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26 September 2003
Today's decision by the DTI [1] to allow Morrison's to take over Safeway will reduce consumer choice and weaken the bargaining position of farmers Friends of the Earth warned today. The takeover will result in over two thirds of the grocery market being concentrated in the hands of just four supermarkets. However the group welcomed the government's decision to block Tesco, Sainsbury's or Asda-Walmart from bidding for the chain.
Friends of the Earth also welcomed the decision requiring Morrisons to sell off 53 Safeway's stores to avoid local competition, but are critical of Mrs Hewitt for allowing Tesco to bid for these because the company already has more than 25% of the market share. Acquiring additional store will enable Tesco to strengthen its hold on the market against the long terms interests of the public.
Today's Competition Commission report into the Safeways bids [1] reinforces concerns raised by the Competition Commission in 2000 [2] about the practices of the biggest supermarkets whose economic power allows them to squeeze out smaller competitors and impose unfair conditions on suppliers. Today's report concluded that the reduction from four (Asda, Sainsbury, Safeway, Tesco) to three (Asda, Sainsbury, Tesco) dominant companies would reduce competition and work against the public interest. This is an important signal that the Government recognizes the negative impacts of a highly concentrated retail market. However the DTI did not go as far as blocking all the bids, concluding that a Morrison's takeover would not be anticompetitive.
Friends of the Earth believes that the merger of Morrison's and Safeway will lead to an unacceptable level of market concentration which will result in:
Less consumer choice
Tightening the existing `armlock' on farmers
Smaller shops closing
Possible higher food prices in the longer term as competition is reduced
Friends of the Earth warned that the DTI's decision could result in more UK farmers being squeezed out of business unless the government now acts to give them greater protection against unfair trading practices. Following the previous supermarkets investigation in 2000 a Code of Practice was introduced to stop unfair trading practices by the biggest supermarkets, but the Code is widely believed to be a failure. The Competition Commission stated that all the evidence it received during the Safeway inquiry indicated that the Code was not working [3]. The Office of Fair Trading is currently reviewing the Code and is expected to release the results of the review shortly. Friends of the Earth says that today's merger decision makes it even more urgent that a new and more effective Code is imposed on supermarkets. The DTI should also appoint an independent retail regulator to ensure that the Code is being properly enforced.
Friends of the Earth's Food and Farming Campaigner Pete Riley said:
"Allowing Morrison's to take over Safeway will place over two thirds of our grocery shopping in the hands of just four companies. This is bad news for consumer choice and bad news for farmers. Supermarkets already use their powerful position to extract unreasonable terms from their suppliers. Having tipped the power balance further in favour of the supermarkets the Government must now act urgently to protect farmers from unfair trading practices. It must also appoint an independent supermarket watchdog, and replace the worthless supermarkets Code of Practice with something with real teeth."
[1] www.competition-commission.org.uk/inquiries/completed/2003/index.htm
[2] Competition Commission, 2000
[3] Competition Commission, 2003, `Safeway Merger Inquiries: Remedies Statement'
For further information please contact the Friends of the Earth media team on 020 7566 1649.
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