The provisional findings of the Competition Commission inquiry have not found any evidence of the abuse of buyer power
Now that the kneejerk cries of "whitewash", "sell out" and the like have subsided, we can take a more dispassionate look at some of the Competition Commission's provisional findings. The most emotive topic it considered - as in its two previous reports - was the alleged abuse of buyer power by the big four.
This third enquiry trundled along, yielding nothing that gave aid to the critics, until the disclosure of numerous emails alleged to have been sent by two of the big four to suppliers. Was this the "smoking gun"? Would this prove the abuse of buyer power?
It did nothing of the sort. On the contrary, the Commission concluded the emails were evidence of "a healthy relationship between trading partners ... We have not observed any systematic abuse of the supplier relationship". Even where it found examples of threatening or assertive behaviour, this was only to be expected from "the very nature of the transactional relationship" in a competitive market.
So what's left on the charge sheet? The only argument that carried any weight at all with the Commission relates to the allegedly adverse effects on supplier innovation (and therefore consumer choice) of the "assertive" use of buyer power. The Commission, however, found no evidence of any squeeze on suppliers' profits, including those of small suppliers. On the contrary, their gross and net margins seem to be on a rising trend. Spending on R&D and innovation in general have both increased in recent years, partly due to pressure from retailers. Scale economies, prompted by competition, have improved suppliers' efficiency.
Game, set and match to the retailers? Well, almost. But the Commission is worried about the future. It believes that if practices such as payment delays and retrospective price adjustments continue unchecked, suppliers' ability to innovate may be constrained by having to shoulder these unexpected costs and risks.
This same concern with potential threats emerged in the Commission's 2003 report when it prevented Asda and Sainsbury from bidding for Safeway. The combined business, it argued, would have been almost the size of Tesco and that might, in turn, have encouraged both in the fullness of time to reduce their competitive aggression to the detriment of consumers. Not a plausible scenario but that's what happens when theory triumphs over common sense. Had the Commission decided otherwise, the need for a third inquiry might never have arisen.n
Kevin Hawkins, director general,
British Retail Consortium