Retailers are steeling themselves for two years of hard graft following the OFT’s decision to recommend the entire grocery retail sector for investigation by the Competition Commission.
Following its announcement on Thursday, the OFT confirmed to The Grocer that every grocery retailer could be involved. It had been thought that any such referral would have been more likely to focus on the big four.
Hugh Smith, partner at Andrew M Jackson, a law firm specialising in the food industry, warned independents to expect a heavy workload when the probe gets under way following a four-week consultation period.
“Any retailer of medium size up could be targeted,” he said. “You could be asked to photocopy all purchasing records, sales records and correspondence. It would make a tax inquiry look superficial.”
If the discounters were targeted, this would cause them headaches because of sourcing and pricing strategies that work so differently from other chains.
Independent retail chains welcomed the announcement, but some claimed a full-scale investigation would take too long. The last time such a probe was launched, in 1999, it took 18 months to complete and cost the major multiples £20m with submissions from 200 bodies. Ian Proudfoot, joint MD of The Proudfoot Group, the chain at the centre of the now-infamous Withernsea voucher row with Tesco, feared an inquiry lasting two years. “The review should be concluded this year,” he said.
Adrian Costain, MD of Pareto Retail, who pushed for an inquiry, said he was concerned that the OFT still underestimated the market share of the big four.
But he welcomed the decision to single out store planning issues, claiming major retailers’ land banks stopped small retailers from developing.
Proudfoot and Costain both said the key proposal was an analysis of buying power.
However, in an interview with The Grocer, OFT chief executive John Fingleton said smaller retailers had no reason to complain about a full market referral. “They asked us to refer the whole market so the phrase ‘you should be careful what you wish for’ springs to mind. Our touchstone here is harm to consumers and what we have to bear in mind is whether the cost is worth the benefit.”
He added: “I would have to say that, with a £95bn market, if this even leads to a one per cent reduction in prices then yes it is (worth it).”
The big four welcomed the announcement, stressing they had nothing to hide. Share prices in Tesco, Sainsbury and Morrisons dipped following the announcement, but Lucy Neville-Rolfe, Tesco group corporate and legal affairs director, said: “We look forward to a prompt conclusion confirming consumers have benefited from competition between supermarkets and their expansion into c-stores.”
Rod Addy & Simon Mowbray