The Northern Ireland Assembly - Report on Retailing in Northern Ireland

The attached tables (from an August 1999 House of Commons Research Paper) compare changes in agricultural producer prices between 1995 and 1998 with changes in retail prices over the same period. Both tables are in index form (with 1995, as the base year, set at 100).

While it is difficult to match the different items in the tables exactly, it is clear from the data that farmgate prices in the UK have fallen significantly while retail prices have generally increased. In the one area where there was a major fall in retail prices — unprocessed potatoes (-27%) — there is notably a much larger fall in the corresponding producer price - root crops (-39%). It seems that the fall in prices paid to farmers is not reflected by the prices that consumers pay in the shops.

Producer prices for Northern Ireland (see attached Table 2.8)have suffered an even greater overall fall — 27% between 1995 and 1998 compared with a 22% fall in UK producer prices over the period. As UK retail prices also apply to Northern Ireland this would suggests that the disparity between farmgate and retail prices is greater in Northern Ireland.

I hope this is helpful. Please let me know if you require any further information.

It is difficult to match exactly commodity to product, but in general, while retail food prices for bread, milk, pork, lamb, cereals and even beef have changed relatively slightly and in most cases risen from 1995 to 1998, producer prices for certain commodities are showing significant falls. Producer milk prices have fallen by about animals for slaughter or export by around a quarter, cereals are down by 29% and root crops by 39%.

1. The indices relate to prices from which marketing expenses have been deducted.

2. The total products index is calculated by taking into account the significance of each item in the base period (1995). This is shown in the column of weights. Since only the main items of output are included, the total of their weights does not cover items such as production grants, compensation payments and gross fixed capital formation, it should not be regarded as a ‘deflator’ to be used in estimating the volume of output. (A series giving the volume of gross output is given in Table 2.3.)

COMPETITION COMMISSION
SUPPLY OF GROCERIES FROM MULTIPLE STORES MONOPOLY INQUIRY
Issues Statement

The Competition Commission has written to 24 companies in connection with its inquiry into supermarkets, describing the progress made so far, identifying the issues which it has been examining and highlighting those which it wishes to raise with some of the companies concerned (see paragraph 12) at a series of hearings during March.

In accordance with recent practice the Commission is publishing this statement summarizing the main points raised with the companies, in order that those interested may give us their views. In view of the wide public interest in the inquiry and the uncertainty which it has generated, this statement indicates the Commission’s current priorities in the inquiry.

This is, however, an interim stage in the investigation and no conclusions have as yet been reached on any matter.

The Commission has received over 200 submissions, held 35 hearings with interested parties mainly in London but also in Belfast and Birmingham; and obtained questionnaire response data from consumers, all the main grocery retailers, nearly 400 suppliers of groceries to supermarkets and 50 local authorities. It has analysed a range of critical aspects including price levels, profitability and efficiency; price competition locally and nationally; international comparisons of prices and profitability; relationships with suppliers; transmission of price changes from suppliers through to consumers, acquisition of land for supermarkets and the impact of the planning regime in the UK. The Commission has also looked at a number of other social and environment issues relating to the retailing of groceries.

The Commission has provisionally found that all the companies to whom it has written belong to one or both of two complex monopoly groups for the purposes of the Fair Trading Act 1973, in relation to the supply of groceries in the UK by supermarkets (paragraph 12 identifies these companies). One complex monopoly derives from the pricing of groceries sold by supermarkets to consumers and the other from the relationship between supermarkets and their suppliers. These findings are provisional (the companies are being invited to comment on them) and carry no implications as to whether any of the companies is operating against the public interest.

Where the Commission concludes that a complex monopoly exists, it is required to decide whether any matter arising from its investigation operates against the public interest. Below are set out the matters the Commission will wish to raise with the companies before reaching its conclusions.

The Commission is primarily interested in the so-called ‘one-stop shop’ pattern of grocery shopping in which consumers can buy most or all of their weekly grocery requirements in a single visit to a supermarket. In this context, its provisional view is that the market comprises a large number of local catchment areas within which consumers can reach a supermarket in a relatively short period of time. However, the Commission will also wish to explore the significance of regional or national market shares of the companies concerned; and whether Northern Ireland constitutes a separate market.

The Commission has examined a range of different measures of supermarkets’ overall profitability based on margins, returns on capital, and cash flow analysis, and trends in them. As appropriate, it has compared these to companies’ cost of capital and returns in supermarkets in other countries. Its initial view is that, while in some respects overall profitability performance has been quite strong, there is at most only limited evidence of excessive profitability, as measured, being achieved. The Commission will, however, seek further clarification at the hearings.

Evidence obtained by the Commission suggests that the trend of grocery prices in recent years, while upwards, has been significantly below that for prices generally in the UK, leading to a reduction in the price of groceries in real terms. Other evidence still under consideration suggests that the trend has also been lower than for grocery prices in some comparable European countries. A detailed survey of the prices of a wide range of grocery products in several thousand stores in the UK and certain other European countries is being conducted, the results of which will in due course be submitted to the companies for comment. The Commission is also looking at data indicating how individual supermarkets’ prices compare to each other.

The Commission has reviewed a number of surveys of consumers’ views of supermarkets. In addition, in order to obtain an independent view and to cover certain gaps in the evidence already available, the Commission has carried out its own detailed survey. This has been used to provide insights into a number of the issues described below, but the overall picture which these surveys provide appears generally to be one of high levels of consumer satisfaction with the performance of supermarkets in the UK.

Within this context, the Commission has identified a number of points which it wishes to raise with supermarkets. These are:

The Commission wishes to raise with the companies whether individual supermarkets have some local market power in catchment areas where there are few or even no competing supermarket stores. Linked to this is the question referred to in paragraph 6(a) below, whether the extent of local market competition affects the prices which consumers pay.

Surveys indicate that consumers have regard to range, quality, service and price when buying groceries. It is primarily matters relating to pricing which the Commission wishes to raise, including:

a. whether price competition might be excessively concentrated on a relatively small number of frequently purchased items; and at stores which face the most local competition;

b. whether price changes by suppliers have been rapidly and fully passed through to consumers; and

c. whether the pattern of prices and margins across different types of product, including branded and own label products, is related to costs to the extent that would be expected in a fully competitive market. This would include products persistently sold at a loss, which may benefit consumers in the short term but which may distort competition and consumer choice, and may adversely affect the supply or availability of such products in the longer term.

The Commission is also considering the cost structure and efficiency of supermarkets. Three issues which arise from this are:

a. Whether some supermarkets have been able to maintain too high a level of costs, with consumers paying more than would otherwise be the case.

b. The extent of economies of scale in the industry, at store level but more particularly at regional and national level, and what impact this has on prices and competition.

c. Whether some forms of competition between supermarkets, primarily for sites and in provision of any facilities which do not cover their costs, has unduly raised prices to consumers.

The Commission has been looking at prices paid for land acquired for supermarket development and at prices paid for land acquired for other types of retail development. It wishes to explore whether prices paid for land for supermarket development are higher and if so, whether such higher prices sustain, or are sustained by, higher prices for grocery products than would otherwise be the case. This could result in high prices even though profits were not excessive. A related issue is whether supermarkets seek to restrict competitors’ access to suitable sites for stores.

The Commission has received evidence from both supermarkets and suppliers on their commercial relationships. It will wish to discuss whether supermarkets have excessive buying power or not, and if so, whether this:

c. leads to higher prices than otherwise of products sold by suppliers to other retailers;

d. damages the longer-term competitiveness of the grocery supply base, or some parts of it, in the UK; and

In particular, because the great majority of groceries are bought from supermarkets, fair and reasonable access to supermarket shelves may often be a precondition for an efficient supplier to survive and prosper. The Commission will therefore wish to focus specifically on the terms and conditions governing access to supermarket shelves and whether these are in any way unfairly discriminatory, either as between different suppliers or as between supermarkets’ own-label products and those of other suppliers.

The Commission has sought views on the objectives, role and impact of the planning regime in the UK in relation to supermarkets. These, together with questions of access to grocery outlets by lower income and less mobile consumers, the impact of large grocery retail developments on local communities and related environmental issues, will also be raised.

The Commission will wish to discuss with the companies the most recent, and prospective, performance of the supermarkets, and the extent to which the nature and degree of competition may be changing. This will include the emergence of Internet and other forms of home shopping and the entry of Wal-Mart into the UK market, and any effects these may be expected to have on the competitive situation.

12. The Commission has considered the market positions of the 24 companies that between them make up the two complex monopolies, in particular their national, regional and local market shares, together with data on the number of their larger stores. In the light of this, the Commission’s provisional view is that, in relation to 19 of them, it would be unlikely to conclude that their behaviour operated against the public interest, and the Commission currently has no plans to arrange public interest hearings with any of them. These are Aldi Stores Ltd; Anglia Regional Co-operative Society Ltd; Budgens Stores Ltd; Colchester and East Essex Co-operative Society Ltd; CRS Ltd; CWS Ltd; E H Booth & Co Ltd; Iceland Frozen Foods plc; Lidl UK GmbH; Marks & Spencer plc; Midlands Co-operative Society Ltd; Netto Foodstores Ltd; Oxford, Swindon and Gloucester Co-operative Society Ltd; Plymouth and South Devon Co-operative Society Ltd; Scottish Midland Co-operative Society Ltd; Somerfield plc; United Norwest Co-operatives; Waitrose Ltd; and Yorkshire Co-operatives Ltd. This provisional view carries no implication that any of the activities of the other five companies, ASDA Group plc; Sainsbury Supermarkets Ltd; Wm Morrison Supermarkets plc; Safeway plc; and Tesco plc are or will be viewed as operating against the public interest. The Commission looks forward to discussing the issues with these five companies in March.

Any person interested in these matters is invited to comment on any of the issues raised in this statement.

Usually the declaration can be included anywhere on the pack provided it is in a clear and legible format.

Where the name of a food includes a place name, this may mislead the consumer as to the origin of the product. Some place names used in the name of the food are the place where the food was made, eg Dutch gouda or Scottish salmon. Others may refer to a particular type of product where the customary name incorporates a place name but the product is not/no longer produced exclusively there, eg Cornish pastie or Eccles cake. It is never clear cut with names like these, especially with those products which may be associated with a certain quality/premium product, eg Cornish ice cream or Devon toffee, whether the consumer interprets the place as the place of origin or a reference to a particular quality.

Where the name of a food or its brand or trade name refers to a place other than where the food is made, the place of origin must be made absolutely clear.

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: DUNNES STORES LIMITED

I am replying to your letter of 28 January addressed to Mr Eddie Kane. Regrettably, due to previous commitments it is not possible to have our suitable company representative at the meeting planned for 10.45 on Friday 11 February.

Dunnes Stores position in respect of potatoes is that we source all our potatoes sold in our Northern Ireland Stores from Wilsons Potatoes and Vitafresh, Newry.

Dunnes Stores has always had a policy in respect of its Northern Ireland Stores of supporting locally sourced products and this position is well understood by our numerous suppliers particularly those suppliers backing into the Agri-business sector such as Moy Park, O’Kane poultry, Dungannon Meats and Wilson Potatoes.

In recent times we have been conscious that this position has not always been fully appreciated by our customers so we have embarked on a series of advertising activities and in store theme promotions to highlight, for the benefit of our customers, products and produce which is sourced from Northern Ireland Food Processors.

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MARKS & SPENCER

I am writing to confirm our telephone conversation of 11th January that I will appear before the Committee with Mr Angus Wilson from Wilson’s Country Fresh, our potato supplier, at your convenience. We would be pleased to explain our approach to the retailing of potatoes in more detail to the Committee. We thought it might be helpful to make a few comments in advance to describe more generally the way in which Marks & Spencer has developed the food business over a period of many years.

Marks & Spencer has a well established record of giving support to the communities in which we trade and this includes, where possible, local sourcing. In this regard we buy a significant proportion of the fresh potatoes sold in our Northern Irish stores from Northern Irish growers. We have been buying our potatoes since 1994 from Wilson’s Country Fresh with whom we are developing a long term relationship, a key element in the success of our food business. The success of this relationship to date has allowed us to dramatically increase the tonnage of potatoes that we buy in Northern Ireland.

Marks & Spencer’s objective is to set leading standards in food retailing and we do not look to sell large volumes of cheap potatoes. To this end we buy particular potato varieties that customers tell us are the best, and we are constantly looking to procure the cream of the crop in these varieties. Whilst we are not trading a commodity product but a speciality vegetable, the prices we pay will be affected by the volatility of the international potato market, an issue which we and our suppliers must manage. Our customers demand quality and value. Retail prices must reflect supply costs but may also be constrained by what the customers are willing to pay.

With regard to crisping, Marks & Spencer is not involved in producing crisps or sourcing crisping potatoes from Northern Ireland and therefore we cannot comment on any possible impact on local producers.

We hope that we shall be able to help the Committee to clarify some of the issues relating to potatoes. With regard to the more general question of farmers’ debt, the terms of reference of the current inquiry are wide ranging. We have insufficient experience of these matters in Northern Ireland for us to make any meaningful contribution and regret that we cannot be of further assistance to the Committee.

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MARKS & SPENCER

I am writing in response to your letter of 28th January 2000 requesting a memorandum on Marks & Spencer’s policy towards and relationships with primary producers in Northern Ireland.

1. Marks & Spencer is proud of its long-term relationship with Northern Ireland. The first Marks & Spencer store in Northern Ireland opened in Belfast thirty-three years ago. Our retail operation is now very significant with seven stores and a major distribution depot, which currently employ over 1600 people. We have invested £65m in this operation over the last five years.

2. Marks and Spencer also has a significant food supply base operation in Northern Ireland, for more than forty years we have been partners with your important agri-food sector. However, our contacts with your business community go beyond stores and suppliers. Through Business in the Community Marks & Spencer people gladly supply expertise to small food enterprises. We are pleased to be on the Queens University Advisory Board and to support the agricultural industry with a major exhibit at the Royal Ulster Agricultural Society Annual Show each May.

3. The success of Marks & Spencer’s food business is based on our range of high quality and highly innovative products produced by the best suppliers, that differentiate us from the high volume supermarkets. Our policy of developing collaborative supplier relationships and the excellent quality of Northern Ireland products has led to a highly successful partnership with strong sales and volume growth.

4. As I highlighted to you in my letter of 18th of January we have been buying potatoes in Northern Ireland from Wilson’s Country Fresh since 1994. These potatoes are being sold in our stores in Northern Ireland and Eire and this year we will also be selling some across the rest of Europe. Wilson’s Country Fresh’s business is growing dramatically in tonnage and value terms with Marks & Spencer.

5. Avondale Food Ltd is an important supplier to several departments in our food business. Avondale’s business with Marks and Spencer is growing dramatically, 50% of their business is now sold in the rest of Europe, and they have several new lines which are soon to be launched which will continue their strong growth.

6. An important supplier to our dairy business is Dromona Quality Foods, they now supply 60% of all the butter sold by Marks & Spencer in Europe. Similarly, all of the milk Marks & Spencer sell in Northern Ireland is produced in Northern Ireland.

7. We have a substantial business with O’Kanes who have supplied us with poultry for over thirty years. The extremely high standards of innovation at O’Kanes has been critical in achieving our pre-eminence in the chilled poultry business. We currently buy some 4 million chickens and 30,000 turkeys from O’Kanes each year. O’Kanes have become the largest importer of lemons into Northern Ireland and the Marks & Spencer Lemon Chicken is one of our star lines across Europe.

8. In the meat industry we have a similarly strong story. 10% of all Northern Irish steer carcasses are supplied into the Marks & Spencer food business.

9. Our policy in Marks and Spencer is to source the best quality and value foods from our suppliers. We are not a supermarket, but rather a food retailer who offers a range of innovative, high quality products which represent good value for money. Our approach is to work closely with a supplier to jointly develop a product, an approach that leads to close working partnerships. Our suppliers are paid promptly, assisting their business’ cash flow.

10. The continuing success of our retail operation and supplier partnerships in Northern Ireland is based on our ability to work with the best suppliers to create highly innovative and differential products. We have every confidence that after over three decades of business in Northern Ireland Marks and Spencer and its suppliers have a strong future in both Northern Ireland and across our European business.

COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
INQUIRY INTO DEBT IN THE AGRICULTURE INDUSTRY
WRITTEN SUBMISSION BY: MUSGRAVE SUPERVALU-CENTRA

Musgrave SuperValu-Centra welcomes the opportunity to contribute to this very important forum and is confident that the aims of the committee can be achieved in terms of a pro-active, collective response from the industry to supporting and promoting local producers at retail level.

Musgrave SuperValu-Centra is in partnership with independent retailers, providing unrivalled distribution and an extensive retail support package to retailers who trade under our franchise brands SuperValu and Centra.
Entered NI Market in 1996 with the acquisition of 5 medium sized supermarkets.
Currently service 33 SuperValu supermarkets and 16 Centra stores, 49 retail outlets in all, 33 of which are locally, independently owned.
In the process of upgrading company owned stores in NI for sale to local, independent retail operators.
Store refurbishment plans entail considerable investment in service providers throughout the Province, as well as job creation in stores.
Combined retail t/o in NI in 1999 was £138 million stg, with group retailers servicing approximately 8% of the grocery market.
MSVC NI offices and distribution centres established in Fortwilliam and Mallusk.
119 company central-office and warehouse personnel are employed in NI, with a further 2,000 employed in independent and company-owned stores.
Independent grocery sector in ROI accounts for 48% of total sales, largely due to Musgrave Group Support, by comparison with around 29% independents’ shares in NI. MSVC expansion into NI market will start process of restoring balance between the multiple and independent sectors, ensuring healthy competition and choice in the marketplace.
Independent retailers re-invest in the local communities in which they make a living rather than withdraw profits to headquarters of a multi-national multiple group.

TOP

<< Prev Next >>