More supermarket competition needed'Big four' chains may be forced to sell land

31 October 2007

 

A couple reading a food label in a supermarket

Shoppers in some areas of the UK are being let down by a lack of competition between supermarkets, a major probe released today has found.

The Competition Commission says its 18-month inquiry into the sector has found that generally the UK groceries market is delivering a good deal for consumers.

But it says action is needed to improve competition in some local markets, and has raised concerns about the practice of supermarkets building up ‘land banks’ of potential supermarket sites, to stop them being developed by rivals.

However, the competition watchdog dismissed fears that Tesco’s dominance of the market was stifling competition.

Tesco dominance

The report said that Tesco was not in such a strong position that other stores could not cannot compete.

Competition Commission Chairman Peter Freeman said: ‘Having looked in detail at local grocery markets, in most areas shoppers have a good choice and benefit from the strong competition between retailers, but in a number of local areas more competition would benefit consumers both locally and more generally.

‘We are concerned that retailers could be using existing land holdings and restrictive covenants to frustrate potential competition.

‘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.’

Land banks

The commission said the 'big four' chains - Tesco, Sainsbury’s, Asda and Morrisons - own a significant number of land bank sites.

It said they controlled further sites through restrictive covenants and exclusivity arrangements, which are designed to stop rival supermarkets from developing the sites.

The commission also raised concerns over the relationship between supermarkets and suppliers, including the ability of supermarkets to transfer unexpected costs to their suppliers, and said changes were needed to help offer greater protection to suppliers.

Planning changes

The competition watchdog has proposed a range of measures to address its concerns.These include making supermarkets sell land holdings in areas where competition between rival stores is weak and banning the use of restrictive covenants or exclusivity arrangements.

It’s also recommending changes to the planning system to allow greater opportunities for developments on the edge of town centres, while maintaining constraints on out-of-town supermarkets.

Supermarkets will have the opportunity to respond to its findings before the final recommendations are published in March 2008.

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.

Supplier problems

The probe in 2000 also uncovered problems with the relationship between supermarkets and their suppliers.

Many of the supermarkets questioned admitted to retrospectively reducing agreed prices, as well as asking suppliers for lump-sum payments as a condition of business.

The report concluded that some of these practices led to lower quality products and less choice.