Supermarkets must be blocked from Safeway takeover

24 June 2003

Responding to the interim report on the Safeway takeover, Friends of the Earth urged the Competition Commission to prohibit the bidding companies from acquiring Safeway stores to protect farmers and consumers.

Friends of the Earth has launched a `Stop the Safeway Takeover' campaign with the Small and Family Farms Alliance and Grassroots Action on Food and Farming, calling for a block on further concentration of the grocery market.

The Competition Commission's report suggests its preference may be for the Morrison's bid, but Friends of the Earth believes this option will also be bad news for consumers and for farmers. Any of the existing bids would mean three quarters of the grocery market would be in the hands of just four big retailers. This level of concentration would result in less choice for consumers, not only due to the loss of Safeway, but because of the longer term impacts on smaller independent shops who will be driven out of business.

The interim report confirms fears that customers may see prices increase in stores if the market becomes more concentrated. It also suggests that service levels or quality of goods may be of lower quality if competition is reduced. Friends of the Earth believes consumers should be given real choice, which can only be provided by a diverse range of local shops. Industry figures reveal that at the current time independent shops have been closing at a rate of eight a day.

Friends of the Earth believes a Safeway takeover would tighten the grip on many farmers who are already being squeezed by the big supermarkets. The previous Competition Commission report into supermarkets found that supermarkets were abusing their power in way they treat their suppliers and today's report confirms that nothing has changed, despite the introduction of the Code of Practice.

Other remedies set out in the Competition Commission's report do not provide adequate protection:

1. Strengthening the Supermarket Code of Practice

   Friends of the Earth believes this needs to happen irrespective of whether the takeover is allowed. The Government should appoint a Regulator to enforce a strengthened and legally binding Code. But even a stronger Code may not work if buyer power is allowed to increase further.

   The existing Code has clearly not stopped abuses of power by the big supermarkets. The Competition Commission reports that "Evidence received to date suggests that for the vast majority of suppliers, the Code of Practice has made no difference to their negotiating position with the large supermarkets. For those who thought that it had made a difference, more thought that it had made the position worse than thought it had made it better...If buyer power were to increase as the result of any of these mergers, then the situation might worsen".

   A survey of farmers carried out by Friends of the Earth and submitted to the Competition Commission found that less than half the farmers who responded were aware of the Code. More than half of farmers did not think that the Code had made any difference to the way in which supermarkets did business with them.

2. Divestment of stores

   Friends of the Earth believes this is not a solution as it will not significantly affect national market share. It is their national market share which allows the biggest supermarkets to operate in an anti-competitive manner, for example, selling products below cost, which has been identified by the Competition Commission as being against the public interest because of damage to smaller chains and independent stores. Divestment of stores would not make a difference to how a successful bidder treats their suppliers because they will still gain additional buyer power as a result of increased market share.

   "Today's report confirms what farmers already know - the Government has failed to stop the bullying behaviour of the big supermarkets," said Friends of the Earth Food and Farming Campaigner, Sandra Bell. "Allowing any of these companies to get bigger should be out of the question. The only way to benefit consumers and farmers is for the Government to stop the Safeway takeover. If any of the deals go ahead, four big supermarkets will control three quarters of food retailing making it even harder for local shops to compete, with more and more farmers going out of business."

   Friends of the Earth, Small and Family Farms Alliance, and Grassroots Action on Food and Farming will be at the Safeway AGM on 8th July to highlight the negative impacts of the proposed takeover.
   

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