Supermarkets facing further investigationProbe to examine whether competition is stifled

23 January 2007

 

A woman pushes a shopping trolley around a supermarket.

A major inquiry into the grocery sector is looking at whether Tesco and other supermarkets stifled competition by creating strangleholds in local communities.

The Competition Commission said it was ‘concerned with whether Tesco, or any other supermarket, can get into such a strong position, either nationally or locally, that no other retailer can compete effectively.’

The Commission said it needed to look at the choices shoppers have in particular areas and how competition works between retailers of different sizes.

‘Tesco-towns’

Inquiry chairman Peter Freeman said: ‘It would be a cause for concern if supermarkets, either individually or collectively, were in a position to increase prices or lower their offer in any particular locality or region because of lack of effective competition.’

Campaigners have accused the UK's biggest supermarket retailer of creating ‘Tesco-towns’, through the spread of different formats ranging from Extra hypermarkets to Express convenience store shops.

Today's progress report stopped short of drawing any conclusions. The review panel will now look at matters in detail before publishing its provisional findings.

The Commission did say that evidence gathered so far suggested there were not widespread problems in the relationship between grocery retailers and their suppliers.

Land banks

Mr Freeman said: ‘We have found that bigger buyers do not always appear to get better terms from suppliers, and food and drink manufacturers and processors, as well as wholesalers, seem to be in reasonable shape.’

The Office of Fair Trading (OFT) referred the grocery sector to the Commission in May after concerns some supermarket chains were stifling competition by pricing products below costs.

The OFT found evidence to suggest some supermarket chains were using large so-called land banks - unused property - to stop rival retailers opening new outlets.

Although concerns have been raised about the environmental impact of supermarkets on the supply chain, the high street and communities, the Commission has said these were not issues it could rule on.

Big Four supermarkets

The Commission said today that it was aware of the extent of retailers' land holdings, but said it was important to find out more about how they are used at a local level.

It pointed out that Tesco held the most land, but that other retailers were actively increasing their holdings also.

The Big Four supermarket chains - including Asda, Sainsbury's and Morrisons - control nearly three-quarters of the UK grocery market. Tesco has an estimated 31 per cent market share.

This is the third time in seven years that major supermarkets have been investigated after the Commission looked at the whole sector in 2000 and then examined competition issues that arose from a bid battle for Safeway three years later.

Consumer impact

Tesco Chief Executive Sir Terry Leahy called on the Commission to ensure that the impact of grocery competition on consumers was fully reflected.

'I am concerned that consumers barely get a mention in today's report and I urge the Commission to ensure that they are top of the list for the remainder of the inquiry. I believe passionately that consumers have benefited in so many ways from the intense competitive rivalry in this industry.

'All of the evidence suggests that customers are very satisfied with the choice available to them and new stores continue to open all the time.

'Customers of larger stores drive up to 20 minutes to shop and the report shows that on this basis more than 90 per cent of the urban population have access to three or more larger supermarkets. When you add in smaller stores, discounters, Marks & Spencer and internet shopping the choice is even greater.'

Sir Terry said the report showed that Tesco's main competitors were acquiring significant holdings of land, thus 'pointing to further intense competition in the future'.

He added: 'The Commission will investigate all of the issues further and I am very confident that, once they look at all of the evidence, they will find, as they have in previous years, that our industry is competitive and good for consumers and will remain so in the future.'

© The Press Association, All rights reserved.