Jeremy Warner's Outlook: Wal-Mart has gone crying to the regulator, yet Tesco has simply out-traded the retail goliath

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The Independent Online

This is a point of view that Wal-Mart would wholeheartedly endorse back on its own home turf in the United States, where it has swept all before it to become the most powerful retailing force in the world. In little ol' Britain, however, this bully boy of the global retailing industry has chosen to complain to the Office of Fair Trading about the growing power of our very own Tesco.

If it wasn't so outrageous, it would be almost funny. A more blatant case of the pot calling the kettle black would be hard to imagine. The truth of the matter is that, much to its own surprise, Wal-Mart has found itself out-traded in Britain by Tesco, and it doesn't like the feeling. Wal-Mart probably paid too much for Asda when it bought into the UK market six years ago. This it did in the belief that it would soon be able to snap up one of Asda's smaller rivals to create the critical mass necessary to take on Tesco and undermine its market leading position. Possibly apocryphal but eminently believable, the story has it that it was the Prime Minister himself who encouraged Wal-Mart to think this nonsense.

It was the height of the "rip-off" Britain campaign, and Mr Blair was said to be desperate to see Wal-Mart's everyday low prices come to the British retail scene. Nothing would be allowed to stand in Wal-Mart's way. True or not, the politicians were nowhere to be seen when Asda came to bid for Safeway. The competition inquiry ran its course and duly blocked Asda along with everyone else apart from Wm Morrison. It wouldn't have been the first time Mr Blair promised the earth but failed to deliver.

Wal-Mart would in any case have been naive to rely on such an understanding, and this is not an organisation given to naivity. Politicians are politicians; they bend with the wind and there is a limit to how far in a democracy they can interfere with independent, judicial inquiry.

Wal-Mart made a good start with Asda, where it had a powerfully deflationary effect on prices, particularly in non-foods, but in recent years it has found simply that Tesco does it even better.

Now it's behaving like a spoilt child, crying "unfair" whenever it gets the chance. Its latest tack is to suggest that in some way Tesco gets preferential treatment from the planning authorities. After 70 years of practice, it may be that Tesco is better at playing the game, but the rules are the same for everyone, and if Tesco has a larger landbank than everyone else, that's only because its ambitions are so much greater.

Tesco has about 25 million square foot of retail space in the UK, which it aims to add to at the rate of about 6 per cent a year. This is certainly aggressive, but it is not off the scale for a successful retailer, even one as big as Tesco, and just to put its position in context, Tesco's entire stock of UK store space is still less than Wal-Mart adds globally in a single year.

All businesses aspire to monopoly. It is in a sense the purpose of business to try to snuff out the competition and have the territory to themselves, but there is no evidence to suggest that Tesco is using unfair means to do so. Indeed, much of Tesco's success in recent years is in markets where it starts as the underdog taking on much bigger incumbents - non-foods, and increasingly financial and other retail services.

If all this makes me sound like Sir Terry Leahy's official spokesman, I make no apologies. I'm no fan of the way the out-of-town sheds are destroying the little man - though in many areas the high street is fast reinventing itself as a haven for a different variety of sole trader - but it is hard to argue that consumers have been disadvantaged by it. Tesco has achieved a state of business nirvana, a virtuous circle of growth where higher volume equals greater efficiency, equals lower prices, equals higher volumes still. It has also begun to benefit powerfully from what economists call "the network effect", a one-stop shop of convenience and value for money which consumers in growing numbers feel compelled to flock to.

Yet even Sir Terry admits that there is a limit to how far he can go in the UK. In groceries, he may already have reached his high water mark. Tesco has enjoyed a strong tail wind of weakened competition. This is changing fast as rivals finally get their acts together. The growth is therefore going to have to come increasingly from abroad.

Wal-Mart has a whole continent to act as its home market. Tesco has only Britain, just a tiddlywink by comparison, which means that as it evolves into a global retailer, it must be bolder, act earlier and take bigger risks in expanding overseas. In so doing, the danger that management will take its eye off the ball back home grows ever greater.

There's little evidence of it yet at Tesco, despite yesterday's caution on prospects, but happen it eventually will. Even the most entrenched of market leading positions eventually falls, undermined, generally, by a combination of complacency and technological change. Just look what's happening to Microsoft. Sir Terry is a driven soul if ever there was one, and as long as he remains at the helm, shareholders can be confident the organisation will remain ship shape and ready to repel borders. But watch out for what happens after the skipper goes.

Consumer ignored in Premier break-up

That once every four years ritual - the auction of rights to screen Premier League football games - is coming to a head again. This is always a bit of a farce, for BSkyB has won every one of the four contests held so far, and would certainly win again if the process was the same and there was an open auction of the rights.

As it is, the League is going to have to give at least something away to others to avoid the wrath of competition regulators in London and Brussels. Potential rivals from ITV to NTL and Telewest have long claimed the process is unfair, since no one can afford to pay as much as Sky for the whole shebang. Ideally they would like the rights split in two, so that Sky gets no more than 50 per cent of the games. Would this yield more for the League, whose role in this instance is to secure as much money as possible for members?

Arguably it would, claim rivals. As things stand, Sky pays £340m a season, of which it gets about £200m back from pubs and clubs and £100m from cable. That means it is paying only £40m for its own subscribers, cheap at the price given the huge amounts of revenue these rights generate. Sky's chief executive, James Murdoch, disputes the detail of the figures, but they are probably about right.

Whether the rights are in practice worth more as a duopoly than as a monopoly is open to question. Sky would say not, and it would not be a risk the Premier League would want to take. Neelie Kroes, the still newish EU competition commissioner, is a pragmatic operator, and it looks as though she will settle for less, as will our own Ofcom.

The plan being worked on is to split the rights into six packages of which one or perhaps two would be guaranteed to go to non-Sky broadcasters. The extent to which this is acceptable to regulators depends crucially on the quality of the two non-Sky packages. If they've got no decent games in them, then nobody will want to buy them.

The curiosity of this debate is that though it may make sense from the perspective of rival broadcasters wanting to get in on the sports rights act to have the League split between rivals, it makes no sense at all from the point of view of the consumer, who will only end up paying twice to get the lot - once to Sky and once to ITV or some such alternative. One way or another, it will work out more expensive. This is competition policy gone crazy, you might reasonably think.