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Last Updated: Friday, 15 February 2008, 00:32 GMT
Q&A: Supermarkets under scrutiny
By Catherine Wynne
Business reporter, BBC News

Where we spend our weekly shopping budget has changed significantly in the last decade.

The biggest supermarkets - Tesco, Asda, and the now combined Morrisons and Safeway - have grabbed larger shares of the market at the expense of smaller chains and independent convenience stores.

Concern about the growing power of supermarkets, how they treat their suppliers and the closure of independent stores have prompted a number of investigations since 2000.

The Competition Commission began its inquiry into the grocery sector in 2006 and on Friday it will outline its plans to remedy the problems it has identified.

Grocery Market stats

How did it start?

The Office of Fair Trading (OFT) carried out a study into the supply of groceries by retailers - large supermarkets and small convenience stores - in the UK.

It suspected a number of anti-competitive practices and referred the matter to the Competition Commission for further investigation in May 2006.

John Fingleton, chief executive of the OFT said this would ensure that "consumers are able to benefit from strong competition through even lower prices, improved quality and choice, and continuing innovation in the market".

The OFT's findings

Dairy Farm
Do supermarkets treat suppliers fairly, the inquiry asked

  • Planning laws make it difficult for new stores to open and compete with existing retailers.
  • Big supermarkets have "significant landholdings", or landbanks, designed to stop competitors building new stores.
  • Some supermarkets attach restrictions when selling land dictating how it can or cannot be used in future.
  • Big supermarkets' buying power has increased and activities such as selling items below cost price could force others out of business.

The focus of the Competition Commission inquiry

In June 2006 the Competition Commission released its first important document called an Issues Statement, highlighting the main areas of its inquiry. They were:

  • The relationship between food retailers and their suppliers.
  • The level of competition between retailers in a consumer's local area.
  • The planning regime and landbanks.

The watchdog refused calls to extend the investigation to include clothes, DVDs and other non-food items.

It also said it would not look at the changing face of the UK high street or working conditions in overseas factories.

Gathering evidence

14,000 stores studied
550 submissions
65 hearings
26 working papers
3 surveys
Source: Competition Commission

The six members of the inquiry panel gathered a large amount of information from supermarkets and other relevant parties.

They requested copies of correspondence and adverts, gathered data on 14,000 different stores and carried out a number of surveys.

Members of the inquiry visited supermarkets, warehouses and wholesalers' depots, and heard evidence at a series of hearings from charities, MPs and associations representing businesses and consumers.

Inquiry goes local

Local markets and planning issues took centre stage in the Competition Commission's Emerging Thinking document, published in January 2007.

"Our principal concern now is to focus on competition between retailers at the local level, where it most matters to consumers, as this is where many of the potential concerns we have would be evident," the inquiry Chairman Peter Freeman said.

Tesco trolleys
Tesco was found to have the largest landbank

The inquiry said it wanted to find out whether shoppers in areas with a smaller number of different stores to choose from face higher prices and poorer product ranges.

It found the biggest supermarkets had significant landholdings, with Tesco owning the most undeveloped land.

One unidentified retailer had put restrictive covenants on half of all the land it sold.

More work would have be done to determine whether this was anti-competitive, the Commission said.

It had not found evidence of larger retailers bullying suppliers to drive down prices. But it called for any suppliers with concerns, particularly farmers, to come forward in confidence.

First findings and possible remedies

In October 2007, the Competition Commission unveiled its first findings and suggested a number of possible remedies that it would consult on. They were:

  • Revamp the planning system to allow supermarkets to open in areas where competition is needed.
  • Stop supermarkets imposing restrictive covenants on land to prevent a competitors building on it.
  • A time limit on length of time supermarkets can keep undeveloped land.
  • Retailers should be forced to sell stores in areas where they are too powerful.
  • The appointment of a supermarkets ombudsman to protect suppliers in their dealings with the big retailers.

The Commission also found:

  • Tesco wasn't stopping competitors growing, disappointing campaigners and rivals who had long argued it was too powerful.
  • Sainsbury's and Tesco expanding into the convenience store market had not had a negative effect on competition.

What can the Competition Commission do?

It cannot hand out fines, but it could force the supermarkets to sell some of their stores or landholdings or change the way they run their business.

It must publish its final report by 8 May 2008, two years after it began the investigation.

Probe says 'too few supermarkets'
31 Oct 07 |  Business
Grocery probe eyes local markets
23 Jan 07 |  Business
Supermarket concerns are voiced
05 Sep 06 |  Scotland
Watchdog outlines grocery probe
15 Jun 06 |  Business
Supermarkets in competition probe
09 May 06 |  Business
Supermarkets face dominance probe
09 Mar 06 |  Business

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