This week the New Economics Foundation - the independent think-tank that promotes “real economic wellbeing” - suggested a radical move to derail the Tesco express train.
Breaking up Tesco could be one answer to rescuing Britain’s towns from becoming high street “clone zones”, says NEF policy advisor Andrew Simms. But as Tesco’s 30% grocery market share edges closer to the one-third mark, could Simms’ view ever become a reality?
“Never say never,” says Clive Black, retail analyst at Shore Capital. However, he quickly adds: “Coming back down to earth hard, you have to realise that Tesco is a customer-oriented company that offers very competitive prices. To argue that Tesco is part of rip-off Britain or is harming consumer interest is impossible.”
Nonetheless, Simms, author of the NEF’s latest report, Clone Town Britain, is calling for UK regulators to take action against Tesco (as well as the other big three multiples) and act on their own findings. “In its assessment of the takeover of Safeway, the Competition Commission identified an 8% market share of grocery retailing as a threshold that gave supermarkets market power. The regulators should be following their own observations and begin breaking up the monopoly.”
Firstly, says Simms, the Commission should look at reversing its decision on Tesco’s acquisition of 1,215 T&S stores in 2002. “It was a huge oversight by the competition authorities to allow Tesco to enter the convenience market,” adds Simms. On top of that, supermarkets with more than 8% market share should be forced to divest stores, either as job lots or smaller units.
Tesco, however, is treating the NEF’s comments as “ridiculous”. Spokesman Jonathan Church says the chain is only successful because “more people choose to shop with us”. According to Church, if people aren’t happy with Tesco’s practices, they’ll simply shop elsewhere. “More than 90% of people have the choice of three supermarkets within a short drive.”
This, says Simms, is laughable. “Tesco has totally lost sight of what a diverse marketplace is. It’s certainly not the choice of three.” Simms believes the OFT and Competition Commission have completely failed in their central function of preventing anti-competitive behaviour on high streets.
One competition lawyer, who asks not to be named because of his work with one of Tesco’s rivals, describes the NEF’s suggestion as a “pretty bold”. But it is theoretically possible, he adds. “Forced store divestment is within the Commission’s powers.”
But requiring companies to sell off part of their business is not something undertaken lightly by the authorities. The Enterprise Act 2002 gives the OFT discretion to make references to the Commission when it believes the market isn’t working for consumers. But this is discretionary rather than obligatory, and the OFT must have reasonable grounds to believe competition is restricting the market. “This is a hurdle in its own right,” he adds. “The OFT would be loath to saddle the commission with a burdensome investigation.”
Although the NEF is not specific about the details of how store divestment could be enforced, Simms is adamant that a reduction in market share from retrospective and future acquisitions must be investigated by competition authorities.
On this note, Shore Capital’s Black sees some possibility. “The first control on Tesco should be whether it’s allowed to open new space, as opposed to breaking it up.”
And Sanjay Vidyarthi, retail analyst at Teather & Greenwood, agrees. “It will never come down to Tesco actually reducing its market share. However, the Competition Commission could decide that they can’t open more stores without first closing one. This could allow Asda and Sainsbury to claw back some market share.” He adds: “Tesco management are fully aware of the pitfalls [of growth] because it’s already happened to Wal-Mart. But this means they’re in a stronger position to mitigate any issues.”
Simms believes these issues will continue to cause trouble for Tesco. He says: “The backlash is only just beginning. Tesco’s reign as the nation’s favourite shop seems to be coming to an end as more and more local campaigns organise against them.”