The Grocer So. No mention of a smoking gun. What happened to those 11 million emails you were supposed to be examining during the last months of your inquiry? Did they turn into a damp squib then?

Peter Freeman The background was the so-called price war this summer between Asda and Tesco. We were told expressly those price reductions were going to be paid for out of cash and the suppliers would not be asked to contribute. But we were also continually receiving submissions from suppliers. And one or two of them gave us pause for thought, suggesting we were 'not getting to the bottom of the issue'; and said we had these powers and weren't using them. The only way to understand what was going on was to ask for the raw data. It gave us an insight into actual supplier-retailer relationships.

And what were the findings?

It's a mixed picture. What we found was that the code of practice IS effective in terms of the supermarkets' behaviour. The idea it isn't is wrong. The large retailers take a lot of trouble to 'observe' it. The real trouble is the code is rather flexible.

So was there nothing in your findings that worried you?

There were one or two instances of unconscionable behaviour. In some instances, retailers take advantage of the buyer power situation; in most other instances it's just healthy negotiation.

But if you found even a couple of instances of s0-called 'unconscionable behaviour', surely that needs to be referred to the OFT?

That's another issue. I'm using those terms as a sort of general description of the 'unexpected transfer of costs and risks' that we referred to in the provisional findings. That is an issue we now have to nail down.

You've said there are areas of concern within the report, but your initial report doesn't reflect unconscionable behaviour.

With respect, you're mixing up two issues. One issue is the enforcement of the existing code of practice, and obviously everything we find will go to the OFT and the existing mechanism will be invoked if that's deemed appropriate. But what we're trying to find out here is whether the market is working, and whether it needs changing. What we're saying is there does appear to be potentially an adverse effect on competition in relation to the way some retailers - it's not just the supermarkets - treat their suppliers. We believe the code should not be removed because it is already working. But we need to examine whether the terminology should be tightened. There are too many grey areas open to different interpretations. We'll be looking at whether the code should be extended to more retailers, or further up the line to include the intermediaries, the processors and so on. Obviously how it's enforced is also worth looking at. It doesn't look as though the present enforcement mechanism is working terribly well, people don't have confidence in it. These are not easy issues. Those things are best discussed out in the open, with the people who are going to have to operate it - market-tested if you like.

The report looks great news for big supermarkets and a disaster for the ACS and independent c-stores. You have rejected the entire notion the independent convenience market is being affected by competition.

That's not true that we've rejected it entirely.

Well, hang on a sec. You've rejected the waterbed effect. And you've basically said 'if you're a decent retailer, and you know what you're doing, then you can survive and prosper in this market'. At the same this idea that the fascia test will act as a remedy to the so-called Tesco Towns will simply hand an opportunity to Asda and Sainsbury's and actually bring more supermarkets into each neighbourhood.

Let's deal with those points one at a time. The issue of a waterbed effect is partly an argument about whether it exists as an economic concept. We have taken a lot of expert evidence on this, and have found that key elements of the theory are not well observed. Yes, we've found that the major retailers as a whole probably get better buyer terms - particularly with the main brands. But it's quite a mixed picture, and it hasn't changed particularly over time in line with the changes in market share as much as you may expect. It suggests the theory isn't quite as watertight as people suggest.

What about this 13% price differential that the Association of Convenience Stores is quoting?

This is a very difficult issue, because if we start quoting what the differential is, you'll immediately see commercial pressure to remove the differential, which is going to worsen the problem. But look: the statistics on how the convenience sector is doing is a very mixed picture.

Greengrocers have suffered a lot; butchers are doing all right after a big decline. Independent general convenience stores have reduced very considerably in number and we're sympathetic to that. On the other hand, the symbol groups are increasing ­ - not quite enough to match the independent decline, but it doesn't look to us to be a sector in terminal decline. The Bestway chairman is quoted as saying: 'We will always be there.' He's in The Sunday Times Rich List. It doesn't suggest an industry on its knees. That's not to say there aren't individual cases in extreme difficulty. We understand that. The trouble is, once you intervene to protect a particular category, you're into very dangerous territory.

So it's about survival of the fittest?

That's a crude way of putting it. But it's another way of saying competition is tough. If you get your offer right, and the consumer likes it, then there is nothing actually, despite the distortions we've identified, which prevents a good business offer succeeding. And there is plenty of evidence of that.

So is the Competition Commission governed entirely by market forces?

We're not die-hard capitalists ourselves, we're actually extremely sympathetic.

But it is extremely difficult to start saying we are going to intervene in the grocery retail market to protect this category or that category, because where do you stop? That really is making oneself into a superior administrative force.

You've put forward the idea of an ombudsman. How would that work?

This comes back to the idea of tabling remedies for the improvement of the code of practice. One of the issues put to us is there's no way our complaints can be looked at speedily and in a secure fashion. It's basically saying the present enforcement is quite cumbersome.

Would the ombudsman be proactive or would he wait for the complaints to roll in?

I think that's for discussion.

Would it be like an Ofshop? Surely we won't see a regulatory body getting involved in individual negotiation. That would be unworkable, no?

I'm not suggesting there should be an office of retailer regulation to control grocery retailing. The policy here aims to be deregulatory and if we went down the regulatory route it would be very difficult, very cumbersome and I don't think consumers would benefit from it either.

Are you suggesting all retailers should be bound by the same code?

I think there's a case for not applying it to [the big four]. At the moment it's limited to grocery retailers with 8% market share. A lot of other stores said they observe the code already. If you observe it you may as well be bound by it. It would help to secure better practice.

On the subject of landbanking are you seriously going to require supermarkets to sell landbanks, or are you merely limiting the future development of land holdings?

At a local level, where you have the supermarket holding on to land longer than is appropriate for normal development, there may be a case for asking them to do something about it, but that's not the main focus. We are not a punishment authority. If that includes adjustment of landbanks and land practices, as we've identified in the form of exclusivity agreements, where those are contributing to local concentration, they need to be looked at. But this is not a divestment report.

So there will not be an immediate sale of landbanks, but you are saying they must be investigated on a local market-by-local market basis. Who's going to enforce this? Who's going to examine every market? Where will they get the resources?

But it's not a huge problem. It is necessary to acquire land in order to

develop it, that's not an issue. The issue is: are there areas where it's

having an effect on new entrants?n

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