Blog: Dean BestUK grocery probe? Retailers will be dancing in the aisles

Dean Best | 18 February 2008

In all, the UK’s big four retailers should feel pretty content over the outcome of the investigation into the country’s grocery sector.

Late on Friday, the country’s Competition Commission outlined its plans to inject more competition in the sector. Among its recommendations, the watchdog has put forward plans to replace and strengthen the code that marks out the relationship between retailers and suppliers. More pertinently for suppliers long used to enduring what is often a fractious relationship with their customers, the commission also wants to set up an independent ombudsman to ensure that code is enforced.

Elsewhere, the commission recommended using a “competition test” to determine the opening of new stories and also put forward measures designed to stop retailers from building banks of land assets.

While there was by no means universal applause for the commission’s recommendations – Tesco said, for instance, that an ombudsman would create “unnecessary” bureaucracy – the “big four” will feel satisfied that the report was not more draconian. The likes of Asda and Sainsbury’s will be happy at the inclusion of a competition test and plans to free up more land for new stores – moves designed to induce more competition in the sector.

What’s more, some of the commission’s restrictions are lenient. Under the new “competition test”, for example, plans to build a new store will only be blocked if the outlet gives the retailer at least 60% of store space in a given area – a pretty high threshold that will please the bigger grocers.

As the UK’s largest grocer, Tesco has most to lose from the commission’s recommendations but it could have been worse. Stores have not been compelled to sell off stores or land and the commission’s recommendations fell short of calls to better protect the UK’s local high streets.

Later this week, we will study the commission’s recommendations in depth and ask how the UK’s grocery landscape compares to that in two of its larger neighbours – France and Germany. As we have seen on recent weeks, the French are in the throes of their own retail reform.

French food giant Danone is also undergoing its own transformation. 2007 was something of a watershed year at the company, which has wisely decided to focus more on health and nutrition. However, its ongoing problems in India and China are causing concern among some industry watchers. After an "historic" 2007, some may feel Danone needs to enjoy a more low-key 2008.


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