The UK’s competition watchdog today unveiled a planning shake-up in a bid to boost competition in the £95 billion grocery market.
The culmination of the Competition Commission’s two-year probe into the sector will see a new ‘competition test’ in planning decisions on larger stores as well as action to prevent land agreements restricting competitors from entering the market.
The UK’s four biggest supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – all came under scrutiny in the investigation.
The report recommends a new independent ombudsman to enforce a strengthened Groceries Supply Code of Practice, to replace the existing supermarket code.
The commission concluded that while grocery retailers delivered a good deal for consumers ‘in many respects’, action was needed to improve competition and the relationships between retailers and their suppliers.
Competition Commission chairman Peter Freeman said: ‘The size of the market, the number of parties involved and the range of issues examined all mean that this has been a major inquiry.
‘We have looked extensively and listened very carefully when looking at all the matters raised with us but our overriding concern throughout has been whether the market is working well in the interests of consumers.’
Benefits of competition
Mr Freeman added: ‘In many important respects, consumers are receiving the benefits of competition, such as value, choice, innovation and convenience, but we need to take appropriate action to address those areas where they could be served better and where their interests could be damaged in future.
‘We have been very careful to ensure that our actions match the scale of the problems we have identified.’
Other measures include involving the Office of Fair Trading (OFT) in all planning applications for new grocery stores bigger than 1,000 square metres.
The OFT will advise local planning officials whether a retailer ha passed or failed a ‘competition test’.
The commission says large grocery retailers have six months to release 30 existing restrictive covenants, which can prevent competitors building on land.
Other restrictive covenants that restrict trading but are not identified in the report could also be lifted.
Code of practice
The new code of practice gives stronger protection to suppliers and covers all retailers with turnover in excess of £1 billion a year.
Retailers will not be allowed to retrospectively change their agreements with suppliers or shift risks and costs on to them, and will have to enter into arbitration to resolve disputes.
They will have to give reasons for dropping a supplier or significantly reducing their business, keep written records of all agreements and appoint an in-house code compliance officer.
Evidence did not show that independent retailers were in ‘terminal decline’, he said, adding that ‘in the current economic climate the benefits of vigorous competition are as relevant as ever’.
However, there were a significant number of local areas where larger grocery stores faced limited competition and local shoppers lost out.
‘That is why we want to see the introduction of a competition test as part of the planning regime to prevent local areas developing like this in the future.
‘We are also taking action to prevent retailers using restrictive covenants and other agreements to frustrate entry by competitors in such areas,’ Mr Freeman said.
A Communities and Local Government spokesman said: ‘We have made absolutely clear we are committed to protecting small shops and the vitality of town centres.
‘That’s why we are introducing a new stronger impact test that will mean councils can refuse any application that has a negative impact on the diversity of the high street, helping to protect our small shops at the heart of local communities…’
Asda chief executive Andy Bond said customers could end up bearing the cost of a new code and ombudsman.
‘While we welcome proposals…the bottom line is that any changes to how the market works must help us to lower prices and deliver an even better deal for customers.
The proposals could cost hundreds of millions, leading to higher prices
Andy BondAsda chief executive
‘The commission’s proposals on the new code and an ombudsman could cost the industry hundreds of millions, leading to higher prices for customers which will hit families hard at a time when they are already feeling the pinch.’
Friends of the Earth supermarkets campaigner Sandra Bell said: ‘This report confirms that the ‘big four’ supermarkets are the bully boys of the retail sector, bleeding suppliers dry and reducing shoppers’ choice.
‘…The commission’s report misses the opportunity to support local shops and choice. Its competition test does not go far enough to stop the Tesco takeover and the commission has done nothing to recreate vibrant shopping communities for local people.’
Association of Convenience Stores chief executive James Lowman said: ‘After a two-year investigation, and despite the weight of evidence showing the extent of competition problems in the market, this inquiry has failed to support choice and diversity in the grocery market.
‘The overriding failing of this inquiry is that the commission views competition in the grocery market as competition between the big four retailers.’
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