to support its introduction. Inevitably, this will feed into price increases,” said BRC director-general Stephen Robertson. “We seem to be crossing the road to find a banana skin.”

Overall, however, the report gave the sector a clean bill of health. “In many important respects, competition in UK groceries is effective and delivers good outcomes for consumers,” the report said.

All the criticisms of the impact of the supermarkets on small independent retailers were dismissed on the grounds that it does not have an impact on consumers.

Winners & losers

Imposition of competition test for new stores of more than 1,000 sq m

Good for: Asda, Morrisons, Sainsbury’s
Bad for: Tesco

Obligation to release restrictive covenants

Good for: smaller grocers such as Aldi and Co-op
Bad for: the big four

Strengthened code of practice that will be extended beyond the big four

Good for: all suppliers, but may be most advantageous to multinational brands that actually need little protection
Bad for: Aldi, Co-op, Iceland, Lidl, Marks & Spencer, Somerfield and Waitrose – all now covered by the code

Limitation of exclusivity on large store developments

Good for: smaller grocers
Bad for: local regeneration projects, in which grocers – especially Tesco – invest in return for exclusivity

Creation of a grocery ombudsman

Good for: suppliers
Bad for: all grocers, which must foot the bill of£1.2 million

Q&A: inquiry chairman Peter Freeman

Are grocery inquiries now over for the foreseeable future?
“I don’t think it would be appropriate for this scale of market inquiry to take place in a hurry.”

Do you mean within the next five years?
“I think that five years is a good foreseeable future.”

Some people have called for no more inquiries for 10 years…
“10 years seems a rather long time to me. In a dynamic economy, a lot can change in 10 years.”
Is there anything in the new code that will genuinely enable suppliers to address grievances against retailers?

“We have tried to focus on two aspects that we believe restrict competition: the unexpected transfer of risk and retrospective changes to terms and conditions.”

Some will see your findings as a disaster for small, independent retailers…
“We have investigated this exhaustively with the Association of Convenience Stores, but we have found the case does not stack up.”

Is restricting the competition test to stores bigger than 1,000 sq m a green light for big grocers to ramp up their convenience store numbers?
“We are setting up a system that we hope will last. It has to be a robust, understandable and relatively simple test. Otherwise every application decision would involve a detailed competition assessment, which most people would agree is too interventionist.”

If big retailers appeal, could the process drag on for years?
"It is possible."