Shop groups and big four’ attack supermarket shake-up

Shaun Lowthorpe

British consumers have long been sold the line that supermarkets offer value for money, helping us with every little penny, so to speak.

But actually the deal may not have been as good for both the consumer and competition as we all thought.

The Competition Commission yesterday recommended a new independent ombudsman who will enforce a strengthened code of practice to protect suppliers, governing all grocery retailers with a turnover greater than £1bn.

It also unveiled a planning shake-up in a bid to boost competition in the £95bn grocery market - the culmination of the two-year probe into the sector which will see a new 'competition test' in planning decisions on larger stores as well as action to prevent land agreements restricting competitors from entering the market.

The UK's four biggest supermarkets - Tesco, Sainsbury's, Asda and Morrisons - all came under scrutiny in the investigation.

And the move comes after revelations that the Office of Fair Trading (OFT) is leading an investigation into around 100 leading brands including PG Tips, Aquafresh, and Coca Cola amid allegations of price fixing.

Meanwhile, in December Sainsbury's and Asda admitted they were part of a dairy price fixing group that earned them about £270m from shoppers.

The commission said: "Although, in many areas, there is good choice and strong competition between retailers, there are also a significant number of local areas where larger grocery stores face limited competition and local shoppers lose out.'

Measures include involving the OFT in all planning applications for new grocery stores bigger than 1,000sq m. Restrictive covenants, which retailers can use to prevent competitors building new stores, will also be lifted or face scrutiny.

Retailers will not be allowed to retrospectively change their agreements with suppliers or shift risks and costs on to them, and will have to enter into arbitration to resolve disputes.

The report said consumers were benefiting from the intense rivalry between stores and concluded that independent retailers were "not in terminal decline'.

But the Association of Convenience Stores (ACS) criticised the report as a "failure".

ACS chief executive James Lowman said: "After a two-year investigation, and despite the weight of evidence showing the extent of competition problems in the market, this inquiry has failed to support choice and diversity in the grocery market. It is out of kilter with consumer trends towards more local shopping and neglects the needs of many groups of consumers whose requirements are not properly met by the big four superstores.'

Friends of the Earth supermarkets campaigner Sandra Bell said the report missed the opportunity to support local shops.

"This report confirms that the 'big four' supermarkets are the bully boys of the retail sector, bleeding suppliers dry and reducing shoppers' choice," she said.

"Urgent action is now needed to end the unfair treatment of farmers and suppliers. These remedies cannot be left up to the supermarkets to weaken and then sign up to. The supermarket watchdog needs to be appointed by Government and it needs teeth.

Asda chief executive Andy Bond warned that customers could end up bearing the cost of a new code and ombudsman.

"The commission's proposals on the new code and an ombudsman could cost the industry hundreds of millions, leading to higher prices for customers which will hit families hard at a time when they are already feeling the pinch," he said.

Tesco chief executive Sir Terry Leahy said: "We are not sure that the main recommendations will improve the life of the British consumer.

"We are more than happy to work within the new rules on restrictive covenants. On the other hand we can't see how the proposed competition test would have any benefits at all. This test would make the planning process even slower and jeopardise job-creating regeneration schemes."