Time to rein in the supermarket big players

`There is a growing concern about the power of these companies and the way it disadvantages other retailers and the smaller class of food manufacturer'
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The Independent Online
Are the big supermarket groups becoming just too big for their boots? The question is worth asking again because over the last few weeks the Office of Fair Trading has quietly reopened its case file on whether Sainsbury's, Tesco, Asda and other big players in the grocery trade are abusing their market power.

The excuse for this latest foray into what admittedly is pretty well ploughed territory is a complaint from the National Association of Master Bakers that supermarkets are discounting sliced and crusty bread to a level which is uneconomic. More recently, John Bridgeman, director general of fair trading, has widened his investigation of this specific complaint into a much more general look at competition in relation to the larger supermarket chains. In particular, he is looking at their impact on small, competing high street retailers such as bakers, greengrocers and corner shops.

Most people who own a car would agree that the spread of big edge-of- town supermarkets across the length and breadth of Britain is a thoroughly good thing. It's led to greater convenience, better quality, more choice and, on the whole, keener and more competitive prices. While it is true that supermarkets have homogenised choice, undermined regional differences, blighted the landscape and made a reasonable fist of destroying the high street, the fact of the matter is that most of us have benefited from them. Our forefathers could hardly have dreamt of the diversity of produce now available, or the present degree of price competition and value for money.

Certainly that has been the view of the competition authorities to date. The conclusion of the Monopolies and Mergers Commission in 1981 was that, on the whole, supermarkets were not abusing their position. There have been two OFT investigations since then, not including the present one, and both reached broadly similar conclusions. No one, after all, is obliged to patronise these architectural monstrosities. All the same, there is a growing concern about the power of these companies and the way it disadvantages other retailers and the smaller class of food manufacturer. If things carry on as they are, the ultimate endgame may be the reverse of what we have had to date - less choice, less diversity and possibly even higher prices.

The dilemma we are faced with here is best illustrated by the bakers. Over the last two to three years, supermarkets have begun to discount bread to an extraordinary degree. There have been cases of a standard 800g loaf selling at 19p. According to the independents, bread simply cannot be produced for less than 30p a loaf and they accuse supermarkets of "predatory pricing", attempting to price them out of the market. Add in the other advantages enjoyed by out-of-town supermarkets, free car parking, lower rates, economies of scale, state-of-the-art distribution and technology, and you begin to appreciate the nature of the problem. The small high street retailer simply cannot compete.

If the present trend continues, there will soon be none of them left. At one point it looked as if there might be a reprieve. Archie Norman, chief executive of Asda, started to talk of "market saturation", and the planning rules were tightened in an attempt to halt the mushrooming of the supermarket phenomenon. No such luck. Even Asda is planning six new hypermarkets next year. The other chains have even more ambitious plans. Figures this week from the market research firm AGB showed the big four - Tesco, Sainsbury's, Asda and Safeway - improving their share of the total packaged grocery market by a full percentage point between August and September this year to 63.2 per cent. In some catchment areas the figures are even more frightening with perhaps upwards of 70 per cent of the total grocery market accounted for by just two competing supermarkets. It can readily be seen what the effect of market dominance of this type by centralised national chains can be on the local economy of such areas - in a word, devastating.

There has also been a quite dramatic effect at the supply end of the grocery market. Manufacturers too small to deliver on demands for ever bigger discounts, tighter margins and higher volumes of own label produce are getting progressively squeezed out of the picture. Moreover, the impression of unlimited choice that supermarkets like to project is to some extent illusion. Own-label products have reached such a high level of penetration (more than 40 per cent of total sales in some cases), that even the supermarkets have been forced to rail back a little for fear of alienating their customers with too little choice. Having achieved such own-label penetration, the price differential with leading proprietary brands has been reduced to the degree that in some cases it barely still exists. Less profit and product control for the supplier, more for the supermarket. Suppliers are already at the mercy of these retail/distribution behemoths; soon the rest of us will be too.

It is one thing to highlight the problem, quite another to find a solution. Nobody would want to see anything as archaic as retail price maintenance reintroduced. This may be an appropriate way of protecting the small local pharmacy against Archie Norman's big battalions, but it couldn't in all seriousness be introduced anywhere else. A better solution might be something akin to the Robinson-Patman Act in the US, which is designed to stop large distributors and retailers getting preferential terms of supply.

In essence, suppliers are required by law to charge all retailers the same, regardless of size. The Robinson-Patman Act, mirrored in a number of EU countries, was deliberately introduced to protect small businesses. Less clear is whether that has been its effect. Certainly it has proved a particularly controversial piece of legislation and is widely criticised as being against the interests of consumers. As far as I know, it is not on the agenda of any political party here.

If not that, then what? The best hope, it seems to me, comes from technology. Telephone and computer shopping are, at present, only a tiny proportion of the market, and if you believe the supermarket chains, never likely to be much more. I have a sneaking suspicion, however, that they are wrong about this. Few people particularly enjoy going to the supermarket. Once the technology is far enough developed to allow sophisticated on-line shopping, the opportunities for the little guy and the branded manufacturers to gang together against the supermarkets seem virtually unlimited. The stranglehold of the big supermarket chains will be removed. But all this is 10 to 20 years away. Whether by that stage there will be anyone left to even think about competing is a moot point.