Competition Commission defends competition test for grocery retail planning applications

The Competition Commission (CC) yesterday published a provisional decision in support of its proposed competition test that would apply to planning decisions in respect of larger grocery stores. It has been carrying out further analysis on this test over the last four months following a ruling on the test by the Competition Appeal Tribunal (CAT).

The CC originally proposed the test in its report into the UK groceries market of April 2008. Its recent further work on the test came about as a result of a CAT ruling on 4 March 2009, which found that the CC’s 2008 report had failed properly to consider certain matters in relation to the test, i.e. how it will work, its proportionality and effectiveness, and its economic costs and benefits.

If introduced, the test would mean that the Office of Fair Trading would provide advice to local planning authorities about whether a retailer would pass the competition test for a particular planning application. Retailers who are new entrants to a local area would pass the test, as would those without an existing powerful position in the local market. Grocery retailers who already dominate the local area, however, would have their applications blocked.

The provisional CC decision concludes that the test will encourage rival retailers to enter areas where a strong incumbent is present, and the CC states that “the test is likely to have a positive effect over time for consumers by ensuring that they benefit from greater competition and choice between retailers in their local areas”.

Economic costs may arise from the test where an incumbent is blocked from expanding in an area and there is a delay before an alternative development takes place. However, the CC’s detailed analysis has found that any initial costs are likely to be substantially outweighed by long-term benefits for consumers. The CC’s estimate of the net value of the benefits that may accrue over a 25-year period is £1.9bn. Therefore, the CC finds that the test is a proportionate one, and will be effective alongside other remedies to address the competition concerns set out in its April 2008 report.

The CC is inviting responses to the provisional decision by 29 July 2009. This is a key opportunity for interested parties to make their views known. Continuing opposition to the competition planning test is likely to lead to further discussions with the CC over coming months. The CC has undertaken to produce a final decision on the new competition test by 5 October 2009. The test would thereafter go through the legislative process, and could potentially become law as early as next year, subject to any further legal challenges.