>>When it comes to pricing policy, Who is subsidising whoM, asks Ian Proudfoot, joint MD of Proudfoot

John Fingleton, chief of The Office of Fair Trading, has bared his soul in recent public statements printed in The Times and The Grocer and came across as hellbent on protecting his party piece, which seems to be academic, economic philosophy - rather than addressing the practical effects of the dominance of the giant multiples.
The trouble is that each individual supermarket can potentially only sell to the catchment area it resides in. Therefore the great debate of national competition issues can be bypassed and the battleground fought in the micro economics of individual catchment areas.
As our company has experienced in Withernsea, when Tesco was not trading very well in this old-fashioned coastal resort of 6,500 people it decided to subsidise its offer by not only offering vouchers representing a 40% discount but also selling the most popular goods at lower prices than it was offering elsewhere in the UK. For example, 1kg of sugar at Withernsea was 41p, but Tesco was only prepared to sell it to (nearly all) the rest of its customers at 68p. This type of predatory pricing can be designed to control a catchment area and eventually, of course, normal prices will prevail.
It may come as a surprise to Fingleton but the Proudfoot Group is not absolutely opposed to below-cost selling. We have been a great competitor alongside the national multiples for decades. What we are against is the abuse of power and the abuse of below-cost selling by the largest retailers in small catchment areas for the sole purpose of long-term domination of the catchment area. This we consider anti-competitive.
I believe the Withernsea situation was the perfect situation for the OFT to move in and stop such abuse of position and power carrying on in small catchment battlegrounds across the UK.
Fingleton should get in touch with me, so we can talk these issues through. He may be surprised to find
out how much of his philosophy we at Proudfoot agree with.
Who is subsidising whom? If suppliers are pressured into selling their goods to the most efficient and largest retailer for less than they sell to other retailers, then there is not an equal buying opportunity and it effectively means that those retailers paying more are subsidising the one paying less. If suppliers had only one price to all their customers, this would not put prices up but would bring them down, as more retailers or wholesalers would benefit from better prices.
For example, National Independent Supermarket Association retailers sell billions of pounds worth of goods and if suppliers had to sell to Nisa at the same price as they sell to Tesco, then thousands of independents would have better cost prices. This would allow them to offer the consumer lower prices or refit their stores and offer better conditions and services, or give them the gross margin to carry on their business in thousands of locations across the country, therefore benefiting services for consumers.
Is it time for the OFT to insist on transparent supply prices that can be checked, at the same time outlawing retrospective discounts, hello money and advertising monies?
It is in the nation’s interest not to have too few chains of distribution. If there were only one supermarket company to service England, it would become an easy target for terrorism or industrial action. The distribution of food is vital to security.
I have to admire Fingleton’s courage in having such an overt stance, but I hope he has not superglued himself to the centre pages of his favourite economic theory.
Many modern thinkers believe some new lateral thinking is possible to allow more retail food businesses to be more profitable, more competitive and bring more benefit to the consumer.
If there is to be any solution to the loss of tens of thousands of stores in the UK, it has to be one that benefits consumers.