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.)

3. Includes cattle slaughtered under the Over Thirty Months Scheme.

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.

Jurisdiction

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.

Public interest considerations

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.

1. Market definition

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.

2. Company profitability

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.

3. Prices

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.

4. Consumer satisfaction

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.

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