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The UK groceries market is delivering a good deal for consumers but action is needed to improve competition in a number of local markets and to address relationships between retailers and their suppliers, the Competition Commission (CC) has provisionally concluded.
In its provisional findings report it states that a lack of competition in certain local markets not only disadvantages consumers in those areas but also allows retailers to weaken their offer to consumers nationally. Further, some retailer land holdings and other practices, such as restrictive covenants, mean that competition is not as effective as it could be in a number of areas.
The CC says it's also concerned about the ability of grocery retailers to transfer excessive risk and costs to suppliers through various purchasing practices, such as retrospective changes to supply agreements. It considers that these practices could damage investment and innovation in the supply chain to the ultimate detriment of consumers.
The watchdog says it will now consider a range of measures to address these concerns before deciding on its final remedies.
Options under consideration include the lifting of restrictive covenants and exclusivity arrangements, sales of land holdings, and recommending changes to the planning system to place greater weight on competition and choice.
It will also consider changes to the Supermarkets Code of Practice (SCOP), which regulates retailer-supplier relationships.
Peter Freeman, Chairman of the CC and Inquiry Group Chairman said: "Our focus throughout this inquiry has been whether consumers are receiving the benefits of vigorous competition, such as value, choice, innovation and convenience - and on most counts the groceries market delivers just that. However, we feel that consumers could be even better served.
"Having looked in detail at local grocery markets, in most areas shoppers have a good choice and benefit from the strong competition between retailers, but in a number of local areas more competition would benefit consumers both locally and more generally.
"We are concerned that retailers could be using existing land holdings and restrictive covenants to frustrate potential competition."
Indeed, the four largest grocery retailers (Tesco, Asda, Sainsbury's and Morrisons) own a significant number of landbank sites, as well as controlling further sites through leases to third parties, restrictive covenants and exclusivity arrangements.
In many cases, these landbank sites represent a pipeline of future development activity that does not raise competition concerns. However, approximately 10% of all larger grocery stores in highly-concentrated local markets have a nearby landsite which is controlled by the retailer and is likely to be constraining entry by competitors, according to the CC.
In addition, there are instances of local markets where controlled land holdings, particularly the use of restrictive covenants, may be constraining entry by convenience stores.
31 October 2007 © Moneyextra.com
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