Understanding Regulation

Facts, Analysis and Comment


One of the largest market investigations in recent years was into the groceries market. The investigation resulted from considerable public concern about the supposed dominance and bad behaviour of Tesco, the largest UK supermarket chain. The Office of Fair Trading (OFT) never thought that there was a serious competition issue and, indeed, the Competition Commission (CC) found, in its 2008 report, that the big supermarket chains did compete fiercely at the national level. However, they also found that the market did contain some imperfections which the CC proposed should be remedied as set out below.

The OFT's Chief Executive thought that the CC's conclusions were wrong and wrote to senior figures in the Department for Business to tell them so. (Further background is here.) This was quite improper - rather akin to a High Court Judge publicly criticising the Court of Appeal - and Ministers ignored his letter. It was, however, interesting to note that Tesco was subsequently found be be not quite as clever as it (and others) thought it was, and it lost market share as well as becoming subject to an accounting investigation. Chicago School economists no doubt quietly muttered 'I told you so'.

Here is a brief summary of the CC's recommendations.

Planning/competition test: There are certain towns and areas where particular supermarket chains face only limited competition and so offer either slightly higher prices (mainly through less generous discounting) or lower product quality, reduced product range or less good service (reduced opening hours, longer check-out queues etc.) The CC accordingly recommended that the Government should introduce a competition test in planning decisions on larger grocery stores. The incoming (2010) government's coalition agreement included a commitment to change planning policy so as to enable councils to take competition issues into account when drawing up their local plans.

Revised Code of Practice for the treatment of suppliers. - This was considerable evidence that the supermarkets deployed excessive market power when dealing with their smaller suppliers, requiring back-dated discounts, paying late, forcing contributions to in-store promotions, and so on. The CC recommended that the existing code of practice should be strengthened and this was done in February 2010.

Ombudsman to rule on complaints of breaches of the code - the necessary legislation (the Groceries Code Adjudicator Act) became law in 2013. Christine Tacon, the first Adjudicator, launched her first investigation, almost inevitably into Tesco, in February 2015. She has the power to impose financial penalties of up to 1% of turnover - £480m in the case of Tesco!. But she cannot do this retrospectively, so Tesco cannot be fined as a result of this first investigation.

The CC published the Controlled Land Order in August 2010. This tackled excessive and unfair land-banking and covenants, and required some land restrictions to be lifted within a set time of the order being published.

'Bargain' Offers

The consumer group Which? complained to the Competition and Markets Authority, in April 2015, about supermarkets 'dodgy multibuys, shrinking products and baffling sales offers' which were making it 'virtually impossible for people to know if they are getting a good deal'. The CMA responded in July saying that it had not identified systemic problems but would engage with retailers to address the poor practices which had been highlighted by Which?. The Government subsequently announced, in October 2015, that it would launch a consultation on how to make pricing simpler.

Martin Stanley