The past couple of months have been a bit of a whirlwind for John Fingleton. Almost immediately on his arrival at the Office of Fair Trading in October after a five-year stint as head of the Irish Competition Authority, he was appearing before the Competition Appeal Tribunal to promise a swift review of the grocery retail market after the Association of Convenience Stores challenged the OFT’s September decision not to refer the matter to the Competition Commission.
No sooner was his request for eight months to carry out the review turned down (his report is due in April), he was being probed by MPs on the All Party Parliamentary Small Shops Group as to why the OFT had deemed it unnecessary to intervene in a retail market that is perceived by many to be unfairly benefiting the multiples.
Certainly, the absence of all but two economics tomes on the office bookshelves of his new London base suggests that Fingleton - himself the owner and writer of numerous economics books - has had little time for quiet reflection since taking up his new role, although he insists this is merely just a case of “poor housekeeping”.
The former Trinity College Dublin, Nuffield College Oxford and London School of Economics scholar also insists that the cauldron of argument and debate that is UK Grocery Retailing Plc has not taken him by surprise.
“You should have seen what it was like in Ireland,” he says as he launches into why he believes what is going on in the British retail grocery market today is merely a reflection of what is happening around the globe.
France and Germany, he points out, are embroiled in similar debates, Wal-Mart’s dominance continues across the Atlantic and Italy’s high grocery prices are offering competition chiefs in that country food for thought.
Turning his attention back to Britain, Fingleton admits there is a lot to thrash out. He has already upset the ACS by asking it to submit new evidence for his review, while critics, including the ACS, argue that the OFT should already have all the evidence it needs to pass the debate on to a higher authority and ask the Competition Commission to consider the need for intervention to curb the expanding power of the multiples.
Not necessarily so, says Fingleton, although he adds that if anyone wants to submit the same evidence as before, that’s up to them.
“It is not a particularly big burden,” he argues. “But as I said to the Competition Appeal Tribunal, we are looking at the threshold for a referral (to the Competition Commission) and so are looking at the information we need to meet that. We are simply trying to make sure that, if there was any problem with inadequate data last time, we can rectify that. We want to give everyone the opportunity to submit evidence if they think it is new. There is much said about how quickly this market moves so we are simply responding.” Smaller retailers’ hopes that referral to the Competition Commission would stand a greater chance under Fingleton and new OFT chairman Philip Collins seem to have diminished recently, with Fingleton on record as saying it is the OFT’s job to look after competition, rather than competitors.
“We would never want to refer something to the Competition Commission if there was not a problem. The benchmark is whether the market is acting in the interests of consumers. Competitors come and go. Those that meet the challenges of the market expand and those that don’t either contract or leave the market.
“We have to see that the growth of the more consumer-responsive companies is in the interest of consumers as a whole. Invariably we come across hardship cases where someone claims they are being driven out of business. We look at that and maybe decide that nothing is wrong if it is not affecting consumers.”
A case in point, says Fingleton, is the example of Tesco’s 40% voucher scheme in the Withernsea backyard of The Grocer Top 50 independent chain Proudfoot almost two years ago. Following the ensuing furore, Tesco staved off intervention by the OFT by promising that it wouldn’t run the promotion again. However, in April this year The Grocer revealed how Tesco had struck up a similar offer in nearby Hull.
Fingleton views the rights and wrongs of Tesco’s promotions very differently to others. “Consumers get something at a 40% discount, so how are they harmed? Presumably, the argument is that you drive out rivals and then raise prices later... but when that happens, a new competitor could come into that market. In that instance we decided it was not predatory pricing and we have since been vindicated. Mr Proudfoot is still in business and consumers are getting better prices.”
Similarly, Fingleton asserts that Tesco’s foresight to build up a massive land bank shouldn’t lead to it facing punishment on competition grounds. Instead, he argues that planning issues are a matter for government. “You wouldn’t want to reward the winner of a race with an electric shock and, similarly, you wouldn’t want to punish companies with superior foresight,” he argues.
However, he stresses that he is still listening to both sides of the debate. “We are not here to protect any competitor in the market place. As long as we don’t feel consumers are running gleefully into an abyss, then we don’t have a problem.”
He adds: “I need to be convinced that there is a competition problem and that is the question I would have to put to the (OFT) board. We don’t want to refer something to the Competition Commission about too much competition. We should in my view never be sending a question about protecting competitors, as that would harm competition. We very much welcome issues being raised, but not everything that is harmful to a competitor is harmful to consumers.” Q&A
How can you justify six months on the latest review?
We are very much looking at it with an open mind. But people should not read into it that we want to form a different view for the sake of it. We are also considering what information will be useful and doing that within a fairly tight, six-stage time frame... before formulating a draft decision by March and delivering a final decision to the OFT board in April.
How do you feel about being dubbed the ‘Office for Tesco’?
If Tesco is good for consumers then it is good for us. We are the ‘Office for Consumers’. Tesco is giving customers what they want. The crucial question is whether its growth is coming from efficiency, in which case it is not a problem. If it is coming from locking consumers into long-term contracts then we should be concerned. Likewise, if it is coming from favourable treatment from government.
How do you justify the two-market definition?
Market definition is a useful framework but it is really a technique to look at mergers and acquisitions, looking at things such as who is the next nearest competitor, what is the chance of someone else coming into the market. There is a substantial price difference between convenience stores and supermarkets and that is in principle because of the price of convenience.
Do you believe independent retailers can compete?
In Ireland the symbol groups are a much bigger force and this idea that it is a one-way street is not right. Symbol groups may prove to be the ones to take on Tesco in the long run. We would like to make sure that competition rules don’t stand in the way if it is in the best interests of consumers.
Should you be doing more to protect smaller players?
Companies do not have a right to be in the market just because they have been there historically. They have a right to be there if consumers want them and if they are in the high street on their merits. I think that organisations such as the ACS need to think about how they and the OFT can help their members compete better and help those who aren’t currently winning to do better.
You wouldn’t want to reward the winner of a race with an electric shock - or punish companies with superior foresight