The Office of Fair Trading has just announced it will refer the supply of groceries by retailers in the UK to the Competition Commission (CC) for a market investigation.
This decision comes after a period of public consultation, which follows the OFT's earlier proposal to refer the grocery market to the CC on March 9, 2006. During this period, over 1,200 responses were received from businesses, consumers and other interested parties, the majority of which supported the OFT’s decision. Having considered the views of respondents to the consultation, the OFT said in a statement it has concluded that there are a number of competition concerns that warrant the full CC investigation.
The evidence compiled by the OFT suggests that: the planning regime acts as a costly barrier to entry, making it difficult for new stores to open and compete with those already in the market; the big supermarkets have significant land holdings which could aggravate barriers to entry or otherwise harm consumers; in some instances, supermarkets have attached restrictive covenants when selling sites; there is also evidence to suggest that the big supermarkets’ buyer power has increased, and that some aspects of their pricing behaviour - such as below-cost selling and price flexing - could distort competition.
The OFT said that the CC investigation will not just be limited to considering only the issues that the OFT has identified.
John Fingleton, chief executive of the OFT said: “This reference will allow the Competition Commission to examine in detail all aspects of the grocery sector, ensuring that consumers are able to benefit from strong competition through even lower prices, improved quality and choice, and continuing innovation in the market.”
Tesco said the announcement was expected. “The OFT's decision to refer the grocery sector to the Competition Commission is not unexpected. The OFT said that it has concluded that overall, consumers have benefited from falling prices, an increase in product range and quality and improved service. Tesco is confident the Competition Commission will endorse this view.”
The CC has up to two years to conclude an investigation following the OFT referral.
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