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The BBC's Denise Mahoney
"Only later in the year will consumers know if they are being short-changed"
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The BBC's Karen Bowerman reports
"Some supermarkets have already fought back"
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Tuesday, 1 February, 2000, 10:24 GMT
Supermarkets cleared over prices

supermarket graphic

The UK's Competition Commission says there is some evidence that supermarkets may be abusing their power - but added that food is getting cheaper in real terms.

Sainsbury's and Tesco responded to the interim report into the 90bn-a-year grocery industry by saying that it showed "rip-off Britain was a myth".

This represents a recognition by the Commission of the reality we experience every day - intense competition that benefits shoppers
Tesco's Terry Leahy

The commission, in letters sent to each of the main supermarket chains, said its provisional view was that supermarket giants belonged to either or both of two "complex" monopolies.

These monopolies - where they abuse their dominant share of the grocery market - involved the pricing of groceries and their relationships with suppliers.

Despite the well publicised series of price cuts, the commission's concern was that much of the price competition was concentrated on a small number of items.

There will also be further inquiries into the various stores' relationships with suppliers - the suspicion is that access to supermarket shelves may be discriminatory.

Shares rise in relief

The Competition Commission began its investigation 10 months ago after an eight month inquiry carried out by the Office of Fair Trade.

It will hear evidence from the supermarkets themselves next month.

Investors breathed a sigh of relief that the report had not been more damning, with shares in all the main supermarkets rising in early trading.

Tesco chief executive Terry Leahy said: "This represents a recognition by the Commission of the reality we experience every day - intense competition that benefits shoppers."

Sainsbury's added: "These provisional findings carry no implications that any of the companies is operating against the public interest and that there is at most limited evidence of excessive profitability."

OFT concerned at profit levels

The supermarket chains involved are Tesco, Sainsbury's, Asda, Safeway and Morrison.

The Issues Letter is the stage of the review when the Commission reveals what the investigation has so far uncovered.

Following meetings with the supermarket chains to discuss pricing and supplier relationships, the investigation is expected to end in mid-summer with the sending of a final Remedies Letter.

The inquiry was requested by the Office of Fair Trading which found that the supermarkets had a level of profitability which "requires further investigation".

It looked at all chains with more than 10 stores - effectively giving a clean bill of health to 19 out of the 24 involved, including Iceland, Marks & Spencer and Waitrose.

There has been a rash of well publicised price cuts in the past year, with the purchase of Asda by US retail giant Wal-Mart set to accelerate the process.

Steep price falls

Tesco says it cut prices by 380m last year, while Asda has promised to reduce the price of 10,000 goods to US levels by the end of the year.

Analysts estimate that 4% was knocked off profits in 1999 by the extra competition.

Consumer groups had been pushing for the inquiry because they believed that food prices were higher in the UK than in other countries.

But supermarkets argue that dearer transport and land push their costs up.

Official government inflation statistics showed earlier this month that competition within the industry resulted in the steepest food price falls in December for 40 years.

The British Retail Consortium does not deny that UK consumers were paying more for the same goods than in neighbouring countries but it said comparisons overlooked trade barriers, labour costs, tax levels and exchange rates.

The interim report follows discussions with 24 supermarkets, 35 hearings with third parties and receipt of over 200 submissions.

The commission has also received information from nearly 400 supermarket suppliers and 50 local authorities.

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See also:
22 Sep 99 |  Your Money
On the price war's front line
15 Oct 99 |  Business
Do we live in rip-off Britain?
01 Nov 99 |  The Economy
CBI denies 'rip-off' claims
29 Oct 99 |  Business Basics
Supermarkets shake-up

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