Competition Authority’s remit needs revision
In its report into the retail planning system, published earlier this month, the Competition Authority said the cap on the size of retail stores should be lifted.
That restriction was blocking new entrants, especially low-cost sellers from coming into the market, and denying Irish consumers access to cheaper goods, it argued.
Its finding suggests the authority is beginning to place a high premium on delivering value to the consumer.
Recently it rejected Kerry’s takeover of Breeo Foods on the grounds that it would in effect result in a raw deal on prices down the line.
It had been widely expected to clear the takeover given that until then it had cleared 15 of the 17 takeovers it had investigated, which suggested that other factors may have over-ridden any price concerns the authority had.
That is not to say they were bad decisions, but the authority’s basic mandate is “to create an environment in which vigorous competition and new entry to markets can thrive thereby contributing to counter-inflationary economic growth in the long term”.
On that basis it is hard to see how most takeovers can be justified, given that they generally result in less choice for the consumer.
The blocking of the Kerry bid caught people off guard and suggests the authority is taking its mandate very seriously at this point.
In a consolidating food market however, where global takeovers totalled €24 billion last year, advisers to both Kerry and Breeo expected the deal to be cleared, buoyed by consolidation in the sector.
Indeed Kerry may well challenge the ruling, but if it does it can expect a strong fight from the authority, which seems to have become more committed to keeping the Irish market as competitive as possible.
Likewise when arguing for a lifting of the cap on retail stores it said the current structure prevented new entrants coming into the market, implying consumers are suffering from higher prices as a result.
In effect it said the cap meant low cost players were being kept out of the Irish retail market simply because of the restrictive planning laws.
That point was vehemently rejected by RGDATA, which represents the symbol groups such as Spar and SuperValu, to be found in local communities, which the big players have generally ignored.
In the past the authority argued if the groceries order was rescinded consumers would save €500 a year on their food bills, the rising cost of food in the meantime looks to have discredited that argument, which RGDATA was quick to point out.
At its core however the authority’s mandate is “to create an environment in which vigorous competition and new entry to markets can thrive thereby contributing to counter-inflationary economic growth in the long term”.
If it sticks closely to that brief then its conclusions that the retail planning laws were too restrictive is totally in line with the agency’s basic mandate of creating better value for consumers.
With food inflation this year capable of hitting 18% and fuel costs at near record highs the authority’s recommendations carry a broad appeal.
Whether its view stands up or not will only be proved if the ban is lifted and stores of any size can be built.
In an ideal world the free market should deliver all that is required to ensure open competition and good value for the consumer at the end of the day.
The argument for lifting the cap on retail stores may indeed fit the authority’s mandate, but other factors do come into play such as impact on the environment, on communities and the general quality of life.
There is more to life than access to the lowest prices.
And there has to be a balance between competing objectives.
Trying to achieve that may sometimes involve living with contradictions.
In the past the authority has presumably cleared takeovers that reduced the level of competition in the market, but the deal could be justified on other grounds.
In an era of mass consolidation — often necessary for survival — the authority’s brief might need to be re-examined given the complexities of today’s markets.
