Britain – The British Office of Fair Trading (OFT) directs the Competition Commission (CC) to investigate the food market.

OFT proposes to refer grocery market to Competition Commission

The OFT has today signalled its intention to refer the market for the supply of groceries by retailers in the UK to the Competition Commission (CC) for more detailed investigation, and has published its analysis of the market for consultation prior to a final decision in April.

Download Grocery market: proposed decision to make a market investigation reference (pdf 432 kb).
 
Groceries – defined as food, pet food, drinks, cleaning products, toiletries and household goods – account for nearly half of all retail sales. Total grocery sales in 2005 were around £95 billion, representing around 13 per cent of all household spending in the UK.
 
The grocery market is evolving rapidly. The four largest supermarkets (Asda, Morrisons, Sainsbury's and Tesco) have consolidated their share of total food retailing since 2000, and some supermarkets have moved into the convenience store sector, competing directly with smaller chains and independent stores. While the number of convenience stores has fallen slightly since 2000, sales per store have risen and symbol groups and co-ops have grown within this sector.
 
The evidence gathered by the OFT presents a mixed picture regarding competition in the market. It suggests that prices are falling, with some evidence of increasing choice and improving quality. It suggests that consumers have benefited from strong competition between supermarkets and from the supermarkets' entry into the convenience sector.
 
However, there are features of the market which, when considered in the context of increased consolidation and the move by supermarkets into the convenience sector, could reasonably be suspected of distorting competition and harming consumers. In particular, the evidence suggests that:

• the planning regime, and in particular the ‘needs test’ acts as a barrier to entry, making it difficult for new stores to open and compete with those already in the market
• big supermarkets appear to have significant land banks which could, coupled with the planning system, aggravate barriers to entry or otherwise harm consumers
• in some instances, supermarkets have attached restrictive covenants in selling sites.

There is also some evidence to suggest that the big supermarkets’ buyer power has increased, and that there are aspects of the big supermarkets’ pricing behaviour – below-cost selling and price flexing – which could distort competition. Although consumers have benefited from lower prices, the data does not allow the OFT to reach a firm conclusion on whether choice and variety for consumers in local markets – whether choice of fascia or on-shelf product variety – have increased. Because pricing practices and buyer power interact with local concentration to affect product variety and choice of fascia, the OFT proposes also to refer to these features in making the reference.
 
Speaking on the publication of the OFT's consultation paper, John Fingleton, the Chief Executive of the OFT, said:
 
‘This has been a genuinely fresh look at the sector, and we have built up substantial new evidence and knowledge about this sector in the past four months. Although consumers have benefited from lower prices, the restrictions in the planning system, and the possible incentives those restrictions create for retailers to distort competition, may harm consumers and mean that competition in the market is less than it might otherwise be. In addition, the convenience sector has changed rapidly, and given our evidence and the importance of this market for consumers, our provisional view is that it would be appropriate for the Competition Commission to investigate how that has affected consumers in local markets in terms of product variety and choice of fascia. ‘
 
The consultation will last for four weeks and end on the 6th of April.

Notes

1. The OFT has included in its analysis of the relevant market both one-stop shopping, which takes place in stores over 1,400 square metres; and secondary shopping, which takes place in stores of all sizes, including ‘convenience’ stores of less than 280 square metres.
2. The OFT's investigation into the UK grocery market follows the withdrawal of its decision not to refer the market to the Competition Commission before the Competition Appeal Tribunal on 1 November 2005.
3. Under section 131 of the Enterprise Act 2002 (EA02), the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.
4. Under section 169 of the EA02, where the OFT is proposing to make a decision on a reference to the CC it must first consult, so far as practicable, any person on whose interests the reference is likely to have a substantial impact. The paper published today sets out our proposed decision and invites comments by 6 April 2006.
5. The supermarkets in this release are listed alphabetically.

Fengið af vef OFT