The Competition Commission has published its proposals designed to remedy its competition findings in UK groceries retailing.
These include a recommendation for the inclusion of a 'competition test' in planning decisions on large grocery stores and measures to prevent exclusivity arrangements and restrictive covenants being used by retailers to restrict entry by competitors; the creation of a new strengthened and extended Groceries Supply Code of Practice (GSCOP), and a recommendation to establish an independent ombudsman to oversee and enforce the Code.
In its provisional findings report published last October, the CC concluded that, whilst UK grocery retailers are in general delivering a good deal for consumers, action was needed to improve competition in local markets and to address relationships between retailers and their suppliers.
Along with the report, the CC outlined a number of possible remedies to address its competition findings. Since then the CC has been discussing those possible remedies with retailers, suppliers, trade associations, the Office of Fair Trading (OFT), other government departments and interested parties.
Following these discussions, the CC is now proposing a package of measures which it considers will be practical and effective in addressing its competition findings to the benefit of customers. These are set out in more detail in the four Proposed Remedies documents which are available on the CC's website at www.competition-commission.org.uk.
The proposed remedies have been published so that interested parties have a further opportunity to comment before the CC publishes its final report (currently planned for the end of April). This report will include the decision on the remedy measures to be introduced.
The proposed package of remedies comprises:
- A recommendation to the relevant government departments that a 'competition test' should be introduced when local planning authorities are assessing planning applications for new large grocery stores. The OFT would act as a statutory consultee to the local planning authority to carry out the test.
- A requirement for grocery retailers to release existing restrictive land covenants, which have the effect of preventing that land being used for competing stores, in areas of high concentration.
- A ban on the imposition of future restrictive covenants which have as their object or effect a restriction on grocery retail use.
- A requirement on grocery retailers to lift existing exclusivity arrangements that have been in place for more than five years, where these have been identified as a barrier to entry by a competing retailer in areas of high concentration.
- A requirement on grocery retailers (and a recommendation to local authorities) not to enter into or enforce any exclusivity arrangements of this kind in the future for longer than five years.
- A recommendation to the Department for Business, Enterprise and Regulatory Reform (BERR) that the Land Agreements Exclusion Order be amended so that agreements which restrict grocery retailing should no longer benefit from exclusion from the Competition Act.
- The creation of a new Groceries Supply Code of Practice (GSCOP) to replace the existing Supermarkets Code of Practice (SCOP), which will be extended to include all grocery retailers with a UK turnover greater than £1 billion.
- The new Code, whilst including much of the existing SCOP, will prohibit retrospective changes to agreed terms of supply and also require retailers to make further improvements to their dealings with suppliers through the appointment of an in-house code compliance officer, keeping better records of contracts with suppliers and automatic notification to suppliers of contractual terms and their right to complain and seek arbitration of disputes.
- A recommendation to establish an ombudsman to arbitrate on disputes under the GSCOP, with the power to gather information following complaints from suppliers and primary producers and proactively investigate breaches of the GSCOP.
Bearing in mind that the relevant government departments are already intending to make changes to planning affecting grocery retailing, the CC is not itself intending to make any recommendations for other changes to the planning system such as to the 'need' test or 'town centre first' policy. It is also not requiring any divestments of stores or land holdings. It believes that the measures proposed will be sufficient and proportionate in addressing its concerns about existing and future competition in local markets.
In its provisional findings report the CC stated 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 was also concerned about the ability of grocery retailers to transfer excessive risk and uncertain costs to suppliers through various purchasing practices, such as retrospective changes to supply agreements. The CC considers that these practices could damage investment and innovation in the supply chain to the ultimate detriment of consumers.
The CC has carried out an exhaustive inquiry into all aspects of groceries retailing, having received over 550 submissions; held 75 hearings with main and third parties; undertaken three separate surveys as well as analysing existing data and research covering the whole industry; collected a dataset of 14,000 grocery stores and published 26 working papers.
The CC would like to hear from all interested parties about the provisional decision on remedies by Friday March 7 2008. To submit evidence, please email: Groceries @cc.gsi.gov.uk or write to:
The Inquiry Secretary
(Groceries Market Investigation)