Tesco and Asda attack Competition Commission crackdown

Tesco and Asda have attacked the Competition Commission’s plans to crack down on supermarkets’ relationships with suppliers, arguing it will lead to higher prices for consumers as grocers are burdened with a further deluge of red tape.

The commission today unveiled its proposals for a new and strengthened Groceries Supply Code of Practice that includes prohibiting retrospective adjustments to contracts.

It also plans to make it harder for grocers to delist suppliers and prohibit them from holding suppliers liable for losses due to shrinkage, such as damaged products.

Paul Kelly, the director of corporate affairs at Asda, said the cost of administering the code for supermarkets and its impact on weakening the “competitive tension” that exists between grocers and suppliers will lead to higher prices for consumers. “It seems perverse to put in regulations that by the Competition Commission’s own admission will put up prices for consumers.”

The commission has given the inquiry’s participants one month to respond to its guidance, but after that, it is keen to bring in GSCOP before the end of 2009.

Lucy Neville-Rolfe, Tesco’s executive director, said: “In the current sensitive economic climate, this proposal adds substantial costs to an industry that is generally working well for the consumer. The Commission says they are seeking to avoid undue burdens on business, but they have done no cost benefit analysis of the kind usually carried out under Government guidelines on regulation.”

Mr Kelly said the new code will offer protection to under-performing suppliers. “This is potentially a mandate for protecting smaller suppliers whereas good manufacturers will lose out because they cannot easily replace poor ones and that seems slightly perverse as well,” he said.

Ms Neville-Rolfe cited the administrative burden of the new code. “We are glad the order is out for consultation, and we will be making a number of points to reduce compliance costs for all concerned and avoid regulatory creep. For example very minor changes to arrangements will now have to be formally confirmed in writing which will involve an extra 2 million emails a year for Tesco alone,” she said.

While Tesco, Asda, Morrisons and Sainsbury’s are covered by the current code of practice, all grocery retailers with annual turnover of more than £1bn, includinng Iceland, Aldi and Waitrose, will be covered by GSCOP.

The commission also wants to introduce an ombudsman which will handle disputes between grocers and suppliers.

The commission delivered its final report into the two-year grocery inquiry in April 2008, but Tesco is appealing a separate proposal, the Competition Test, which seeks to prevent one retailer from gaining a dominant position in a local market.

The Competition Appeals Tribunal is expected to deliver its verdict on Tesco’s appeal of the Competition Test over the coming weeks.