Archived press release

Call for New Investigation into Big Four Supermarkets

26 November 2004

The Office of Fair Trading (OFT) is today (Friday 26th) being asked by a range of groups representing, consumers, farmers, small suppliers, small shops and environmental interests to open a new investigation of supermarket domination of the grocery market. The application for a full OFT Market Review into the grocery sector highlights the damaging impacts of market concentration on small stores, on farmers and on consumer choice. The groups will also ask the OFT not to approve any further takeovers of convenience stores by the biggest four supermarkets (Tesco, Asda, Sainsbury & Morrisons) whilst the market study is being carried out.

Friends of the Earth (FOE), The Association of Convenience Stores (ACS), the National Federation of Women's Institutes (NFWI) and FARM have put together an application for a full OFT market review into the grocery sector setting out how:

Market consolidation is having damaging impacts on the local economy of communities across the UK

• Market concentration by the big four supermarkets has accelerated rapidly since the most recent investigation in 2000

• How new trends such as the huge rise of acquisitions of convenience stores by big supermarkets are reducing consumer choice

• Supermarkets have an armlock on their suppliers

The application says that changes in the market since the last review of supermarket in 2000, and the lack of action from the competition authorities, make a new review of the market essential. Under the Enterprise Act (2002) interested parties are entitled to raise concerns about particular markets and request a Market Study [2].

Friends of the Earth's Supermarket Campaigner Sandra Bell said

"The domination of the grocery market by the biggest supermarkets has been allowed to increase, unchecked, since the last investigation over four years ago. The Office of Fair Trading has so far turned a deaf ear on concerns about loss of small shops, bullying of suppliers and erosion of consumer choice. As consumers, we are in danger of losing any choice over where we shop, and environmental and social standards are under threat as supermarket suppliers are forced to cut costs."

ACS Chief Executive David Rae said:

"This application for a market review has brought together a range of organizations who share a concern for the future of a UK grocery market which is increasingly dominated by a handful of big players. The Big Four superstores achieve buying terms that force our members to drive down their own margins in order to compete. The superstores have undertaken predatory below cost selling which drives out smaller competitors. The UK is extraordinarily liberal in its approach to the grocery market, and this application aims to question what the Government and competition authorities want the market to look like in years to come, and to take action now to arrest the decline in diversity and consumer choice that is taking place in neighbourhoods and villages throughout the country."

The submission also highlights the failure of existing measures, including the supermarket code of practice which make the need for a market review even more urgent.

NFWI Chairman Barbara Gill said:

"The unfair practices of the biggest supermarkets are continuing unabated to the detriment of farmers and consumers. There is a real need for a code of conduct and supermarket watchdog to prevent the big multiples pushing small independent stores out of business and abusing their purchasing power by driving prices below their natural level. There is also a need for a wider investigation of the whole grocery market which has become much more concentrated over the last few years"

Issues included in the submission are:

• Convenience store take-overs
  The takeover of 114 Jacksons stores by Sainsbury's last month is one in a long line of convenience store takeovers by the big supermarkets. This trend is set to continue if the competition authorities let it. One of the outcomes is that the average price of a convenience store has soared to £490,000 making it practically impossible for smaller chains or independent retailers to acquire new stores. The ACS, FOE, NFWI and FARM are warning that there will be no diversity left in our town centres and high streets if no action is taken. They also want the OFT to consider the cumulative growth in buyer power that the supermarkets are gaining - so far the OFT is only assessing these takeovers on a case by case basis and it treats convenience stores and large supermarkets as separate markets even though the same products are sold in both and are generally supplied by the same suppliers.

  Suppliers to the major supermarkets, including farmers, already suffer from the huge imbalance in power. Tesco alone controls over 28% of the grocery market. The Competition Commission has acknowledged that supermarkets with considerable buyer power (defined as over eight per cent) are abusing their position. The Supermarket Code of Practice was intended to stop this, but has proved ineffective. Each convenience store acquisition increases the supermarkets buyer power further.

• Choice of non-food goods
  The groups are also asking the OFT to look into the impacts on smaller retailers and consumer choice of the rapid growth of non-food sales by the supermarkets. Everything from CDs, clothes and books to electrical goods can now be bought under one supermarket roof. Supermarkets may appear to sell a vast range of goods but a closer examination by category reveals a limited choice than would be found in specialist shops. In their joint submission the ACS, FOE, NFWI and FARM suggest that if specialist shops are lost because they can't compete with the price slashing of the big four, choice will be reduced. It is hard to see how smaller shops can compete with the likes of Walmart which buys material for its George clothing 60% than other retailers.

• Below cost-selling
  The groups are asking the OFT to look again at the impacts on below-cost selling. In its 2000 study the Competition Commission found that below-cost selling by the big supermarkets was damaging to smaller competitors who were less able to cross subsidise losses on key food items. The CC pointed out that, by undermining the competitiveness of neighbourhood outlets, accessibility and choice to consumers would be reduced, and that this would particularly effect consumers on low incomes or those with limited mobility. Yet no action has been taken on this issue in the last four years.

[1] www.foe.co.uk/resource/evidence/proposal_for_a_market_stud.pdf (PDF format)

[2] If the OFT decides to conduct a study the issues it will look into include; impacts on consumers; barriers to entry into the market and lack of innovation in the market. It may suggest solutions or it may refer the issues to the Competition Commission for a fuller investigation.

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Published by Friends of the Earth Trust