A grim future lies ahead for independents unless the regulatory environment changes. Events may be brought to a head by the sale of a tranche of Iceland stores says John Wood

Ever since the OFT waved through Tesco’s takeover of T& S Stores in December 2002, protests have been growing as Tesco and Sainsbury have picked off a succession of c-store chains. But events at Big Food Group may finally tip the balance in favour of the independents.
Representatives of the independent sector have been warning the OFT that if the current trend of takeovers continues, they will be overwhelmed by their far more powerful competitors.
But ACS chief executive David Rae concedes that it is not so much the OFT officials who are at fault, as the rigid rules which they have to apply.
After being part of a delegation who met the OFT team scrutinising Sainsbury’s takeover of Jacksons, Rae says that the officials appeared to understand the arguments the ACS was putting forward, but were constrained by the guidelines they have to follow.
They were looking solely at the Jacksons deal while ACS was arguing that it was part of a wider issue and a full market review was needed.
The OFT officials also pointed out that a market review was carried out by the Competition Commission just four years ago in 2000. The ACS countered by pointing out how much has changed since then.
This week it is the FWD’s turn. They, too, say a review is required, but add that a moratorium should be put in place, blocking the major multiples and co-ops from taking over any more chains, while a fairer trading structure is put in place by the government.
But as long as the OFT officials have to sit in judgment on small regional deals - even Jacksons at number five in The Grocer Top
50 with 107 stores has no presence in the most of the country - they have no scope to refer the deal to the Competition Commission.
But the industry rumour mill has been awash this week with talk of a deal which could finally trigger the long-awaited inquiry.
Ironically, considering Bill Grimsey’s attempt to position himself as the most outspoken defender of the independent sector in the last 18 months, it suggests his company Big Food Group is seeking to unload as many as 250 Iceland stores to one of the major multiples, with Sainsbury or Tesco tipped as the buyer.
No one is suggesting the BFG chief executive was the architect of the deal, however, but that the Icelandic investor Baugur, which is currently in takeover talks with BFG, is looking to capitalise on the deal by selling off stores while the market for high street stores is red hot.
While this would appear to be a mouth-watering prospect for the most acquisitive companies, some in the independent sector are hoping it might just turn out to be the saviour they are looking for.
Faced with a much bigger spread of stores being sold, they argue, the OFT could feel that it would have to refer the deal to the Competition Commission, and once that body gets involved all bets are off.
But if the independent sector is to get its way it will have to work very hard to convince the OFT, warns Jane Tyler, a partner at City law firm Macfarlanes specialising in competition law.
“It is a feasible scenario, but it is more likely that the OFT would try and deal with it itself,” she says. For instance, if Tesco bought the stores and there were competition issues regarding individual sites, they might agree to sell them on in the way Morrisons did with Safeway stores.
If the independent sector is to turn such a scenario to its advantage it will need to launch a massive campaign to persuade the OFT to act, warns Tyler. “They will need to unite a wide body of opinion and argue that because of the takeovers the market is not working properly.”
For instance, if suppliers joined in the campaign and they were able to provide evidence that the financial power of the major multiples was pushing up wholesale prices for independents and distorting the market, then they might make headway.
“If they can do that, the OFT will listen to those types of arguments,” advises Tyler
Her views echo comments by Littlewooods chief David Simons in the last issue of The Grocer. He said that in a takeover battle for GUS home shopping business, Littlewoods went all out for nine months to convince the regulators of the validity of their case, and he advised independent retailers they would need to apply similar pressure to win.
The opponents of the current wave of takeovers will be watching Baugur’s next move with mixed feelings. Instinctively they will not want Sainsbury or Tesco to acquire even one more store, but if a deal is brokered it could just provide the breakthrough they seek.