UK competition warning could mean more supermarkets

The British Competition Commission today said shoppers needed more supermarkets in some areas as it outlined plans to overhaul planning rules and force grocers to sell some of their land banks.

The long-awaited report from the watchdog attacked supermarkets for stifling competition by holding on to land and suggested plans to stamp out so-called “land banking”.

The Commission also recommended revamping the planning system to allow chains to open new stores as part of its 18-month inquiry into the grocery sector.

The relationship between suppliers and supermarkets came under scrutiny as well and tougher rules to protect suppliers may be on the cards.

However, the watchdog’s provisional findings revealed the Commission believes consumers are getting a “good deal” and effectively cleared supermarket giant Tesco of having a stranglehold on the sector.

The Commission said it found that Tesco – which has often come under fire over its dominance of the sector – was “not in such a strong position that other retailers cannot compete”.

The report, which comes ahead of final findings due early next year, also found that small retailers were not being disadvantaged.

Peter Freeman, chairman of the Competition Commission and head of the inquiry group, said: “Our focus throughout this inquiry has been whether consumers are receiving the benefits of vigorous competition, such as value, choice, innovation and convenience – and on most counts the groceries market delivers just that.

“However, we feel that consumers could be even better served. Having looked in detail at local grocery markets, in most areas shoppers have a good choice and benefit from the strong competition between retailers, but in a number of local areas more competition would benefit consumers both locally and more generally.”

He added: “We are concerned that retailers could be using existing land holdings and restrictive covenants to frustrate potential competition. Further, whilst we understand that the planning system has to balance conflicting demands, not all of which favour development, it can act as a barrier to new competing stores.”

Proposals outlined in the report include reviewing the planning system to allow greater scope for developments on the edge of town centres, while maintaining constraints on out-of-town supermarkets.

The watchdog is also proposing that grocery retailers may be forced to sell land banks in areas where competition is weak and is looking at barring the use of “restrictive covenants” on sale of land, under which land cannot be used by a rival supermarket.

A new “competition” test could also be introduced to the planning system to replace the current “needs” test, according to the Commission.

A competition test would see local authorities encouraged to look favourably on retailers who do not have a presence in a local area, rather than the current system which requires supermarkets to demonstrate that a town requires a new store.

The Commission’s proposed changes to the voluntary code of practice, governing the relationship between suppliers and grocers, may see the rules extended to cover not just the big four supermarket chains.

It also recommends a change in how the code of practice is monitored, possibly paving the way for an independent ombudsman to oversee the supply chain relationship.

The National Farmers’ Union said it was “delighted” that the Commission had recognised that suppliers needed more protection and that supermarkets were transferring unexpected costs to their suppliers.

Robin Tapper, senior adviser for food chain relations at the National Farmers’ Union, said: “The Commission has done a good job in terms of listening to the evidence and dealing with it.

“It is good news that the Commission has recognised that the code of practice isn’t working and it is now up to us to lobby for the changes needed.”

However, small business leaders and retail experts suggested the report’s recommendations did not go far enough, with the proposed recommendations blasted as a let-down by the Federation of Small Businesses (FSB).

Matthew Knowles, spokesman for the Federation of Small Businesses, said: “Small retailers and suppliers are being squeezed out because of practices such as selling items below the cost of production, bullying suppliers and increased parking charges in the high street compared to free parking at supermarkets.

“Once again the shopping public as well as small retailers and suppliers have been let down by the Competition Commission.”

Tesco shares rose 2% as analysts said the report’s proposed measures were unlikely to be too harmful for retailers.

Andrew Wade, retail analyst at Seymour Pierce, said there were “no huge surprises” and that the proposals were far from heavy handed.

Planners reacted angrily to the plans to shake up the planning system.

The Royal Town Planning Institute said there “many other ways to protect the public that won’t end up destroying our town centres”.

The final results of the inquiry are not due to be published until next year, with the investigation timetable having been put back earlier this year.