Retail: Small Shops Let Down

The Commission stated that a lack of competition in certain local markets not only disadvantages consumers in those areas but also allows retailers to weaken their offer to consumers nationally. The CC is also concerned about the ability of grocery retailers to transfer excessive risk and costs to suppliers through various purchasing practices, such as retrospective changes to supply agreements. The CC considers that these practices could damage investment and innovation in the supply chain to the ultimate detriment of consumers. The CC will now consider a range of measures to address these concerns before deciding on its final remedies. Options under consideration include the lifting of restrictive covenants and exclusivity arrangements, sales of land holdings, and recommending changes to the planning system to place greater weight on competition and choice.

The CC will also consider changes to the Supermarkets Code of Practice (SCOP), which regulates retailer-supplier relationships. Peter Freeman, chairman of the CC and inquiry group chairman, 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. We are concerned that retailers could be using existing land holdings and restrictive covenants to frustrate potential competition.

However, campaigns manager for the Federation of Private Business, Matt Hardman, said that the investigation had not done enough to protect suppliers giving evidence and that only robust action would help reverse a trend of abuse. “We saw no guarantee of anonymity for the suppliers of supermarkets in this investigation. The Commission said it would consider such requests, but that was not the cast iron guarantee that suppliers needed and was the fundamental flaw in this investigation.

“Suppliers of the supermarkets know that they are pushed too hard by the purchasing power of these giant retailers. Those unreasonable demands are not only damaging our suppliers but are then being passed down the supply chain. More must be done to make payment terms agreeable to both parties involved in contracts.”

Planning changes could also damage independent retailers and the FPB, which represents 25,000 small and medium-sized businesses across the UK, has warned that the UK’s struggling high streets could be put at further risk from changes that might create more out-of-town and edge-of-town supermarkets. “Smaller retailers are already suffering as a result of increased competition from the supermarkets entering the convenience store market, so encouraging more sites away from the traditional high street, with all the advantages of free parking that they enjoy, would be a body blow for many small shops,” said Mr Hardman.

The Competition Commission said that planning, and the manner in which the planning regime is applied by Local Planning Authorities, act as a barrier to entry or expansion by limiting construction of new, larger grocery stores on out-of-town or edge-of-town sites. It did, however, suggest introducing a competition test into the planning process that would allow the position of existing retailers to be taken into account. Mr Hardman warned that the damage to smaller, independent shops must be taken into account, too. “It is no good just looking at whether a new site will encourage competition between supermarkets locally, what about the independents in the area? What about the damage that could be done to them?”

The Federation of Small Businesses agrees that these findings haven’t gone far enough to support high street retailers. Clive Davenport, FSB trade and industry chairman, said,
“The Competition Commission’s report seems to recognise problems such as below-cost selling and the shoddy treatment of suppliers, but claims that small independent retailers are not affected. This is absurd.

“Small independent retailers are closing at a rate of 2000 per year and you’ve only got to walk down your local high street to see the evidence of this.”

He adds, “The suggestion that, to increase competition, the planning system should be relaxed to allow more supermarkets to be built is perverse. Consumers deserve more than a choice between four supermarkets selling the same products. The specialist retailers and independent stores that offer consumers real alternatives are suffering from the anti-competitive practices of the supermarkets. The Competition Commission’s latest report does nothing to address this.”