Antitrust Issues in the UK Grocery Industry Michael Rowe 21 May 2008 Introduction – A Good Number of Competition Cases Despite recognition that the grocery retail industry in the UK is broadly competitive, between 2000 and 2008 the sector has seen:
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> Groceries cost more in the UK than in comparable EC countries and the USA
> There was a discrepancy between farm-gate and retail prices
> Large out-of-town supermarkets were threatening the high street
> Identified as that for one-stop grocery shopping in stores of at least 1,400 sq metres (15,000 sq feet)
> Shopping patterns found to be essentially local. Most consumers travelling no more than 10 minutes to the supermarket in urban areas and no more than 15 minutes in non-urban areas
> Persistent selling below cost
> Price flexing
> Relationships between supermarket chains and their suppliers
> Supermarket industry broadly competitive
> No remedial action recommended in respect of predatory pricing or price flexing, due to concerns that any possible remedy would be "undesirable, disproportionate or present practical difficulties"
> A Code of Practice (COP) to be drawn up and parties with at least an 8% share of the market to be required to give undertakings to comply
> COP to include provisions relating to non-cost-related payments required of suppliers, access to shelf space, the imposition of charges and changes to contractual arrangements, particularly when imposed retrospectively
> Referred to the CC in 2007 following Tesco's failure to fulfil undertakings in lieu given to OFT
> Tesco required to divest site or development
> CC investigation launched after closing
> Somerfield required to divest 12 stores
> Somerfield applied to the Competition Appeals Tribunal (CAT) for judicial review of the CC's decision, but the application was dismissed
> "In many important respects, competition in the UK groceries industry is effective and delivers good outcomes for consumers, but not all is well"
> There has been no broad-based decline in convenience store numbers or revenues, including the number or revenues of independent, non-affiliated convenience stores
> Certain retailers having strong positions in a number of local markets with barriers to entry (e.g. the planning regime and control of land)
> Various supply chain practices which transfer excessive risk and costs to suppliers
> The control of land by retailers (e.g. by way of landbanks and restrictive covenants) in certain highly concentrated local markets gives rise an adverse effect on competition in the product markets for large grocery stores and for mid-sized and large grocery stores, but not in the product market for all grocery stores