The ‘big four’ UK supermarkets, already the subject of a government review, are now facing calls for an ombudsman to be set up to police the grocery sector. However, despite regular calls that supermarkets abuse their power, it remains uncertain whether their hegemony really threatens the public interest. After all, Ben Cooper reports, cut-throat competition means lower prices for consumers.
As the UK awaits the findings of the Competition Commission’s inquiry into the supermarket sector, the battle for hearts and minds – public, political and bureaucratic – is intensifying. The latest salvo came last week with a submission to the commission by the Cross Cutting Group of the Break the Armlock Coalition.
As the name implies, this coalition of pressure groups, which includes the National Farmers’ Union (NFU), NFU Scotland, the New Economics Foundation, Actionaid, Friends of the Earth and the Association of Convenience Stores, has concerns about supermarket power.
The submission contends that the Supermarket Code, set up in 2002 after an earlier Office of Fair Trading inquiry, is not working because it is not adequately policed, and the answer would be the creation of a supermarket ombudsman to ensure that supermarkets do not abuse their powerful market position.
As James Withers, deputy chief executive of the NFU Scotland, puts it, “The Supermarket Code was a laudable idea when it was introduced four years ago. But it has failed to have any effect because there is no proactive enforcement and suppliers are afraid to complain. The result is that the Code sits on a shelf gathering dust, whilst supermarkets become more powerful and, it would appear in too many cases, more willing to abuse that power.”
However, demonstrating that supermarket hegemony, which has generally meant lower prices for consumers, is truly against or potentially damaging to the interests of the public has always been a tough challenge, as has arguably been shown by the findings of successive inquiries over the past eight years. Given the cut-throat nature of the competition between the supermarkets, it is also hard to argue that the current situation is anti-competitive.
Moreover, convincing the Competition Commission to embrace the idea of an ombudsman – or Ofshop – as the potential regulator has already been dubbed, may also prove a stiff challenge.
In fact, referring to a possible regulatory body as Ofshop underlines exactly why such an idea may be seen by many as inappropriate. Other regulatory bodies, such as Ofcom, Ofgem or Ofwat, were specifically created to counter the threat of a newly privatised utility in a deregulated market from abusing their positions. Notwithstanding the power supermarkets wield, it is difficult to view it in any way as a monopoly. This is understandably the contention of the British Retail Consortium (BRC), which represents the major supermarket groups.
“There is not a monopoly out there; there is very strong and very healthy competition between the major retailers and between the smaller retailers, and consumers are benefiting from that,” a BRC spokesperson tells just-food. “We have seen in recent years that the price of groceries has come down. The average basket of food is now 30% more affordable for consumers than it was 15 years ago. Part of that is due to the competition, and the efficiency and economies of scale that the bigger retailers have been able to bring to their business.”
The BRC spokesperson refuted the suggestion that these lower prices were achieved as a result of consumers abusing their power. “We have had three investigations including one ongoing into the grocery market in the past eight years and all of those have failed to uncover any evidence that retailers are unfairly putting pressure on prices for those further up the supply chain,” the spokesperson adds.
Lower food prices, therefore, remain the ace in the hole for the supermarkets in this battle. For different reasons, food suppliers and operators of smaller retail outlets have concerns about the downward pressure on prices created by the growth of the supermarkets, and that they should ally themselves makes perfect sense.
However, in this instance, consumers may wonder if it is primarily the interests of suppliers that are being articulated.
When the submission was published last week, Andrew George, Liberal Democrat MP for St Ives and the prime mover behind the coalition, said: “The proposals that we have sent to the Commission set out the ways that they can act to ensure that there is a healthy grocery market that benefits farmers, suppliers, retailers and most importantly consumers.”
While no-one would deny that an all-powerful and abusive supermarket sector, constantly driving suppliers out of business, would not be in the public interest, it is extremely simple for supermarkets to counter by saying that they are giving consumers what they want, lower prices and convenience. In this context, gaining sympathy for the undoubted hardships farmers are enduring is not easy.
George continued: “It is vital that the Commission acts to ensure that we have a healthy and diverse grocery sector, and the proposals we have put forward offer the Commission a way to promote long-term competition in the market.” To use James Withers’ vocabulary, this is a laudable sentiment but does the average consumer wake up in the morning, yearning for “a diverse grocery sector”? Probably not. But low food prices will be right at the top of the wish-list. And in this area at least politicians know what consumers – voters in other words – want. The idea of introducing regulatory measures which could easily be portrayed as price-inflationary, would be extremely unpalatable.
There will of course be a lot more debate in the coming months and after the commission’s provision findings are published in September, but on the evidence of last week’s submission, the Breaking the Armlock coalition may have to refine its message.