PROCEEDINGS OF THE COMMITTEE
RELATING TO THE REPORT

(Continued)

Main points for the hearings

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

5. Market power

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.

6. Price competition

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.

7. Costs and efficiency

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

8. Land and location issues

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.

9. Relationships with suppliers

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:

a. lowers the price of products to consumers;

b. prevents efficient suppliers from earning a reasonable return;

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

e. reduces consumer choice.

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.

Other issues

10. Social, environmental and planning matters

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.

11. Recent and prospective developments

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.

The companies

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.

Views invited

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

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