Competition Commission report puts pressure on supermarkets

The Competition Commission has today (Wednesday) published its final report into UK food retailing, including measures to improve competition in local areas and to address its concerns about relationships between retailers and their suppliers.

These measures include:

  • the creation of a strengthened Groceries Supply Code of Practice

  • a recommendation to establish an independent Ombudsman to oversee and enforce the Code

  • a recommendation for the inclusion of a ‘competition test’ in planning decisions on larger grocery stores

The final report therefore confirms the proposals contained in the Competition Commission’s provisional report issued in February.

“Our overriding concern throughout has been whether the market is working well in the interests of consumers,” said Competition Commission chairman Peter Freeman. “In many important respects, consumers are receiving the benefits of competition, such as value, choice, innovation and convenience.

“But some aspects of the way retailers deal with their suppliers could, if left unchecked, also harm consumers. The changes to the existing Code of Practice, along with the recommendation of an independent Ombudsman to police the code, aim to improve the existing system by making it more robust and proactive in tackling those practices which can damage investment by suppliers.”

Terms of supply

In particular, the new Code will prevent retailers from making retrospective adjustments to their terms of supply, or from entering into arrangements that result in suppliers being held liable for losses due to shrinkage.

They will also be required to provide notice of and reasons for de-listing suppliers, and will have to establish an in-house compliance officer, to ensure the new code is respected.

In addition, retailers are being asked to establish a new Ombudsman to monitor and enforce compliance with the Code. His functions will include the arbitration of disputes between suppliers and retailers, and the investigation of retailers’ records in areas subject to complaint by suppliers.

OFT investigations

The publication of the Competition Commission report comes in the same week that it emerged the Office of Fair Trading was initiating its own investigations into possible price fixing by retailers.

Mr Freeman insisted that the fact the Competition Commission had found the grocery sector was generally operating well and benefiting consumers was not inconsistent with the OFT’s new inquiry.

“The focus of our investigation has been different. Our conclusion that this is a generally competitive market is not inconsistent with the possibility of some occurrences of anti-competitive behaviour, either now or in the future,” he said.

The Competition Commission inquiry was initiated two years ago. In total, it received over 700 submissions of evidence and held 81 hearings throughout the UK.