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Supermarket findings presented

31/10/2007

Consumers are getting a good deal from the UK's supermarkets, but competition needs to increase at a local level, the competition watchdog has said.

The Competition Commission said a lack of competing grocers in certain localities was disadvantaging shoppers in the areas concerned and stressed that changes should be made to the planning system to improve choice.

It also expressed concern that grocery retailers were able to transfer "excessive risk and costs" to suppliers through various purchasing practices, including retrospective changes to supply agreements.

The long-awaited provisional findings by the Competition Commission follow an 18-month inquiry the organisation has carried out into the grocery market, amid claims by some that the nation's supermarkets are using their dominance of the sector to squeeze out smaller competitors and underpay suppliers.

But today's report says no evidence has been uncovered to suggest there are "unfair distortions" in competition between supermarkets and small shops and said below-cost selling by national retailers was "not part of a predatory strategy aimed at conveniences stores of specialist stores".

However the Competition Commission said it did have concerns about the relationship between suppliers and some retailers. It warned that the transfer of costs to farmers and other suppliers by large retailers could affect the ability of food producers to "invest and innovate" at the expense of consumers.

The competition watchdog also expressed its belief that the current supermarket code of practice is inadequate to tackle such concerns, warning that it does not entirely prevent the "potential harm" that can be caused as a result.

Concern was also expressed about the practice of 'land banking', whereby supermarkets buy up land close to their existing stores to prevent competitors from opening rival outlets nearby.

Today's report estimates that around ten per cent of the stores which are owned by larger retail chains and located in highly-concentrated local grocery markets have a nearby landsite that is likely to be constraining the ability of their competitors to open shops in the area.

"We are concerned that retailers could be using existing land holdings and restrictive covenants to frustrate potential competition," explained Competition Commission chairman Peter Freeman.

"Further, whilst we understand that the planning system has to balance conflicting demands, not all of which favour development, it can act as a barrier to new competing stores," he added.

The Competition Commission recommends that retailers should be required to sell land holdings in areas where competition between grocers is weak.

Along with changes to the planning system to increase choice in the grocery market, the competition regulator also suggests a "tightening" of provisions within the supermarket code of practice.

Supermarkets will have the opportunity to respond to the recommendations before the Competition Commission publishes its final report on the issue next March, but it remains to be seen how critics of the big retail chains will respond to its findings.

Environmental group Friends of the Earth, which had called for the appointment of an independent supermarket regulator to oversee the industry code of practice, stressed earlier this week that action should be taken to address the dominance of the retail giants.

Friends of the Earth supermarket campaigner Vicki Hird said: "The evidence is undeniable: consumers, farmers, small shops and the environment are all suffering as a result of supermarket dominance."