Competition watchdog the Office of Fair Trading has decided that there is no need for any further regulation of supermarkets.


The current Supermarkets Code of Practice should remain unchanged but be used more effectively, it said. Consumers are benefiting from competition in grocery retailing, and evidence has not come forward that the code is being breached.


In a report published today (Wednesday), the OFT said that evidence has not been provided to show that the Supermarkets Code should be replaced or that the market for the supply of groceries and other goods is not working well for consumers.


“Natural justice and common sense do not allow regulatory intervention in markets without proper evidence,” said OFT chairman Sir John Vickers.


“Our review, including public consultation on the findings of the OFT audit of supermarket compliance, has not yielded substantive evidence to show that the code is being breached or that competition is being restricted,” he said. “Competition and straight dealing are the keys to the market working well for consumers.”


The OFT received 29 responses to its invitation for comments on the findings of the Supermarkets Code compliance audit report.


Without clear evidence that the code is not working, or that competition in the market is being restricted or distorted, the OFT does not have grounds to refer the market to The Competition Commission or to launch a new market study.


The OFT will continue to encourage the use of the code and work with supermarkets and suppliers to improve its practical usefulness. This initiative will include:


Working with supermarkets to ensure written records of supermarket-supplier dealings are kept, allowing for greater transparency in the terms of business


Regularly monitoring supermarkets’ code compliance procedures


Confirming that trade associations can take group actions on behalf of their members under the code with sufficient evidence.


The submissions received by the OFT show widespread misunderstanding about the code and the OFT’s responsibilities. The code is statutory and applies to ASDA, Sainsbury’s and Tesco in respect of their direct dealings with suppliers.


The purpose of the code is to put relations between the supermarkets and their suppliers on a clearer and more predictable basis by outlining parameters within which business should be conducted. The code is not meant to shield suppliers from hard bargaining driven by supermarket competition, but to help ensure that suppliers’ deals with the supermarkets are honoured. Effective competition and straight dealing promote quality, keen pricing and consumer choice.


The code provides for dispute resolution procedures where suppliers cannot satisfactorily resolve suspected breaches of the code through the supermarkets’ normal complaint procedures, but these have not been used. The usefulness of the code would be enhanced by greater use of written records of supermarket-supplier dealings and by evidence of any breaches, as distinct from general allegations.


Without such evidence, no code could address alleged breaches.


There have been calls for an independent ombudsman to overcome suppliers’ fear of complaining under the code by allowing anonymous complaints, but an ombudsman would also require complaints to be transparent and properly evidenced to justify action. Furthermore, the code’s mediation process already allows for independent arbitration in disputes of the sort ombudsmen would provide.


Supermarkets have a clear responsibility to deal fairly with their suppliers and to honour the terms of their contracts. They have a continuing obligation to ensure that they comply fully with the code.


The OFT also received submissions regarding the growth of supermarket groups in convenience store retailing. However, there has not been any substantial evidence to show that supermarkets’ growth in this area is denying consumers competitive levels of price, quality and choice for their grocery products. In any event the OFT, and where appropriate the CC, consider merger proposals very carefully and have acted, and will continue to act, in cases which might be expected to give rise to a substantial lessening of competition.


Wider concerns about the growth of supermarkets and the effects on the rural economy, diversity of the local high street including planning, and the viability of overseas suppliers are not issues which are addressed by the code or fall within the competition and consumer remit of the OFT.