First findings of enquiry into supermarket buying power unveiled

The UK's Competition Commission has published an “emerging thinking document” based on the initial findings of a wide-ranging enquiry into supermarket behaviour and practices.

Significant sections of both the main document and eight extensive accompanying working papers, covering subjects including supermarket buying power, supply chain practices and retailer competition, address how fairly the major multiples deal with suppliers at a time when many observers believe supermarket power “has gone too far”.

Despite perennial complaints from packaging suppliers that they are unfairly squeezed on price and, in some cases, forced to sign up to “unreasonable” contractual terms, the initial conclusions of the Office of Fair Trading-ordered enquiry make little specific mention of how “fairly” the Commission believes grocers are actually treating converters. The documents focus heavily instead on the questions of whether supermarket buying power is distorting competition and in turn disadvantaging smaller grocery retailers and whether supermarkets are unfairly exploiting their dominance in particular parts of the UK by charging consumers in one region different prices to those in another.

Dick Searle, who took over as UK Packaging Federation ceo on January 1, and whose members include all the UK's largest packaging converters, says he is “not surprised” at the scant attention paid to converter gripes. He believes one reason is that many packaging suppliers to the multiples “are still too scared to bring to the Commission's attention evidence of unfair practices for fear of identification and loss of vital supermarket business”.

“I met with the Commission before Christmas and know it is still attempting to gather evidence of packaging companies being unfairly dealt with,” he explains. “However, I appreciate the significant difficulties it faces, because although the Federation and other trade bodies provide a channel via which converters can complain anonymously, so great is many's fear of being singled out that very few have done so. My gut feeling is that many of the dubious practices converters complain about continue, but without hard evidence the Commission is pretty powerless. Currently it's a waiting game: I expect there to be significantly more on supermarket/packaging supplier relationships with the preliminary findings' publication in June.”

Competition Commission spokesman Rory Taylor adds: “It's probably fair to say the packaging sector has been somewhat less vociferous to date than some others, such as the farming industry, although it is hard for us to know whether a fear factor is responsible for this or not.”

The “emerging thinking document” and accompanying papers have indeed been made public in advance of this Summer's anticipated publication of the fuller provisional findings of an enquiry into supermarket behaviour “referred” to the Competition by the OFT last May under the 2002 Enterprise Act.

The enquiry, whose final results the Commission hopes to publish by November, follows an earlier Commission investigation into UK supermarket operating practices in 1999/2000, which concluded that that five grocery retailers - Tesco, Sainsbury's Asda, Safeway and Somerfield - had sufficient buying power that 30 separate practices identified by the Commission “had the effect of adversely affecting the competitiveness of some of their suppliers and distorting competition among grocery suppliers”. Furthermore 27 of these practices were felt to be to be operating “against the public interest”.

Subsequently the so-called “big four” - Sainsbury's, Asda, Safeway and Tesco, undertook to comply with a new Supermarket Code of Practice, whose key goal was to stamp out unfair practices allegedly imposed on suppliers. In packaging these included insisting packaging suppliers pay towards the cost of brand owner/ retailer marketing campaigns, changing contractual terms unilaterally or without sufficient notice, not properly setting out contract terms, and the apparently widespread practice of third party rebates. (where packaging suppliers are forced to pay supermarkets a proportion of the fees paid to them by brand owners to ensure they continue to enjoy a particular retailer's business).

The latest enquiry, which has seen Competition Commission staff visit stores and facilities throughout the UK and hold formal hearings in England, Scotland, Northern Ireland and Wales, demonstrates clearly the extent to which the big supermarkets now dominate the UK grocery scene.

In 2006, the four largest - Asda, Morrisons, Sainsbury's and Tesco - accounted for three-quarters of total grocery sales in supermarkets and convenience stores together, while an estimated 40% of products sold in UK supermarkets are own-label.

Meanwhile, in the past six years grocery sales have increased by nearly 17% in real terms, with the main growth seen both at supermarkets (26 per cent) and convenience stores (19 per cent). In contrast specialist grocers such as butchers and greengrocers have seen their sales rise by just 1 per cent.

Despite an overall 2 per cent decline in the overall number of supermarkets since 2000 the number operated by Asda, Morrisons, Sainsbury's and Tesco has “more than doubled”.

The Commission stresses that to date it has “not yet reached any conclusions” on the issues discussed in the papers, adding that the enquiry group's thinking is “ further advanced in some areas than in others”. It would still like to hear from “all interested parties”, who should either write to The Inquiry Secretary (Groceries Market Investigation), Competition Commission, Victoria House, Southampton Row, London WC1B 4AD or E: groceries@cc.gsi.gov.uk