UK: OFT proposes to refer grocery market to Competition Commission

Yesterday the OFT signalled its intention to refer the market for the supply of groceries by retailers in the UK to the Competition Commission (CC) for a more detailed investigation. This is subject to a consultation period ending 6 April with a final decision to be issued later in April.

The OFT's stated purpose is to ''make markets work well for consumers'' and its investigation has uncovered a mixed picture concerning competition within the sector.

The OFT has identified a number of features in the market that may distort competition and harm consumers, including the planning system, supermarkets' pricing behaviour and entry into the convenience sector, at the expense of store choice.

The OFT believes that the most appropriate way to resolve these issues and impose any necessary remedies is an in-depth CC market investigation.

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Yesterday the OFT signalled its intention to refer the market for the supply of groceries by retailers in the UK to the Competition Commission (CC) for a more detailed investigation. This is subject to a consultation period ending 6 April with a final decision to be issued later in April.

The OFT's stated purpose is to ''make markets work well for consumers'' and its investigation has uncovered a mixed picture concerning competition within the sector.

The OFT has found that consumers have benefited from strong competition between supermarkets and their entry into the convenience sector, as a result of falling prices, an increase in choice and improving quality. However, the OFT indicates that this is not enough, in itself, to conclude that there are no significant competition concerns, particularly at local levels. The OFT has identified a number of features in the market that may distort competition and harm consumers:

• The planning system creates barriers to entry for new stores allowing the large supermarkets to use their land banks to reinforce their market position and opens up the possibility that consumers are being prevented from having a reasonable choice of outlets at a local level.

• There is some limited evidence that the major supermarkets' buyer power has increased since 2000.

• Certain aspects of the major supermarkets' pricing behaviour including below cost selling and price flexing.

• The entry of large supermarkets into the convenience sector could be at the expense of store choice and range on a local level.

Whilst the OFT received only limited evidence that below-cost selling, price flexing and buyer power currently harms consumers, it found that its investigation did raise legitimate concerns that these aspects may, at least potentially, result in detriment to consumers. This could be either now or in the future as a result of weakened local competition and a potential reduction of choice for consumers.

The OFT believes that the most appropriate way to resolve these issues and impose any necessary remedies is an in-depth CC market investigation. If commenced, the CC will have up to two years in which to investigate the sector and recommend any remedies.

For more detailed information please click here to view the OFT website in a new window.