In the relentless battle for sales facing independents, anything that might restrict the major multiples would seem appealing, so it is not surprising there is strong backing for the Association of Convenience Store' call for legislation to ban below-cost selling, and for transparent pricing.
But while retailers are united behind the campaign, some wholesalers are warning that it could have quite the opposite effect to that intended, damaging further the ability of independents to compete with the multiples.
ACS chief executive David Rae told his annual conference this month: "We want protection for smaller retailers from predatory pricing."
He said he believed there was a need for legislation to safeguard both smaller retailers and suppliers, and prevent anti-competitive practices by the supermarkets.
And speaking at the Competition Commission's public hearing into the takeover battle for Safeway, he urged the commission to consider the impact of a Safeway sale on smaller chains, warning: "This will bring extra buying power and focus it in the convenience market."
Rae has also received strong backing from Musgrave UK executive chairman Eoin McGettigan who has experience of a ban on below-cost selling from his time working with Musgrave in Ireland. The Groceries Order outlaws below-cost selling on a wide range of food and stipulates that retailers must be offered the same credit terms.
McGettigan says: "It has given smaller players confidence to invest in their businesses because they know they are not going to be put out of business by a bigger player's predatory practices. It has benefited independents in particular, but it has encouraged a healthier market in general."
But when The Grocer consulted a panel of executives from the wholesale sector it was clear that a majority had severe misgivings about the prospect of similar controls in the UK. One aspect highlighted by several was summed up by one, who said: "The major problem with the ban on below-cost selling is what actually constitutes the cost price?"
The Irish law operates on invoice price, but if such a law were enacted in the UK, it could be argued this would not reflect the true price wholesalers paid because of retrospective overrider payments from suppliers. With the UK government's track record of goldplating legislation, and a complete lack of understanding of how the markets operate, there is no guarantee it would not try to base any legislation on net price. This would mean suppliers would quote net prices and could wipe out overriders the only source of profit for some wholesalers at a stroke.
Without overriders, wholesalers would be forced to put up their prices just to survive, and this would mean higher cost prices for retailers.
Another fear expressed by several wholesalers was that, no matter how the legislation might be couched, there would always be loopholes which could be exploited by the multiples. One said: "There will always be a way around any legislation ie buy X and get Y free."
And even if transparent pricing were included in any legislation, wholesalers fear such a move would simply perpetuate the price advantage the multiples enjoy.
One said: "Any attempt by major manufacturers to date [to introduce transparent pricing] has still left a huge disparity, with our sector totally unable to get anywhere near the better end of the scale without massive volumes and jumping through hoops to achieve the set criteria. Without government legislation to force suppliers into a fairer cost price structure to begin with, there can be no useful purpose served by legislation for below-cost selling."
The vast majority of Musgrave's business is wholesaling and it has thrived in the Irish market. But many of McGettigan's fellow wholesalers will take a lot of persuading that they, and by extension their customers, would benefit from a UK Groceries Order.
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But while retailers are united behind the campaign, some wholesalers are warning that it could have quite the opposite effect to that intended, damaging further the ability of independents to compete with the multiples.
ACS chief executive David Rae told his annual conference this month: "We want protection for smaller retailers from predatory pricing."
He said he believed there was a need for legislation to safeguard both smaller retailers and suppliers, and prevent anti-competitive practices by the supermarkets.
And speaking at the Competition Commission's public hearing into the takeover battle for Safeway, he urged the commission to consider the impact of a Safeway sale on smaller chains, warning: "This will bring extra buying power and focus it in the convenience market."
Rae has also received strong backing from Musgrave UK executive chairman Eoin McGettigan who has experience of a ban on below-cost selling from his time working with Musgrave in Ireland. The Groceries Order outlaws below-cost selling on a wide range of food and stipulates that retailers must be offered the same credit terms.
McGettigan says: "It has given smaller players confidence to invest in their businesses because they know they are not going to be put out of business by a bigger player's predatory practices. It has benefited independents in particular, but it has encouraged a healthier market in general."
But when The Grocer consulted a panel of executives from the wholesale sector it was clear that a majority had severe misgivings about the prospect of similar controls in the UK. One aspect highlighted by several was summed up by one, who said: "The major problem with the ban on below-cost selling is what actually constitutes the cost price?"
The Irish law operates on invoice price, but if such a law were enacted in the UK, it could be argued this would not reflect the true price wholesalers paid because of retrospective overrider payments from suppliers. With the UK government's track record of goldplating legislation, and a complete lack of understanding of how the markets operate, there is no guarantee it would not try to base any legislation on net price. This would mean suppliers would quote net prices and could wipe out overriders the only source of profit for some wholesalers at a stroke.
Without overriders, wholesalers would be forced to put up their prices just to survive, and this would mean higher cost prices for retailers.
Another fear expressed by several wholesalers was that, no matter how the legislation might be couched, there would always be loopholes which could be exploited by the multiples. One said: "There will always be a way around any legislation ie buy X and get Y free."
And even if transparent pricing were included in any legislation, wholesalers fear such a move would simply perpetuate the price advantage the multiples enjoy.
One said: "Any attempt by major manufacturers to date [to introduce transparent pricing] has still left a huge disparity, with our sector totally unable to get anywhere near the better end of the scale without massive volumes and jumping through hoops to achieve the set criteria. Without government legislation to force suppliers into a fairer cost price structure to begin with, there can be no useful purpose served by legislation for below-cost selling."
The vast majority of Musgrave's business is wholesaling and it has thrived in the Irish market. But many of McGettigan's fellow wholesalers will take a lot of persuading that they, and by extension their customers, would benefit from a UK Groceries Order.
{{ANALYSIS }}
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