Byers on the run as the Rip-off lie dies A huge waste of time and money has finally come to an end with the trade vindicated and Stephen Byers struggling to save face. Now what kind of code of practice can the trade expect to see emerge from the ashes? John Wood, Julian Hunt and Clive Beddall report Fears during the summer that the Competition Commission report would prove highly damaging have turned out to be true ­ but it is Stephen Byers' credibility, rather than the supermarkets', which is now in tatters. True, the secretary of state for trade and industry didn't spawn the Rip-off Britain campaign. That honour belongs to the Treasury spin doctors. But now he is left trying to defend a colossal waste of money. The handing over of the report eight weeks before the Labour Party conference prompted fears that Byers would restore his already tarnished image with a tub thumping attack on the supermarkets and a raft of draconian legislation. But once he saw the report he must have realised the game was up ­ no amount of spin would justify such a performance. After an exhaustive and hugely expensive inquiry, the Commission was forced to conclude: "We are satisfied that the industry is currently broadly competitive and that, overall, excessive prices are not being charged, nor excessive profits earned." And this comment brought a word of approval from agriculture minister Nick Brown, who told The Grocer: "I welcome the Commission findings. The report gives a balanced view of the present state of affairs across the industry." But as the report was published, Byers tried to justify the need for the inquiry by claiming conditions had changed substantially since it started 18 months ago. He said: "Since the reference by the Director General of Fair Trading to the Competition Commission in April 1999, we have seen significant changes in the industry, the entry of Wal-Mart being a notable example, and a number of price cuts which it is estimated have been worth over £1bn to the consumer." But the government's own statistics office shows deflation set in long before Wal-Mart parachuted in, with the food price index showing an increase of just 19% over the last decade compared with a 33% increase in the all items index. These figures should have stopped all the nonsense before it started. But although the multiples were cleared of the main charge, they were not given a completely clean bill of health by the Commission. It reported that the exercise of power by the big five multiples over suppliers operated against the public interest. It found that 30 common "practices" used by the big five were damaging to suppliers, causing them to invest less and spend less on product development. This in turn would lead to less consumer choice, lower quality and would deter entrants to the market. Byers agreed with the commission's recommendation that a code of practice should be set up which would be legally binding on supermarkets with 8% or more of the market (Tesco, Sainsbury, Asda, Safeway and Somerfield). He gave them three months to agree a code which would address the needs identified by the commission, and would include provisions for independent dispute resolution. Not surprisingly, farmers welcomed the decision. NFU president Ben Gill said: "An enforceable code which sets in stone what supermarkets can and can't demand of their suppliers is excellent news." However, the issue could prove a sting in the tail for the multiples. As The Grocer went to press, smaller producers argued the code should apply to all retailers ­ not just the big five. Representatives of the big five agreed. One, who refused to be named as he "didn't want to cause discord in the ranks", said: "You only need to read the Letters pages of The Grocer to realise that many of the complaints from small suppliers have concerned retailers outside the top five. "When the Commission probe began, 24 firms were investigated. It's only fair that they should all be bound by a legally enforced code. Otherwise, the whole thing is an unfair farce. For example, it seems anomalous that Somerfield would have tro comply and Morrisons would not. There should be one standard for all multiples. "And what about trading relationships between manufacturers and farmers? Surely that should be included?" Many in the industry hope the draft code suggested in the spring by Nick Brown, and facilitated by IGD, will form the framework for the eventual plan. Nick Brown said on Thursday that he attached great importance" to the earlier work towards a code, adding: "I am pleased to see the Commission has recognised what we are trying to achieve and will be building on that work." The Grocer has seen the confidential document. Appropriately, it includes recommended procedures for mediation in the event of supplier/buyer disputes, a point demanded by Byers in his report this week. It also lists five key principles, including establishing and managing new and ongoing trading relationships, quality and safety standards, and training and communications. The 12 page draft incorporates many "essentials" needed in successful seller/ buyer relationships including the ever controversial listing fees. It states: "The listing of products for sale to consumers represents a joint risk and success will depend on consumer demand. The payment of listing fees is common practice in certain product categories and relates to new or reintroduction of products. It is the subject of normal negotiation at the time of deciding to list a product." But it adds the warning: "It is not considered appropriate for the payment of listing fees to be the dominant criterion for selection." Copies of the draft have been passed to the DTI by Nick Brown and on Thursday arrangements for a meeting to discuss the plan were being made between the DTI, MAFF and the IGD. Meanwhile, two pricing practices were also found to operate against the public interest. Twenty two out of the 24 retailers investigated by the commission (with the exception of M&S and Lidl) consistently sold some frequently purchased items below cost price. The Commission accepted that the lower costs could benefit customers, but believed this was outweighed by the damage caused to smaller stores and to the customers who rely on such stores. It ruled that below cost selling by Asda, Morrisons, Safeway, Sainsbury and Tesco, the parties with market power, operates against the public interest. Price flexing (varying prices between locations) was also practiced by Budgens, the Co-ops, Netto, Safeway, Sainsbury, Somerfield and Tesco, and was said to distort competition. When practiced by Safeway, Sainsbury and Tesco it was ruled that it was against the public interest because customers tended to pay more at stores that do not face particular competitors. In an almost unprecedented move where public interest is damaged, however, the Commission recommended no action should be taken on either case because any remedy would cause greater problems than it solved. In a final fudge, the Competition Commission did not make an adverse finding, but said it was concerned about the limited choice of supermarkets in some areas and that where choice could be increased by new store openings it should be encouraged. The commission proposed that if Asda, Morrison, Safeway, Sainsbury or Tesco wished to build or acquire a store of more than 11,000 sq ft within 15 minutes' drive of another of its stores, or significantly extend an existing store, it should be required to apply to the Director General of Fair Trading for consent. But when no adverse finding is made, the DTI secretary has no power to act and Byers was only able to ask the Director General of Fair Trading to monitor the situation. However he warned that if there were signs of deterioration, legislation would be considered. Although many companies and organisations claimed they welcomed the report's findings, only suppliers have any cause for celebration. They may find they are treated better by the big retailers. But the big retailers have had to spend over £20m to get their "clean bill of health", while opponents will feel £3.7m of public money has been squandered to produce a toothless result which actually bolsters the status quo. {{NEWS }}