The Eagle Has Landed! The Competition Commission Reports on Supermarkets

The UK Competition Commission has now published its views on supermarkets in a snappily-entitled report, Market Investigation Into the Supply of Groceries in the UK: Provision Findings which can be found here http://www.competition-commission.org.uk/inquiries/ref2006/grocery/provisional_findings.htm

A BBC summary can be found here http://news.bbc.co.uk/1/hi/business/7070488.stm

This is the fourth inquiry into grocery since 1999. There have been others in the past 30 years. Basically they all find that: competition is messy, but keeps prices low; some firms are too big for comfort; suppliers are often not treated well; normally the customer benefits from all this.

• The Report does not satisfy those who feel that that all our problems are caused by Tesco.
• It does not satisfy those who want the market rigged in favour of independent and convenience stores.
• It does not satisfy established retailers or suppliers either.

So, what's different about this one?

• Emphasis on local competition: The Commission argues that effective competition is local. There are 187 stores owned by one of the Big Four (Tesco, Asda, Sainsbury's and Morrison) with above 40% of all grocery selling area within a 10-minute drive-time. These have large market shares, which may be detrimental to customers.
• There is no evidence that in general supermarkets operate against the public interest by price fixing or abusing monopoly power, although there may be some tendency in these 187 areas and 54 other sites.
• There was little or no evidence that supermarket power distorted competition with convenience stores. Price and cost differences related to actual scale economies.
• There were some problems and anti-competitive practices affecting suppliers but these were not great.
• Retailers have large landholdings that enable them to expand, but also control access to some local areas by their competitors.
• The planning system combined with these land holdings makes it hard for new supermarket retailers to gain entry to a town. The 'Needs' principle means that a Morrisons trying to build a new store in, say,Cambridge, would have to show that existing stores were not satisfying the market: it would not be enough to argue 'We're a great store and will shake up the competition!'

The Commission suggests the state should:

• force large retailers to sell land in areas where competition is dominated by too few companies;
• prevent restrictive covenants on land;
• scrap the 'Needs' principle.

To this the Centre for Retail Research would add further proposals:

• Absolutely no more investigations into the grocery industry on any pretext whatsoever.
• Change the title and role of the Competition Commission back to 'Monopolies and Mergers Commission' to stop it getting ideas above its station.