UK: CC Consults On Provisional Findings In Groceries Inquiry

On 31 October 2007 the Competition Commission (CC) published its provisional findings in its review of grocery retailing in the UK, together with proposed remedies to the competition problems identified. The CC welcomes comments on its provisional findings (by 30 November 2007) and proposed remedies (by 23 November 2007).

With certain reservations, the CC has given the grocery sector a clean bill of health. The CC noted that it has not seen evidence of unfair distortions in competition between large grocery retailers and small stores. It also found no evidence to suggest that the sale of own-label products by grocery retailers is giving rise to material competition concerns. However, the CC believes that consumers could be even better served.

The CC’s concerns include:

• The planning system for retail development and the manner in which it is applied by local planning authorities act as a barrier to entry or expansion, by limiting construction of new stores on out-of-centre or edge-of-centre sites and by imposing costs and risks on smaller retailers and potential entrants.
• Retailers could be using existing land holdings and restrictive covenants to frustrate potential competition.
• Weak competition in a number of local markets lets grocery retailers weaken their retail offer in all of the markets in which they operate.
• Retailers’ transfer of unexpected costs and excessive risk on to suppliers could affect suppliers’ ability to invest and innovate, which could in turn adversely affect product quality and innovation for consumers.
• Practices such as category management are capable of facilitating exchanges of information between retailers which can be problematic under competition law. In addition, suppliers facilitate the exchange of information on retail prices charged by rival retailers.

The possible remedies on which the CC is consulting are detailed, although any of the specific points they contain are open to influence by respondents in the consultation process. In summary, the proposed remedies are:

• Prohibit grocery retailers from using restrictive covenants or exclusivity arrangements that reduce the likelihood of land being used for a competing supermarket.
• Recommend changes to the planning system which would provide greater opportunities for developments on the edge-of-town centres, while maintaining constraints on out-of-town developments.
• Introduce a competition test that would allow the existing local position of a grocery retailer to be taken into account in planning decisions.
• Require grocery retailers to divest land holdings in areas where concentration is high and where the above proposed remedies may not be expected to restore adequate competition.
• Include more retailers in the scope of the Supermarkets Code of Practice (SCOP).
• Tighten various provisions of the SCOP and provisions for monitoring the SCOP.
• To ensure compliance with the SCOP, one suggested remedy is to appoint a supermarkets ombudsman.

It is important to remember that the findings and remedies are at this stage provisional. This is however the final stage before the CC’s definitive report and therefore the last opportunity for companies with an interest in the sector to make their voices heard and influence the outcome of this key inquiry.

The CC’s press release is available here. For more details of the proposed remedies, please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 31/10/2007.