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March 10, 2006

UK: OFT to launch supermarket probe

Bowing to pressure from consumers, lobby groups and Members of Parliament, the Office of Fair Trading has today (10 March) signalled its intention to refer the supermarket sector to the Competition Commission for detailed investigation.

Bowing to pressure from consumers, lobby groups and Members of Parliament, the Office of Fair Trading has today (10 March) signalled its intention to refer the supermarket sector to the Competition Commission for detailed investigation.

In a reversal of its ruling last year, the OFT said the commission would examine whether the buying-power of supermarket chains distorted competition to the detriment of consumers.

The OFT found that the four biggest grocery retailers – Asda, Morrisons, Sainsbury’s and Tesco – have consolidated their share of total food retailing, with some supermarkets moving into the convenience store sector, competing directly with smaller chains and independent stores.

Although the OFT said strong competition between the big supermarkets has driven prices down, the consumer body suggested that it was unable to determine the effect that competition has had on the range of products offered.

The OFT also said that a formal investigation into the planning system was necessary. John Fingleton, the chief executive of the OFT, said: “Although consumers have benefited from lower prices, the restrictions in the planning system, and the possible incentives those restrictions create for retailers to distort competition, may harm consumers and mean that competition in the market is less than it might otherwise be.”

The decision has not been welcomed by the UK’s four largest retailers, who fear that an investigation could take years to complete and cost them millions of pounds.

Tesco responded confidently to the announcement, suggesting that the retail sector in the UK was highly competitive, a fact that the company says has brought numerous benefits to consumers. Group corporate and legal affairs director, Lucy Neville-Rolfe, said: “The development of the UK grocery market has been good news for consumers, who have benefited from unprecedented value, innovation and convenience over the past decade, precisely because of high levels of competition.

“We are confident that once the other observations in the report are explored the regulators will find that they are misplaced.”

Sainsbury’s offered similar observations, with chief executive, Justin King, stating: “The OFT states clearly that price, quality, range, choice and service are all working efficiently for consumers and have improved in recent years so we fail to see why further investigation of these aspects is required.

“If a wider investigation is to go ahead it should rightly include the entire market but we see no reason why specific concerns raised by the OFT, particularly the planning system, could not be investigated in isolation.”

Asda’s Ed Watson told just-food that although the chain felt the inquiry was unnecessary, the Wal-Mart owned supermarket was pleased that the OFT highlighted the issue of planning regulations.

“Planning regulations need to be tightened so that choice play a role in whether planning permission is granted,” he said.

“The OFT’s findings don’t really effect us that much,” he continued. “We don’t really have the small convenience stores that some of our competitors have.” The Asda Essentials format, which the company plans to launch this year, are ‘convenient stores’ rather than ‘convenience stores’, the company says and will not be located on the high street.

Of the four supermarkets, Morrisons was the only one to refuse comment.

The OFT will launch a four-week consultation period when it will confer with the industry before deciding on a formal referral on 6 April. An investigation by the commission could last a further nine months after that.

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