The Big Question: Is Tesco now too powerful in Britain, and can its growth ever be checked?

By Ed Howker
Thursday 05 March 2009 01:00

Why are we asking this now?

An unprecedented ruling in favour of Tesco – the world's third-largest food retailer – by the Competition Appeals Tribunal yesterday halted plans to place new limits on the expansion of supermarkets. Last April, the Competition Commission – the Government's retail regulator – completed a two-year investigation into the supermarket sector and found much tougher rules needed to be introduced to limit the growth of so-called "Tesco towns" – communities where one supermarket chain comes to dominate, forcing out large competitors and small shops. The commission recommended that local councils should be given powers to block new stores if they might lead to dominant clusters of branches of the same chain within a 10-minute drive. But today these plans lie in tatters after the tribunal ruled that the commission did not "fully and properly assess and take account of the risk that the application of the test might have adverse effects for consumers, as a result of their being denied the benefit of developments which would enhance their welfare". This is rather embarrassing for the commission, which spent £3m examining Britain's £120bn grocery business – and whose market investigations have never previously been found against.

Is Tesco too dominant?

Well, plenty of people think so, and there are more than 200 campaigns against Tesco's expansion running across the UK. In places such as Inverness and Swansea, Tesco has a more than 50 per cent share of the grocery market. And, by the end of 2008, it had a dominant market share in 87 of the UK's 121 postcode areas. Not surprisingly, the "Tescopoly" campaign group, and the Association of Convenience Stores, which represents 33,000 local shops, are both disappointed by the decision. James Lowman, chief executive the ACS, is concerned there will be "yet more delay in the implementation of an effective town centre planning policy". He said: "A badly planned supermarket can have a devastating effect on a local area. There are examples all around the country where large supermarket openings have led to the closure of high-street stores."

Why is this bad?

The numbers tell the story: since 2000, the number of independent grocers has fallen by 10 per cent, and convenience stores by 15 per cent, from 43,000 to 37,000. Supermarkets seem to push out small, owner-occupied businesses; butchers and bakers are replaced by so-called "clone towns", creating wage-slaves where once were small business owners.

So why did the supermarket win?

Tesco was able to demonstrate that when the Competition Commission drew up its test for new supermarket sites, it did not take into account all of the detrimental effects this would have on the business. Lucy Neville-Rolfe, the executive director at Tesco in charge of the case, said the ruling was a "victory for common sense" and new planning tests would "increase costs and make the process even more bureaucratic". In a swipe at the Competition Commission, she added: "It would be particularly perverse to introduce a test that would block investment in the current economic climate." However, the commission rejected this argument. A spokesman said: "It isn't perverse in the current economic climate to stop monopolies that damage competition building up over time. It is the best way to ensure that consumers receive value for money."

Does this mean that Britain will soon have a Tesco on every street?

No. In the first instance, the downturn means its expansion plans have slowed somewhat. However, because Tesco is such a successful company, it has a habit of getting what it wants in the end. With planning applications, it plays a waiting game. To give an example, Tesco was finally granted permission for a 7,000 sq m store in Yiewsley, west London, after submitting six planning applications in 14 years – that's longer than the careers of most local councillors. What is more, the supermarket owns a great deal of land in prime locations, which has two benefits. Firstly, it can activate a planning permission as soon as a new council is elected with different planning priorities, or when it judges the time is ripe, thus giving Tesco freedom to exploit opportunities. Secondly, this "land bank" prevents rival chains such as Asda, Waitrose or Marks and Spencer from taking the site and growing their businesses – which is why all three supported the Competition Commission at the tribunal. However, despite losing, their battle to tame Tesco is not over yet.

What else is being done?

The Competition Appeals Tribunal stressed that, while it found in favour of Tesco, its conclusions did "not preclude the possibility that the test would ultimately be lawfully recommended by the commission and implemented", meaning that the Competition Commission has the green light to make a further attempt to regulate the supermarket sector. Sure enough, the commission confirmed yesterday that it was minded to do just that. A spokesman said: "The judgment has not questioned our findings in the groceries report nor our proposed measures."

Unfortunately, attempts to regulate are further confused by Government planning policy. The Department for Communities and Local Government is drawing up its "Planning Policy Statement No.6", which is designed to govern how councils consider big retail planning applications. Work on the policy began more than a year ago, but until the Competition Commission decides whether to regulate, the department cannot proceed.

Are "Tesco towns" turning into a political issue?

Supermarkets have always been a political issue. Since 2002, Tesco has donated more than £101,000 to Labour and the Liberal Democrats, a figure dwarfed by the £11,433,216 given by the Sainsbury family to Labour and the Conservatives. Beyond the funding issues, supermarket and "megastore" development has dominated local politics for more than a decade, and now it is gaining ground in Westminster. When discussing "Tesco towns", the Tories and Labour use a form of words that seems to say all the right things. Government policy is designed to "protect our small shops at the heart of local communities", while the Conservatives have pledged to "tackle the problem of clone-town Britain and the bullying of small shops". Unfortunately, there is a gap between the rhetoric and the reality. When the Department for Local Government held a consultation on "PPS 6", its plans were accused of giving carte blanche to the developers of out-of-town shopping centres. Meanwhile, the Conservatives have yet to work up a detailed policy on planning reform – though they have indicated they are keen to give more power to local authorities to decide where supermarkets are built.

Can the march of the supermarkets be slowed?

David Lock, of the Town and Country Planning Association, believes we must examine how supermarkets present cases for development. "At the moment, expert surveyors hired by the supermarket do some mumbo-jumbo calculations and pronounce that the development won't hurt local businesses or harm competition," he says. "These reports always say the same things – it's a fabulous miracle of pseudo-science – but all they need to do is persuade a planning committee. And while they continue to win, supermarkets will continue to devastate our towns."

Is the country's largest supermarket chain a force for good in our society?


* Tesco is Britain's biggest grocer because it is the best – offering high quality and convenience

* It is hugely popular, treats its staff well, progresses their careers and works to help communities

* Complaints always come from the middle classes, who do not realise people rely on low-cost Tesco brands


* Tesco's market dominance creates clone-towns by pushing small shops, who can't compete, out of business

* Small and medium-sized farmers cannot service its demands so it produces vast-agribusiness networks

* Tesco is so wealthy that local councils find it difficult to refuse planning permission, fearing costly legal battles

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