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Food stores hatch code to beat rules

Clayton Hirst
Sunday 01 October 2000 00:00 BST
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Agriculture minister Nick Brown is working with Britain's supermarkets on a secret code of practice that will help the industry escape tough new rules on competition. A Competition Commission report into food retailers is due out this week.

Agriculture minister Nick Brown is working with Britain's supermarkets on a secret code of practice that will help the industry escape tough new rules on competition. A Competition Commission report into food retailers is due out this week.

The code has been jointly written by Asda, Tesco, Safeway, J Sainsbury, Morrisons and Somerfield and spells out how retailers should deal with their suppliers. It is understood the retailers - backed by the Institute of Grocery Distribution - want to trial the code for 12 months before launching a full review of its effectiveness.

Expected to be published later this month, the code will follow DTI secretary Stephen Byers' judgement on the regulation of Britain's supermarkets. In July the Competition Commission submitted the conclusions of its two-year investigation into supermarket pricing to Mr Byers. After some initial tough-talking by the commission, the report is understood to have been watered down. The code of practice will be one of its key recommendations, designed to ensure supermarkets don't abuse their power over suppliers.

Since the launch of the investigation in 1998, the supermarkets have squeezed their margins and dropped their prices. According to Verdict, the research group, the downward pressure on prices will continue for the next five years.

As a result, Mr Byers isn't expected to slam the supermarkets for an abuse of power or impose overbearing restrictions on growth and expansion.

According to one supermarket executive: "At worst we expect Byers to say that we can't build up local monopolies."

Other measures could include restrictions on selling certain loss-leading products and forcing supermarkets to put their prices on the internet.

It is estimated that together the supermarkets have spent more than £15m defending themselves since the start of the investigation. Many in the industry feel that the investigation has been a farce, given that prices have actually fallen.

Mike Godliman, a director at Verdict, said: "A code of practice is fine. But it doesn't justify the millions spent by the commission and the supermarkets on the investigation."

Mr Byers' statement is expected to trigger merger and acquisitions activity in the supermarket sector. Tesco and Asda are expected to be the most aggressive domestic players, and Continental retailers such as Metro and Ahold are also tipped for UK entry.

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