The Big Question: Have supermarkets become just too powerful in Britain?

Michael Savage
Sunday 18 September 2011 22:00

Why are we asking this now?

Because the Office of Fair Trading (OFT) has said that the UK's four biggest supermarkets, Asda, Tesco, Morrisons and Sainsbury's, colluded with dairies to keep the price of milk and other dairy goods artificially high between 2002 and 2003. The watchdog says that consumers ended up paying £270m over the odds for milk, cheese and butter as a result of the price-fixing deal. It has added fresh impetus to the argument that the UK's supermarkets have become so big that they are able to dictate to suppliers and customers alike, with decisions on how much consumers should pay being decided by a small group of executives.

So what exactly are supermarkets accused of?

Sharing information with dairies, which is uncompetitive and harmful to UK consumers. It could also violate the 1998 Competition Act. The OFT also suggested that those involved knew that what they were doing could be anti-competitive, as they had been warned about their behaviour previously. Yesterday's statement was not a declaration that any laws had been broken, though. It will first look at the responses from the parties involved. The supermarkets deny that they fixed retail prices. If found guilty, they face heavy fines. But the bigger issue is the influence supermarket chains have over the lives of both consumers and suppliers, as well as their effect on smaller competitors.

Have the farmers benefited?

Probably not. According to the OFT, dairy processors Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Wiseman were all involved in the price-fixing deals with the supermarkets. But in reality, opinions are split as to just how much farmers would have gained from any deal. While the margins given to farmers did increase during the period in question, along with retail prices, some experts suggest that any benefit would have been negligible and temporary.

Is this all in the past?

Although the accusations date back to 2002 and 2003, the issue of the power of supermarkets over both producers and consumers is very much a live debate. Next month, it will come to a head when the Competition Commission delivers its long-awaited investigation into the behaviour of supermarkets towards their suppliers and their effect on the grocery industry. Its inquiry will examine the actions of all four supermarket giants, but there is one that will inevitably attract the most attention. Tesco has nearly a third of the whole of the UK's grocery market.

How powerful are the supermarkets?

In a word – very. Supermarkets rake in a staggering £7 out of every £10 spent on the high street. They have a complete stranglehold on the UK's £120bn grocery sector, meaning that they potentially have the power to manipulate the industry at will. For example, supermarkets can take up 90 per cent of a banana supplier's stocks, making that supplier reliant on them. Tesco has often been targeted as the epitome of supermarket power, due mostly to its sheer size. The company, which is the UK's largest private employer, scoops £1 in every £8 spent on the high street.

Why is this dangerous?

Their size allows them to have a huge power over their suppliers. Supermarkets have been accused of squeezing their suppliers to sell their produce for tiny profits, leading the National Farmers' Union to suggest that some suppliers lived under a "climate of fear and oppression". And while market watchers were reporting an upward trend in food prices this summer, Asda was introducing the £2 chicken. Suppliers were soon crying that they could not keep production costs down.

It's not just domestic producers who are feeling the pinch from the hard bargaining driven by supermarkets. A report by Action Aid published earlier this year said that in order to deliver low prices to consumers, workers for supermarket suppliers abroad were receiving poor wages, job insecurity and were being denied basic human rights. It said that women in particular were suffering as a result.

The opening of smaller convenience-style stores by supermarket chains has also been criticised for killing traditional local shops, important to community spirit. Further worries have been raised about the new markets into which supermarkets are entering. It's not just electrical equipment or clothing that is now offered at cut prices in the aisles of Tesco. It is also a place to go for banking. You can even take out a mortgage in between trips to the fish counter and the fresh fruit. Tesco has also been accused of stockpiling a "landbank" of potential sites for future stores.

What is the supermarkets' defence?

Simple – they say that, thanks to them, consumers can now get their weekly shopping cheaper than ever before in a convenient, single location. If they weren't offering good services and produce to the public, they wouldn't be in such a dominant position. Supermarkets also argue that there is intense competition between the major chains and that many of the accusations against them are no more than anti-supermarket myths.

And despite all the clamouring of suppliers and the mournful tales of dwindling local corner shops, previous inquiries have failed to find any wrongdoing by supermarkets. Of course, supermarkets have become well rehearsed in batting away accusations of monopolising the market and crushing competition. With their huge profits, the firms will be ready with an army of lawyers, lobbyists and public relations executives to fight any accusations from the Competition Commission's report.

Can their dominance be challenged?

While there have been several unsuccessful attempts to take on the might of the supermarkets, the Competition Commission's forthcoming report could be explosive. It was initially due to report its findings back in June, but could not manage to wade though the mountains of evidence in time. There is even political will to take action against the nation's supermarkets. Last week, the Conservative Party's Quality of Life Policy Group suggested measures to limit retail planning permission to halt the rise of huge supermarket developments. The British Retail Consortium responded by saying the measures were based on "anti-supermarket prejudices".

What can be done in the future?

Regulators certainly seem to be lining up to battle the dominance of the UK's supermarkets. Tesco and Asda have already had to hand over millions of emails they sent to their suppliers to the Competition Commission, so that the commission could examine whether they were putting producers under undue pressure. While regulators and politicians can have an influence on the power of supermarkets, though, the real power lies with the consumer. As long as Brits continue to vote with their feet and flock to buy the cheap wares on offer at their local Tesco or Morrisons, supermarkets will continue to enjoy a dominant position.

Should we be worried about the power of supermarkets?


* Their dominance is killing the diversity of the high street

* Suppliers are being bled dry by their cost-cutting demands

* They have the power to dictate to the consumer


* They are powerful because they provide the best deal for the public

* Many investigations have failed to find any wrongdoing

* Competition between chains ensures a good deal for consumers

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