FSB News Release

PR/2006/27

Issue date:  Tuesday 7 March 2006

FSB says it’s time for a probe into supermarkets

The Federation of Small Businesses (FSB) has today written to the Office of Fair Trading (OFT) calling for a Competition Commission inquiry into the monopoly position of the “Big Four” supermarkets in the grocery sector.

Until now, an inquiry has been resisted because the supermarkets are not seen as having a monopoly.  However, this is only because the supermarket and convenience store sectors are examined separately.  If they are combined, Tesco alone would be close to 40% of the market, which would automatically trigger an inquiry.  Combined the two sectors are worth £143.7 billion a year.  This is without considering petrol stations and their attached convenience stores.

Between 2000 and 2004, 7,337 independent retailers shut.  The growth of the convenience store market amongst brand-name businesses has undeniably caused closures on the high street.  The FSB believes that this trend will continue unless action is taken to address the inequitable practices that have allowed supermarkets to dominate the grocery and convenience store sector.

The FSB is calling for:

• A Competition Commission inquiry into the monopoly position of the supermarkets.  This should include an examination of supermarket relationships and trading practices in dealing with their suppliers.
• A revision of Government planning guidance to local authorities.  This will ensure that local government is not ramping up town centre parking fees whilst permitting still further large out of town shopping centres with accompanying car parks.
• The Supermarket Code of Practice to be more strictly enforced because, despite being statutory, it is not influencing supermarket behaviour sufficiently.
• Below cost selling should be banned, as it is in France, to prevent supermarkets enticing customers in to the store, away from other retailers, by selling products at far below cost price, with other sales then covering the cost of this loss.  This is an abuse of a dominant position using the size of the supermarkets to unfairly eliminate the competition.

Clive Davenport, FSB Trade and Industry Chairman, said:

“If the convenience and supermarket sectors are analysed together, as common sense suggests they should, there would be an obvious monopoly situation where an inquiry would be triggered automatically.  The way they are looked at separately cannot be justified.

“Such domination of a vital part of UK commercial and family life, based on overly-favourable government policy decisions and unfair trading practices, cannot be allowed to stand.  With a full and open inquiry now, a balance can be found where supermarkets and small shops can co-exist, providing value for all consumers.

“Supermarkets have their place in the UK retail mix.  We are not arguing against them because they are successful - profitable businesses are to be congratulated.  However, unfair public policy decisions and inequitable trading practices play a large part in that success at the expense of smaller retailers.  This is where intervention is now needed by the OFT.  Inaction and timidity is no longer an option.”

ENDS

Notes to Editors:

1. The FSB is Britain's biggest business organisation with 195,000 members.  It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk.
2. The “Big Four” supermarkets are Tesco, J Sainsbury, Asda and Wm Morrison.

Background information:

The Supermarket Code of Practice was launched in 2002 initially as a voluntary code, now statutory.  It was designed to counter negative practices such as suppliers being paid below the cost of production; being forced to pay rebates on agreed prices; waiting for longer than thirty days to be paid and being required to make packaging or transport changes without being compensated for the additional cost.  The amount owed to Tesco’s creditors has risen by £2.2 billion in the past five years, compared with a £700 million increase in stocks, giving Tesco £1.15 billion to help fund its business.  Suppliers are not currently able to give information anonymously on breaches to the Code.  This deters complaints and makes it appear that all is well.

Planning decisions are made at local level within a nationally set framework.  The ODPM sets the framework at central government level through Planning Policy Guidance 6 and 13 (town centres and transport).  They emphasise the importance of town centre development, then edge of town and then out of town – this is referred to as “The Sequential Planning Test”.

The relationship between the main building and the parking area is determined by the local planning authorities when permission is given to build supermarkets.  For a given floor area there must be a related number of parking spaces.

The dominance of brand name convenience stores on the high street is not in breach of the Competition Act 1998.  This is because the OFT treats the convenience store industry as separate from the supermarket industry.  If this was not the case, Tesco’s market share would be close to 40% of all food stores in the UK, which would prompt an investigation.

Contacts:

FSB Chief Spokesman
Stephen Alambritis: 07788 422 155

FSB Press Office
Matthew Knowles: 020 7592 8113/07917 628991
Simon Briault 020 7592 8128 / 07917 628998