Competition warning for supermarkets

The Competition Commission today said the UK's supermarket sector was lacking competition and warned action needed to be taken in a number of local markets.

The watchdog outlined its intention to overhaul the planning system and to stamp out the practice of "land banking" as part of an 18-month inquiry into the grocery market.

The Commission also raised concerns over the relationship between supermarkets and suppliers in provisional findings of the probe and said changes were needed to help offer greater protection to suppliers.

The Commission said it found that Tesco - which has often come under fire over

its dominance of the sector - was "not in such a strong position that other retailers cannot compete".

But the 269-page report details proposals under consideration to improve competition throughout the sector.

Recommendations include reviewing the planning system to allow greater scope for developments on the edge of town centres, while maintaining constraints on out-of-town supermarkets.

The watchdog is also proposing that grocery retailers are prevented from holding on to land to stifle competition and is looking at barring the use of "restrictive covenants" on sale of land, under which land cannot be used by a rival supermarket.

A new "competition" test could also be introduced to the planning system to replace the current "needs" test, according to the Commission.

A competition test would see local authorities encouraged to look favourably on retailers who do not have a presence in a local area, rather than the current system which requires supermarkets to demonstrate that a town requires a new store.

The Commission's proposed changes to the voluntary code of practice governing the relationship between suppliers and grocers may see the rules extended to cover not just the big four supermarket chains.

It also recommends a change in how the code of practice is monitored.

But the Commission stressed the UK groceries market was delivering a " good deal" for consumers.

Peter Freeman, chairman of the Competition Commission and head of the inquiry group, said: "Our focus throughout this inquiry has been whether consumers are receiving the benefits of vigorous competition, such as value, choice, innovation and convenience - and on most counts the groceries market delivers just that.

"However, we feel that consumers could be even better served. Having looked in detail at local grocery markets, in most areas shoppers have a good choice and benefit from the strong competition between retailers, but in a number of local areas more competition would benefit consumers both locally and more generally."

He added: "We are concerned that retailers could be using existing land holdings and restrictive covenants to frustrate potential competition. Further, whilst we understand that the planning system has to balance conflicting demands, not all of which favour development, it can act as a barrier to new competing stores."

However, the Commission's report, which comes ahead of the final findings due

next year, found no evidence to support fears that small shops and convenience stores were being disadvantaged.

Mr Freeman said: "We have looked carefully at the concerns that have been raised with us regarding small shops.

"The evidence is that convenience stores and specialist grocers that provide consumers with a strong retail offer will prosper. This is not to say that life is easy for small retailers, but we do not see evidence of unfair distortions in competition between large grocery retailers and small stores."

Small businesses today reacted with dismay at the findings.

Matthew Knowles, spokesman for the Federation of Small Businesses, said: "This is the third inquiry in seven years but sadly it is not third time lucky. The initial findings miss the point entirely. Competition between the big four supermarkets is not the same as free and fair competition across the whole grocery sector."

He added: "Small retailers and suppliers are being squeezed out because of practices such as selling items below the cost of production, bullying suppliers and increased parking charges in the high street compared to free parking at supermarkets.

"Once again the shopping public as well as small retailers and suppliers have been let down by the Competition Commission."

Mr Knowles went on: "The devastating impact of the current unfair grocery market can be seen on high streets across the country.

"Competition is about consumer choice as well as price and it does not matter how cheap mainstream items are at a supermarket if the only outlets for other goods have closed down.

He said the Commission seemed "unable to see past the huge lobbying resources of the Big Four supermarkets".

Kevin Hawkins, the director general of the British Retail Consortium, which represents both large retailers and independent outlets, told BBC Radio 4's Today programme: "Overall, I think it is quite a balanced report. It is sensible and it actually comes to the conclusion that the grocery market is delivering a good deal for consumers."