Anger at Competition Commission’s supermarket ‘whitewash’

TescoBrand owners have added to the chorus of outrage and disbelief that greeted last week’s Competition Commission report which largely cleared the big four supermarkets of anti-competitive practices.

The commission’s provisional report claims that the UK grocery market, 75% controlled by Tesco, Sainsbury’s, Asda and Morrisons, offers a “good deal” to consumers, delivering “value, choice, innovation and convenience”.

But John Noble, director of brand manufacturers’ organisation British Brands Group, says it is “very disappointing” that the inquiry failed to suggest ways of protecting brand owners from retailers’ own-label copycat products. He says the Competition Commission has been “very thorough” but is surprised by some of its findings.

Welcoming the watchdog
Noble welcomes the idea of appointing an ombudsman to police the code of practice regulating relations between suppliers and grocers. But he criticises the supermarkets’ abuse of “buyer power”, saying it can have a detrimental effect on the ability of brands to benefit consumers.

He says brand manufacturers present details – including pricing plans – of new products up to nine months ahead of launch, but the retailer could use that information to create an own-label version. “If a supplier shared information like that with another manufacturer, it would be a criminal offence. But sharing with Tesco is acceptable. It is an anomaly,” he adds.

He says that since retailers control in-store mechanisms such as pricing, merchandising and shelf promotions, they can prejudice the market and complains that the commission has ignored representations made by the BBG on these issues.

Healthy competition
However, others disagree. Investec analyst Martin Deboo says: “Strong own-label is good for brands, it forces them to innovate and stops them becoming complacent.” He adds that own-label growth has come at the expense of second and third level brands while leading brands that invest heavily in innovation and advertising “can see off” the threat.

One effect of the commission’s report was to boost Tesco’s share price, which last week soared to record levels. This reflects the widespread belief that the retailer, which controls nearly a third of the £120bn grocery market, according to TNS, has got off lightly after accusations that it abuses a dominant market position.

The only anti-competitive practice identified for action by the commission is the stockpiling of land by supermarkets to keep rivals from opening competing stores. Remedies include forcing the sale of such landbanks and outlawing restrictive covenants. Planning laws should also be changed to make it easier to build supermarkets.

The report has been attacked as “totally inadequate” by Friends of the Earth. Meanwhile, the Association of Convenience Stores (ACS) accuses the commission of performing a U-turn on below-cost selling. The report shows that the big chains apart from Marks & Spencer sell products – often branded goods – below their cost price. It found that during the 2006 World Cup tournament £40m worth of alcohol was sold below cost price. But the commission believes that such activities do not amount to predatory pricing.

The ACS accuses the commission of failing to sufficiently investigate Tesco’s use of local voucher campaigns in targeting rival stores. It says Sainsbury’s has claimed that Tesco’s local vouchering budget is greater than Sainsbury’s total TV advertising spend.

Tesco says it welcomes the commission’s recognition that retailing is intensely competitive and argues that grocery shopping is “better for consumers than it ever has been”.

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