Competition Commission – Groceries Market Investigation

Supermarkets Code of Practice

The Competition Commission last week published a working paper on supply chain practices and the Supermarkets 2002 Code of Practice. The working paper highlights the continuation of many supermarket practices originally raised in the Commission’s first inquiry into supermarkets in 2000. The working paper focuses on those grocery retailers considered to have sufficient buyer power to affect competitiveness and distort competition

The working paper expresses doubts about the effectiveness of the code and has prompted speculation that the Commission may impose tough guidelines on retailers.

The Commission identified 42 practices that were a cause of concern and then categorised them into the following eight broader categories for ease of assessment:

• Requiring payments or concessions in return for access to shelf space in relation to both new and existing products
• Imposing conditions relating to suppliers’ trade with other retailers
• Applying different standards to different suppliers’ offers
• Imposing an unfair imbalance of risk
• Imposing retrospective changes to payment or contractual terms
• Restricting access of suppliers to the market
• Imposing charges on or transferring costs to suppliers
• Requiring suppliers of groceries to use third party suppliers nominated by a retailer

Since the Commission’s 2000 investigation and the introduction in 2002 of the voluntary Supermarkets Code of Practice the Commission has, through the current investigation, found that many of the practices that were identified in the 2000 investigation may be continuing today. The Commission may ultimately view such practices as likely to have an adverse impact on competition.

The Commission also voiced concern about possible barriers to market entry for small suppliers and the consequent impact on innovation and product choice for consumers.

In a separate grocery investigation working paper on market definition also published recently, the Commission found that larger stores place a greater competitive constraint on smaller stores than vice versa. It also found that in terms of the geographic market the market is local and that the most significant competitive constraint occurs between stores that are located less than 15 minutes’ drive-time from one another. These findings may be of particular concern to larger retailers with a number of stores in close proximity as they could be considered more dominant in local markets.

The Competition Commission is due to publish its provisional findings in the current investigation in September. In the light of the recent working papers, the provisional findings will be anticipated with interest and there is an opportunity in the next few months for any interested party to submit evidence to the Commission and potentially influence a key stage of the inquiry.