The result of the 16-month inquiry by the UK’s Competition Commission into the country’s supermarkets is a resounding ‘business as usual.’ The Commission’s main brief was to examine whether supermarkets were guilty of excessive profiteering and it concluded that they were not. Vindication or whitewash? Hugh Westbrook reports
However, the Commission did find three areas in which competition was “distorted,” namely: the relationship between supermarkets and farmers, persistent selling of goods below cost and a limited choice of supermarkets in some areas. While demanding that a code of conduct be drawn up for relationships between supermarkets and suppliers and hoping for an increase of store openings in some areas, it found that the work required to implement remedies against the use of loss leaders was “disproportionate” in relation to its effect, and so recommended no action.
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Reaction from the big supermarket chains has been unsurprisingly positive, with the companies uniting to say the results have proved what they have claimed all along about their industry. Peter Davis, Group Chief Executive of Sainsbury said, “We are delighted that the Competition Commission report confirms that UK consumers need no help in making informed choices about where to shop.” Safeway’s official response was that it was “pleased that the Competition Commission is satisfied that the retail industry is competitive and that excessive prices are not being charged nor excessive profits earned,” while market leader Tesco said: “The report has confirmed the reality of the market.”
Vindication of the Wal-Mart effect?
Of the big four, it was left to Asda to say something more original. The group’s spokeswoman told just-food.com that the findings were “a big thumbs-up for the Wal-Mart effect”, as prices have dropped since the takeover. She added that a code of conduct was already in place between Asda and its suppliers, saying “Why would we treat our suppliers badly?” The big four all have codes of conduct in place now. Indeed Safeway described itself as being “disappointed” that the Commission had felt the need to recommend the introduction of a legal code as it has “already formulated a voluntary code of practice which covers all the points raised.”
Aside from trumpeting its tie-up with Wal-Mart, Asda is also hoping to make commercial capital out of the findings. Its spokeswoman said that the Commission’s acknowledgement that certain areas need more competition will enhance its desire to expand in the south-east, where its stores are under-represented at present.
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By GlobalDataBut UK shoppers still pay more…!
Given this general euphoria, it is easy to overlook the fact that the report was commissioned to examine the “public perception that the price of groceries in the UK tended to be higher than in other comparable EC countries and the USA”. In the aftermath of the findings, national newspapers were quick to publish statistics showing that a full supermarket trolley is more expensive in Britain than it is across the channel. Again the supermarkets are united in their response, telling just-food.com about the “macro-economic,” “tax” and “duty” variables that make a comparison between UK and continental prices unfair. In this they are backed up by the report, which cites the value of sterling in 1999 as sufficient reason to excuse UK prices 12% to 16% higher than their French, Dutch and German counterparts. All this analytical juggling tends to obscure the fact that prices are nevertheless higher, and if it’s not the supermarkets’ fault then maybe the “macro-economic” factors that cause the price premium are what need to be addressed.
Supreme irony – Commission could have ordered price hikes on loss leaders
So is everybody happy, given that the supermarkets are obviously pleased and the report itself says that consumers have a “high degree of satisfaction?” The answer is no, with price cuts still causing objections. The report itself emphasised that selling some lines below cost “operates against the public interest,” albeit that it feels unable to do anything about it, a position the National Consumer Council feels “slightly disappointed” about. The reasoning that taking action would not work does not hide the Commission’s belief that the practice should not happen, though it cannot be denied that consumers are always happy to have a good deal. It would have been a supreme irony if a report looking into over-profiteering by supermarkets has insisted on raising prices on loss leaders, a practice which consumers may not have regarded as a crime at all.
Small operators unable to offer deep discounts are the people at risk from the price-cut strategy, and it was left to the Federation of Small Businesses to express the most concerted dissatisfaction with the Commission’s findings.
Spokesman David Hands told just-food.com that the report was not good news for his members, though he did note that it was “skewed” towards the interests of consumers so small businesses would not necessarily have expected to benefit.
“Something could have been done about price fixing,” he said. “It has been made illegal in France. The report could have recommended a code of practice. There also could have been attempts to change the allocation of shelf space and demand a certain percentage for local produce, again as is done in France.”
In addition, Mr Hands had little time for the supermarkets’ voluntary codes of practice. “Supermarkets brought them in to pre-empt the findings of the report,” he claimed, “Much as banks are bringing things in before the report on them.”
Will the new code have teeth?
As for the new code itself, “the thing to do now is to look at the code and see if it has teeth,” he said. He called for Consumer Affairs minister Kim Howell to be given a brief to watch over supermarkets and keep on eye on their actions. He added that he hoped the report would have contained more on “planning and a recommendation on planning guidelines.”
If the commission’s report has achieved anything, it has been to focus minds on supermarket profits and draw attentions to practices that may not have been outlawed but have at least been criticised. In addition, if codes of practice were drawn up, as Mr Hands claims, to pre-empt the report’s findings, then they have at least been drawn up, whatever the reason. However, it is hard to escape the conclusion that this costly and time-consuming exercise has done little more than tell people what they said they knew already.
