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EDITIONS
Tuesday, 10 October, 2000, 17:36 GMT 18:36 UK
Competition Commission: Findings on supermarkets
Sainsbury's
Trolley good: Competition watchdog has cleared supermarkets
The Competition Commision has concluded that Britain's shoppers are, by and large, getting a fair deal from their supermarkets, but has identified a few issues that should be resolved by the Office of Fair Trading.
BBC News Online documents the Commission's key findings:

The Competition Commission identified 24 supermarkets which fell within its terms of reference. It looked at a number of key aspects of supermarkets' sales and supply, including price trends in the industry, profitability, grocery prices in the UK compared with abroad, and whether recent falls in wholesale prices, especially in the livestock sector, were being fully reflected in prices charged to consumers.

The inquiry also conducted its own consumer survey and considered the impact of supermarkets on inner city and rural areas, as well as the environment.

Overall, the inquiry concluded that the multiple grocery industry was broadly competitive.

The inquiry identified a complex monopoly situation for the purposes of the Fair Trading Act 1973 on two matters - the pricing practices of the supermarkets and their relations with suppliers.

Consumers

On pricing, it concluded that there were two practices which were operating against the public interest when carried out by the largest multiples

  • selling some frequently purchased products below cost which contributed to a situation where the majority of products were not fully exposed to competitive pressure (Asda, Morrisons, Safeway, Sainsbury and Tesco); and
  • varying prices in different geographical areas in the light of local competition so that again the majority of products were not fully exposed to competitive pressure and competition in the supply of groceries was distorted (Safeway, Sainsbury and Tesco).

Not all the supermarkets within the scope of the inquiry conducted these practices.

4. A number of possible remedies to these pricing practices were considered, including a ban on below cost selling and requiring the supermarkets to put their prices on the internet.

However, both these remedies presented problems that would have outweighed their potential benefits. The Commission therefore concluded that any such remedies would be disproportionate to the adverse effects found and so made no recommendations.

Suppliers

The second complex monopoly related to practices affecting suppliers. The Commission conducted a very thorough inquiry, and found that some of the larger supermarkets had sufficient buyer power that 30 of their practices adversely affected the competitiveness of some of their suppliers and distorted competition in the supply market.

In particular, 27 of these practices were felt to be against the public interest because they gave the five major buying supermarkets (Asda, Safeway, Sainsbury, Somerfield and Tesco) substantial advantages over other, smaller, retailers whose competitiveness was likely to suffer as a result.

Code of Practice

The Commission felt that the most effective way of addressing these adverse effects in relation to suppliers would be a Code of Practice, which it recommended.

The Code should address the concerns the inquiry had identified, and should be binding on the larger buying supermarkets and should be approved by the DGFT [Director General of Fair Trading]. In accord with the advice from the DGFT, the Code of Practice should cover the following:

  • Retailers should ensure that the standard terms on which they do business are in writing, and are made available to suppliers.
  • If retailers wish to vary those terms reasonable notice should be given to the supplier.
  • Retailers should pay suppliers within the time specified in the agreement, and in any event within a reasonable time after the date of the invoice.
  • Retailers should give suppliers reasonable notice (i.e. with regard to individual contractual arrangements, written or oral) of any intention to change a price previously agreed; and should not request retrospectively any form of discount or overrider.
  • Retailers should not request suppliers to contribute to retailers' costs of buyer visits, or any supplier to contribution to the retailer's costs of artwork and packaging design, consumer or market research, or to the costs of store refurbishment or opening; or to provide hospitality.
  • Retailers should not seek any form of compensation for profits being less than expected, whether on a promotion or otherwise, or for product wastage.
  • Where retailers change any volume ordered, or the specification of any goods, or introduce changes to any supply chain procedures they should give reasonable notice, (sufficient for the supplier to make arrangements for changes to production schedules), and should compensate suppliers for any costs or losses to them where reasonable notice is not given.
  • Retailers should compensate suppliers for costs caused through the retailers' forecasting errors.
  • Retailers should give suppliers reasonable notice of any intention to hold a promotion in relation to the supplier's products where there is likely to be a significant impact on suppliers' costs; they should not over-order goods at a promotional price; and they should not require suppliers predominantly to fund promotions.
  • Retailers should not seek lump sum payments or better terms as a condition of stocking or listing existing products, or for better positioning of any products within a store, or for increasing shelf space.
  • Retailers should not charge suppliers in respect of consumer complaints unless the complaint has been verified as being justified, and as being caused by the supplier, and the supplier has been notified of the outcome; charges should not exceed the purchase cost of the goods to the retailer.
  • Retailers should not require suppliers to use particular third party suppliers of goods or services where the retailer receives a payment from that third party supplier in respect of that requirement.
    The Commission also suggest that the Code cover the following, although they did not make related adverse findings:
  • Retailers should not discriminate between suppliers in terms of access to information where category management is practised; also responsibility for allocation of shelf space to remain with the multiple.
  • Any penalties imposed on suppliers for alleged discrepancies or other failure to meet contractual obligations should be cost related; retailers should have written procedures covering the imposition of penalties.
The Code should contain provision for dispute resolution.

Choice

The Commission also had some concern about the limited choice of supermarket chains for some consumers in some areas. Any further local concentration among the supermarkets could weaken competition in these areas and lead to higher levels of profitability. Accordingly the Commission recommended that there should be a new system of approval for supermarket developments, and that in certain clearly defined circumstances the DGFT's approval should be required for particular parties to be allowed to acquire or extend large new stores.

But since this recommendation did not follow from adverse findings on either of the monopoly situations identified (regarding prices and suppliers), the Commission recognised that it would not be enforceable without legislation.

See also:

10 Oct 00 | Business
02 Oct 00 | Business
22 Sep 00 | Business
14 Aug 00 | Business
17 Aug 00 | Business
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