Blog: Dean BestRetail and regulation - hardly the best of friends

Dean Best | 20 July 2009

Retail and regulation are hardly the best of friends. And, for much of the last week, it was their uncomfortable relationship that dominated our news pages.

In the UK, the debate over retailer expansion swung back into the spotlight, with the country's regulator standing firm on a planning test - much to the chagrin of Tesco. The test is designed to ensure no single company accounts for over 60% of grocery sales in a given area, thus Tesco, as market leader, has most to lose should the test become reality.

Tesco stood its ground, criticising the regulator's "misguided" plans. The competition watchdog hit back, telling us that retailers "work harder" when faced by their rivals in a given neighbourhood. Asda, Tesco's nearest rival in terms of market share, waded in, claiming that anyone opposing the test was "in effect opposing more competition". A final decision on the test is slated for October. Legal appeals, however, could mean this issue runs and runs.

In Russia, as one would expect, the prospect of more regulation is almost certain, now that the government has zeroed in on the grocery sector. Under Prime Minister Putin's watchful gaze, the Russian government wants more regulation to oversee the relationship between suppliers and retailers. Draft proposals aim to tackle the amount of time it takes retailers to pay suppliers, as well as limiting the power of big retail chains by hindering expansion.

The chief of X5 Retail Group, Russia's largest grocer by sales, told Reuters the plan to limit expansion was "absurd" and said he hoped changes to the proposals would be made. However, consumers' spending power has slumped amid the recession and food prices are a hot political issue in Russia. Last month, Putin, during a visit to a supermarket owned by X5, criticised its management for charging prices he deemed as too high. The store immediately unveiled a "grand sale".

Russia has been seen as a very attractive market for global retail's largest players - indeed, last week, rumours resurfaced about Wal-Mart's ambitions in the country - but, with the country's government keen to deflect criticism about its economic problems, the retail sector could find itself in the firing line.


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