Competition Commission’s final report in groceries market investigation

On 30 April 2008 the Competition Commission (CC) published its final report in its inquiry into UK groceries retailing. The CC believes measures are necessary to improve competition in local areas and to address concerns about relationships between suppliers and retailers.

Its recommendations broadly encompass:

• Including a competition test in planning decisions on larger grocery stores;
• Action to address the use of restrictive covenants to prevent market entry by competitors;
• Creating a new strengthened and extended Groceries Supply Code of Practice; and
• Establishing an independent Ombudsman to oversee and enforce the Code.

The competition test envisaged by the CC would be passed if within the area bounded by a 10 minute drive-time of the development site (i) the grocery retailer that would operate the new store was a new entrant to that area; or (ii) the total number of fascias in that area was four or more; or (iii) the total number of fascias in that area was three or fewer and the relevant grocery retailer would operate less than 60% of groceries sales area (including the new store).

The CC’s action on restrictive covenants will include requiring certain existing restrictive covenants to be released and a prohibition on imposing new restrictive covenants that may restrict grocery retailing or which have equivalent effect (with certain limited exceptions).

The current Supermarket Code of Practice has been heavily criticised for lack of impact. The proposed strengthening of the Code’s terms include a requirement that retailers keep written records of all agreements with suppliers on terms of supply. However, possibly more important is the proposal to establish an Ombudsman. His functions will include the arbitration of disputes between suppliers and retailers arising under the new Code and proactive investigation of retailers’ records in areas subject to complaint in order to identify whether breaches of the new Code have occurred. The CC believes that the presence of an Ombudsman should make the Code more robust and better able to tackle practices which can damage investment by suppliers.

The CC’s findings come days after the Office of Fair Trading is reported to have made inspections and/or requested information from certain supermarkets and suppliers over concerns about prices of groceries, health and beauty products and detergents. This fact is not lost on the CC which has stated that it will continue to assist the OFT’s continuing investigation, while noting that the CC’s investigation had a different focus.

These developments emphasise the competition scrutiny faced by industry and the importance of effective competition law compliance measures. Please contact us should you wish to discuss compliance or the impact of any of the CC’s groceries findings on your business.