Will the OFT heed rebukes and move fast as it rethinks its view of the market? Report by Fiona McLelland
The convenience store sector was finally given something to cheer about this week when the Association of Convenience Stores’ bold move to press on with a potentially costly legal challenge against the Office of Fair Trading paid off big time.
The OFT has now withdrawn its decision not to refer the grocery market to the Competition Commission for a full market review and there is a good chance that it could make a u-turn in a matter of months.
If the OFT does decide to refer the grocery market for review, the commission would then have up to two years to investigate the industry and decide whether to exert its powers to break the multiples’ grip on the market.
Critics of the OFT wasted no time in labelling the OFT’s backing down a humiliating episode for the watchdog.
Not only has it suffered the ignominy of withdrawing its original decision, but the Competition Appeals Tribunal suggested that it was setting hurdles too high and accused it of trying to take on the role of the Competition Commission.
Tribunal chairman Sir Christopher Bellamy reminded the OFT at the sitting on Tuesday that its job was simply to carry out a preliminary investigation and that it was not necessary to carry out a full inquiry - that was the job of the Competition Commission. And Sir Christopher added that the OFT needed only to find grounds of suspicion of detriment to competition to refer a case to the Competition Commission, citing evidence of below-cost selling and price flexing from the commission’s inquiry into supermarkets in 2000 as examples.
“The statute gives the OFT and Competition Commission different roles,” said Sir Christopher. “The OFT is not to come to the conclusion of what the result of the market investigation would be.”
The OFT’s indication that it would take a further eight months, on top of the nine months taken for the first investigation, to complete a new preliminary review also met with short shrift from the chairman. “This is a market with which the OFT is very familiar. It is less than satisfactory that a further eight months is required to allow the OFT to decide whether it has reasonable grounds to suspect.
“There is the risk that if the applicants (the ACS) are right, this would be shutting the stable door after the horse has gone. I take the view that it is in the interest of the supermarkets, the c-stores, the consumers, suppliers and all who are active in this sector that this should be resolved as quickly as possible.”
Unsurprisingly, the ACS was on a high after the result of the tribunal, but was also well aware that the OFT could still refuse to refer the case to the commission.
No timetable was set out by the Competition Appeals Tribunal panel this week, but the chairman’s ruling provides recourse for the ACS to take action if the OFT is slow to come up with a new decision.
Edwin Coe solicitor David Greene, who is steering the ACS’s appeal, said: “Clearly the tribunal was critical of the OFT’s stance in wanting such a long period to carry out another review and criticised it for setting too tough a hurdle. We may now write to the OFT to set our own timetable.”
ACS chief executive David Rae added: “We are delighted that the CAT has made clear that the OFT must work swiftly to produce a new decision on this matter. We will return to the tribunal if the OFT is tardy in its deliberations or produces a flawed judgement.This has been a fantastically quick process. We were in there for the long haul and here we are three weeks down the line with virtually everything we could have hoped for. But we appreciate that even if we do get a reference to the commission, the hard work will really start then.”
The OFT said that it was pleased that the CAT had agreed to its request to withdraw its decision not to refer the grocery market to the commission.
The regulator said that it would now have to consider how to proceed with the preliminary investigation, which it expected would include gathering more evidence.
A spokeswoman for the OFT said that it could not commit to a specific deadline, but that the proceedings should take a matter of months. “We want to do the preliminary review as properly and as thoroughly as possible.”
Countdown to a review
1999: Competition Commission launches supermarket inquiry
2000: Commission gives market a clean bill of health; OFT told to develop code of practice
2001: Tony Blair says the supermarkets have farmers in an armlock; Commission on the Future of Farming and Food appointed; OFT publishes code
2002: Tesco announces deal to buy T&S
2003: Tesco’s T&S deal goes through without referral to Commission; Safeway deal sparks Commission inquiry
2004: Sainsbury buys Bells, Jacksons and JB Beaumont; Tesco buys Adminstore; OFT begins review of code and invites comments on wider competition issues
April 2005: Tesco profit passes £2bn as its market share hits 30%
June 2005: The Parliamentary All Party Small Shops Group - consisting of around 150 MPs - lends its might to the campaign for a full review of the retail market and announces plans to uncover evidence of unfair dominance of retailing by both grocery and non-food multiples; Liberal Democrat international development spokesman Andrew George and environment campaign group Friends of the Earth join forces to launch a fresh assault against Britain’s supermarket giants, claiming suppliers are being constantly compelled to cut their prices, while farmers and other producers are being driven out of business; New Economics Foundation warns of a ‘clone town Britain’ scenario
July 2005: All Party Small Shops Group says its inquiry will take longer than expected due to the large level of responses; Keith Vaz launches early day motion against supermarket power, calling for a regulator
August 2005: OFT report on code of practice and wider competition issues outrages suppliers and independents by claiming there is nothing wrong with the market
September 2005: ACS announces plans to challenge the OFT’s August ruling at the Competition Appeals Tribunal; CBI director general Digby Jones throws his weight behind calls for the OFT to justify its two-market view of grocery retailing
October 2005: Competition minister Gerry Sutcliffe says: “Something is wrong and something needs to be done”; All Party Small Shops Group starts hearing evidence at series of meetings; OFT waves through Tesco’s acquisition of 21 BP/Safeway petrol stations from Morrisons; one in three shoppers say Tesco has become too powerful and is killing off competition, up from one in five at the beginning of the year
Neil Turton Group Commercial MD, Nisa-Today’s
The OFT admitting “insufficient reasoning” and reconsidering the decision is not the end of the road, but clearly it is an encouraging sign that obvious flaws in the grocery market economics and competition dynamics will now be given proper consideration. These are business-critical issues for Nisa-Today’s and the future of our independent members and deserve the fullest consideration before a point is reached in the economics of the food market from which is impossible to recreate what has been lost.
Jerry marwood Managing director, spar UK
We need to make sure that over the next few weeks we all constructively discuss and decide what we want out of a review. If the OFT reverses the decision and recommends a review, we need to be ready with what we want to get out of it. All we ever wanted was a proper dialogue about how we want the landscape to look. There’s plenty of criticism about how it looks now, but there’s been no sitting down and discussing the shape of it in the future.
John Murphy Director General, FWD
This could be the tipping point from which balance will return to a dangerously skewed marketplace. Although we have won a battle, the war goes on. As Churchill said after El Alamein: “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” The time factor is now crucial and an eight-month delay is too long. FWD is calling on the government to immediately impose a moratorium on all big four purchases of c-stores.
BOB surridge MD, ANGLIAN CONVENIENCE STORES
I have my doubts about whether the OFT or the Competition Commission will be able to do anything now. Tesco is the major concern and I can’t see how you would police it. Tesco already has a host of sites set aside for development. What are the competition authorities going to be able to do about that? But if the authorities take the view that Tesco has too much of the market and start asking it to dispose of stores, that’s a different matter.
The convenience store sector was finally given something to cheer about this week when the Association of Convenience Stores’ bold move to press on with a potentially costly legal challenge against the Office of Fair Trading paid off big time.
The OFT has now withdrawn its decision not to refer the grocery market to the Competition Commission for a full market review and there is a good chance that it could make a u-turn in a matter of months.
If the OFT does decide to refer the grocery market for review, the commission would then have up to two years to investigate the industry and decide whether to exert its powers to break the multiples’ grip on the market.
Critics of the OFT wasted no time in labelling the OFT’s backing down a humiliating episode for the watchdog.
Not only has it suffered the ignominy of withdrawing its original decision, but the Competition Appeals Tribunal suggested that it was setting hurdles too high and accused it of trying to take on the role of the Competition Commission.
Tribunal chairman Sir Christopher Bellamy reminded the OFT at the sitting on Tuesday that its job was simply to carry out a preliminary investigation and that it was not necessary to carry out a full inquiry - that was the job of the Competition Commission. And Sir Christopher added that the OFT needed only to find grounds of suspicion of detriment to competition to refer a case to the Competition Commission, citing evidence of below-cost selling and price flexing from the commission’s inquiry into supermarkets in 2000 as examples.
“The statute gives the OFT and Competition Commission different roles,” said Sir Christopher. “The OFT is not to come to the conclusion of what the result of the market investigation would be.”
The OFT’s indication that it would take a further eight months, on top of the nine months taken for the first investigation, to complete a new preliminary review also met with short shrift from the chairman. “This is a market with which the OFT is very familiar. It is less than satisfactory that a further eight months is required to allow the OFT to decide whether it has reasonable grounds to suspect.
“There is the risk that if the applicants (the ACS) are right, this would be shutting the stable door after the horse has gone. I take the view that it is in the interest of the supermarkets, the c-stores, the consumers, suppliers and all who are active in this sector that this should be resolved as quickly as possible.”
Unsurprisingly, the ACS was on a high after the result of the tribunal, but was also well aware that the OFT could still refuse to refer the case to the commission.
No timetable was set out by the Competition Appeals Tribunal panel this week, but the chairman’s ruling provides recourse for the ACS to take action if the OFT is slow to come up with a new decision.
Edwin Coe solicitor David Greene, who is steering the ACS’s appeal, said: “Clearly the tribunal was critical of the OFT’s stance in wanting such a long period to carry out another review and criticised it for setting too tough a hurdle. We may now write to the OFT to set our own timetable.”
ACS chief executive David Rae added: “We are delighted that the CAT has made clear that the OFT must work swiftly to produce a new decision on this matter. We will return to the tribunal if the OFT is tardy in its deliberations or produces a flawed judgement.This has been a fantastically quick process. We were in there for the long haul and here we are three weeks down the line with virtually everything we could have hoped for. But we appreciate that even if we do get a reference to the commission, the hard work will really start then.”
The OFT said that it was pleased that the CAT had agreed to its request to withdraw its decision not to refer the grocery market to the commission.
The regulator said that it would now have to consider how to proceed with the preliminary investigation, which it expected would include gathering more evidence.
A spokeswoman for the OFT said that it could not commit to a specific deadline, but that the proceedings should take a matter of months. “We want to do the preliminary review as properly and as thoroughly as possible.”
Countdown to a review
1999: Competition Commission launches supermarket inquiry
2000: Commission gives market a clean bill of health; OFT told to develop code of practice
2001: Tony Blair says the supermarkets have farmers in an armlock; Commission on the Future of Farming and Food appointed; OFT publishes code
2002: Tesco announces deal to buy T&S
2003: Tesco’s T&S deal goes through without referral to Commission; Safeway deal sparks Commission inquiry
2004: Sainsbury buys Bells, Jacksons and JB Beaumont; Tesco buys Adminstore; OFT begins review of code and invites comments on wider competition issues
April 2005: Tesco profit passes £2bn as its market share hits 30%
June 2005: The Parliamentary All Party Small Shops Group - consisting of around 150 MPs - lends its might to the campaign for a full review of the retail market and announces plans to uncover evidence of unfair dominance of retailing by both grocery and non-food multiples; Liberal Democrat international development spokesman Andrew George and environment campaign group Friends of the Earth join forces to launch a fresh assault against Britain’s supermarket giants, claiming suppliers are being constantly compelled to cut their prices, while farmers and other producers are being driven out of business; New Economics Foundation warns of a ‘clone town Britain’ scenario
July 2005: All Party Small Shops Group says its inquiry will take longer than expected due to the large level of responses; Keith Vaz launches early day motion against supermarket power, calling for a regulator
August 2005: OFT report on code of practice and wider competition issues outrages suppliers and independents by claiming there is nothing wrong with the market
September 2005: ACS announces plans to challenge the OFT’s August ruling at the Competition Appeals Tribunal; CBI director general Digby Jones throws his weight behind calls for the OFT to justify its two-market view of grocery retailing
October 2005: Competition minister Gerry Sutcliffe says: “Something is wrong and something needs to be done”; All Party Small Shops Group starts hearing evidence at series of meetings; OFT waves through Tesco’s acquisition of 21 BP/Safeway petrol stations from Morrisons; one in three shoppers say Tesco has become too powerful and is killing off competition, up from one in five at the beginning of the year
Neil Turton Group Commercial MD, Nisa-Today’s
The OFT admitting “insufficient reasoning” and reconsidering the decision is not the end of the road, but clearly it is an encouraging sign that obvious flaws in the grocery market economics and competition dynamics will now be given proper consideration. These are business-critical issues for Nisa-Today’s and the future of our independent members and deserve the fullest consideration before a point is reached in the economics of the food market from which is impossible to recreate what has been lost.
Jerry marwood Managing director, spar UK
We need to make sure that over the next few weeks we all constructively discuss and decide what we want out of a review. If the OFT reverses the decision and recommends a review, we need to be ready with what we want to get out of it. All we ever wanted was a proper dialogue about how we want the landscape to look. There’s plenty of criticism about how it looks now, but there’s been no sitting down and discussing the shape of it in the future.
John Murphy Director General, FWD
This could be the tipping point from which balance will return to a dangerously skewed marketplace. Although we have won a battle, the war goes on. As Churchill said after El Alamein: “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” The time factor is now crucial and an eight-month delay is too long. FWD is calling on the government to immediately impose a moratorium on all big four purchases of c-stores.
BOB surridge MD, ANGLIAN CONVENIENCE STORES
I have my doubts about whether the OFT or the Competition Commission will be able to do anything now. Tesco is the major concern and I can’t see how you would police it. Tesco already has a host of sites set aside for development. What are the competition authorities going to be able to do about that? But if the authorities take the view that Tesco has too much of the market and start asking it to dispose of stores, that’s a different matter.
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