British stores 'will fall to foreigners'

WIDESPREAD criticism of supermarkets and the Competition Commission's investigation into their alleged monopoly practices threaten to push Tesco, Sainsbury's and Safeway into foreign hands, Tesco chief executive Terry Leahy warned last week.

"If it's not careful, Britain may wake up one morning and find one of its few world-class industries is coming under foreign ownership," Mr Leahy said. "And then it would have to ask itself the question: 'How does that benefit its farmers or small suppliers?'"

The warning comes in the wake of last month's announcement by Wal-Mart, the US retailing giant based in Bentonville, Arkansas, that it intends to buy Asda for pounds 6.7bn.

Mr Leahy's comments echo remarks by rival executives who fear that the Government's inclusion of supermarkets in its broad attack on "Rip-Off Britain" will work against the national interest.

Last week, Stephen Byers, Secretary of State for Trade and Industry, announced that the Government was launching an annual survey comparing prices of 80 to 100 goods against prices for the same goods in the US, France, and Germany.

On Monday, the Competition Commission distributed a list of 150 questions to 24 supermarket companies designed to help it focus its investigation.

A spokeswoman for the Competition Commission defended the investigation, saying it had been asked by the Office of Fair Trading to undertake it in accordance with anti-monopoly legislation. "Competition is the best way to guarantee the efficiency that will put companies in a position to compete," she said.

Passionately rejecting this view, one senior supermarket official argued that the Competition Commission, the Government, and reporters writing stories supposedly championing consumers were fighting yesterday's battle.

"Until 1993, the profit margins and return on capital of the supermarket chains was rising," he said. "But since then, with the exception of Asda - which was starting from a low base - they have fallen."

The Competition Commission is focusing on barriers to entering the food retailing business in its investigation. But supermarket executives say these barriers are a function of a shortage of land, planning restrictions on the use of land, and consequently high land prices.

"The real issue is that competition is aggravated," one said. "We put more and more money into competing against each other with less and less of a potential return."

City analysts following the supermarkets go a step further and accuse food retailing executives of failing to break this vicious cycle. "The great tragedy of the UK food retail industry has been its failure to develop new sources of earnings growth," JP Morgan declared in an analysis of the industry published on 6 July.

JP Morgan acknowledges the power of the supermarkets inside Britain.

It notes: "The top five operators already control over 50 per cent of the market," and adds that UK supermarket operating margins "range between 5.3 and 6.1 per cent, compared with an average continental margin of 3.5 per cent and an average US margin of 4 per cent."