Supermarkets get off lightly after competition probe

Tesco et al won't be too upset by the Competition Commission's latest findings on the supermarket sector...

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Last Updated: 06 Nov 2012

The Commission published its final report today after a two-year investigation into the UK grocery retail market – and the big supermarkets haven’t come out of it too badly. The report concluded that UK customers are getting a pretty good deal on their grocery shopping, and rejected claims that the supermarkets were restricting competition. ‘In many important respects, consumers are receiving the benefits of competition, such as value, choice, innovation and convenience,’ it said today.

The news was less good for independent retailers. The Commission said it was ‘sympathetic’ to those who were struggling, but ‘this does not mean that competition is not working well’. In fact, the cut-throat competition was probably good for consumers – and besides, it added: ‘our evidence does not show that independent retailers or the wholesalers that supply them are in terminal decline.’ In other words: get over it. Not surprisingly, small shop owners are not amused...

The anticipated crack-down on ‘land-banking’ (the practice of buying up available land to stop rivals using it) didn’t really materialise either – retailers won’t be forced to sell the land they’ve stock-piled, although they will be forced to remove any restrictions on its use if they do decide to flog it (some have only sold on the basis that it won’t be used for competitor stores).

That said, it wasn’t all good news for the supermarkets. The Commission thinks more needs to be done to encourage competition in areas dominated by a single retailer (like the so-called Tesco towns). This means any planning applications will be subject to a competition test, which will prioritise retailers without a presence in the area and stop any retailer controlling more than 60% of the market. ‘Although in many areas there is a good choice and strong competition between retailers, there are also a significant number of local areas where larger grocery stores face limited competition and local shoppers lose out,’ said chairman Peter Freeman.

And as expected, the report also recommends the creation of an ombudsman to handle supplier complaints about over-bearing retailers, and to hold the big stores to a stricter code of conduct (Asda chief executive Andy Bond has already been moaning about this, suggesting that we’ll all end up footing the bill via higher grocery costs).

So all in all, a fairly balanced set of conclusions – which does make you wonder why the Office of Fair Trading seems so determined to throw the book at the Big Four. Retail analyst Mike Tattersall, a director at Cazenove, seems to share that view – in a note to clients, he suggested that ‘the level of OFT scrutiny into the UK [supermarket] industry is, in our view, beginning to resemble a vendetta.’ We reckon there’ll be more than a few retail industry execs nodding their heads in agreement...

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