Grocery Market Inquiry
Over recent years the grocery market has become increasingly consolidated in the hands of a few large retailers. Today the ‘Big Four’ Supermarkets – Tesco, Asda, Sainsbury’s and Morrisons – control 75% of the grocery market. This has coincided with a significant decrease in the number of independent convenience stores with 4,000 stores closing since 2000 overall, but over 9,500 unaffiliated independents.
ACS believes that this consolidation harms consumers because of the lack of choice and diversity, and in 2006 won a full Inquiry into the Grocery Market by the Competition Commission. The Commission have now been investigating the industry for over a year and will report their provisional findings in September 2007, with a final report due in February 2008.
ACS, as a main party to the Inquiry, has been providing the Commission with evidence on key issues to highlight anti-competitive practices and call for a fairer grocery market. You can view all of ACS submissions to the Competition Commission's website.
ACS has identified to the Commission:
- That the buyer power of the supermarkets means they obtain far lower prices than smaller retailers because of the pressure they put on suppliers
- The use of below cost selling and predatory pricing harms both retailers and consumers
- A strong and well resourced planning system is needed to properly analyse the effect of a new supermarket when a planning application is made.
Supplier Pricing
One of the fundamental issues in this Inquiry is the way that large retailers use their buyer power to obtain lower prices from suppliers than can be achieved by smaller retailers, no matter what volumes are ordered. In the Commission’s Emerging Thinking, produced in January, the Commission had not discovered any price differential, despite there being an 11% differential in the Inquiry of 2000. However, following further evidence from ACS the Commission has now identified a differential of between 11% and 13%.
We believe that the actual price differential is much higher and will continue to provide evidence to the Commission. The buyer power of the ‘Big Four’ means that they are able to demand lower prices than smaller retailers which harms the market.
ACS has also submitted a significant amount of evidence on the ‘waterbed’ effect, which examines how the suppliers are forced to raise prices to smaller retailers to compensate for the lower prices they are paid by large retailers. This leads to a further erosion of smaller retailers market share, and increases the buyer power of the Big Four, allowing them to demand even greater discounts.
Pricing Practices
The use of below cost selling and predatory practices harms both independent retailers and consumers. ACS has provided a significant amount of evidence to the Competition Commission on the way that supermarkets below cost sell on products to draw consumers into their stores, even though this leads to higher prices on other products. Smaller retailers cannot compete with below cost selling and the effect may be to force them out of business. Once local competition has been removed there is little to stop the dominant store increasing prices, harming consumers in the community.
ACS has also submitted evidence on the use of vouchers to target local competition and drive them out of business. This includes examples in Ludlow and Withernsea where Tesco systematically targeted local independent stores with vouchers offering significant discounts if people shopped in the Tesco store. These practices harm consumers by forcing independents, which cannot compete on such large discounts, out of business. Once competition has been reduced there is no incentive for the large store to offer similar discounts, and consumers are harmed.
These practices, coupled with the buyer power of the Big Four, are damaging to competition and action is needed from the Commission to tackle this problem.
Planning
The planning system must be effective and robust in order to ensure new supermarkets do not damage town centres. ACS has made clear to the Competition Commission that the planning system is important in ensuring there is not an increase in the development of out-of-town supermarkets which reduce the viability of town centre retailers. The Competition Commission’s findings on planning will feed into the Department for Communities and Local Government’s Planning White Paper. You can find more information on planning here.
Next Steps
The Commission will be setting out its provisional findings in September, followed by final findings in February 2007. If you have any examples of anti-competitive behaviour call 01252 515001 or e-mail Anna Wallace.