Knockout blow for independents

09 November, 2007
The Competition Commission's report will come as a severe blow to high street bakery retailers and has already been branded as 'whitewash' by critics, finds Andrew Williams
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T he eagerly-awaited Competition Commission (CC) report into the power of the supermarkets has arrived. Or, more accurately, a pre-report report, which precedes the report proper to be published next year, upon which we will report in due course.
In the meantime, the initial recommendations make dour reading for high street bakery retailers and squeezed suppliers, who will be confounded by its conclusion that supermarkets are a good thing for consumers and recommendations of measures that could increase the number of out-of-town supermarkets. This has been branded as "whitewash" by critics, including high street bakers. Can it really be true that the multiples have been unfairly castigated up until now, as the CC suggests?In May of last year, the OFT asked the CC to investigate whether competition in the market was being restricted. Its pre-report, back last week, found few causes to recommend intervention.In fact, proposed changes in the planning process could actually allow supermarkets greater freedom to open stores, signalling the end of the 'needs test' - currently in place to judge whether a town 'needs' another supermarket - which often results in one supermarket dominating a locality.damage to independentsThe Forum of Private Business (FPB), which represents 25,000 small and medium-sized businesses, said the planning changes could damage independent retailers. "Smaller retailers are already suffering as a result of increased competition from the supermarkets entering the convenience store market, so encouraging more sites away from the traditional high street, with all the advantages of free parking that they enjoy, would be a body blow for many small shops," said Matt Hardman, campaigns manager for the FPB. "It is no good just looking at whether a new site will encourage competition between supermarkets locally. What about the independents in the area? What about the damage that could be done to them?"Bob Farrand, chairman of the Guild of Fine Food, said the report only considered the impact of the supermarkets in relation to whether they were good or bad for consumers, calling it "a complete and absolute whitewash", and a "gold-plated template to destroy our high street"."Cheap food will always be in the consumers' interest," he said, "but this is a narrow, short-term and outdated position to adopt. The Commission has failed to appreciate the likely medium-term impact they, the supermarkets, will have on farming, small food producers and retailers and our high streets." However, one unnamed supplier even questioned consumers' "right to cheap food", saying this assumption promoted unethical trading and employment practices.suppliers under pressureSuppliers complain of being pushed too hard by the purchasing power of the giant retailers, which is causing damage right down the supply chain.It was indicative of the fear engendered in supermarket bakery suppliers that none of those approached were willing to be named. One said the report was "bewildering and frightening". "A large part of our business is supplying independent specialist retailers across the country and they're closing at a rate of knots," he said. "It's all taking choice away from consumers. The innovative suppliers of tomorrow are incubated by supplying small independent retailers, so it's total short-termism."There was also disquiet over the CC's investigation into supplier-retailer relationships, despite talk of toughening up the ineffective Supermarket Code of Practice, introduced in May 2002, by appointing an ombudsman.One supplier slammed supermarket late payment practices, hidden charges and refusals to accept price rises as "unethical". Now that the CC says it has found evidence of this, why does it not choose to make specific recommendations to correct this now, asked Duncan Smith, head of Grant Thornton's food and agribusiness recovery group, which advises food companies. "In an industry gloomed by a culture of fear of being de-listed, every man and his dog in the food supply chain knows that supermarkets are regularly demanding ever cheaper products with longer payment periods and other supplier contributions as part of the unwritten agreements they readily pull out of when it suits them," he said."For the time being, in the event of a dispute, suppliers can rest assured that no effective route of recourse, protection or likelihood of compensation will be put in place as a result of the report, which implicitly acknowledges the failings of the Supermarket Code of Practice but as yet takes no specific action to give it teeth and do the job it's meant to do."Absolved from blameBut Tesco executive director for corporate and legal affairs, Lucy Neville-Rolfe, insisted the provisional findings absolve Tesco from accusations that its dominant position in the market prevents other retailers from being able to compete. "There can be no doubt that shopping for groceries is better for consumers than it has ever been. Prices are lower, quality is better, there is greater choice and it is more convenient. All the benefits to consumers have come about because retailing in this country is intensely competitive and customers are quick to punish shops that disappoint them," she said.This view is shared by a report from market researcher Verdict. It said none of the big four players - Tesco, Sainsbury, Asda and Morrisons - manage to persuade anywhere near a majority of their shoppers to buy from them alone; six out of 10 food shoppers make regular use of a food retailer other than the big four, it said."There is a common belief that because food retail has a number of very large, dominant players, consumer choice is somehow stifled," says Verdict's director of consulting Neil Saunders. "In truth, it isn't. The biggest battle grocery retailers face is how to hold on to increasingly fickle customers who are able to transfer their custom elsewhere."CONSUMER BATTLEVerdict believes that this battle for consumers will only intensify over the next five years, with increasingly mobile shoppers able to use stores while travelling to and from work, the expansion of internet shopping offering access to niche retailers, and the growing interest in ethical consumerism, fuelling growth of alternatives such as farmers markets.But Robert Dawson, MD of 10-shop Dawsons bakery, based in Nottingham, paints a contrary scenario: "A supermarket opens up at the edge of town. Only 25% of people will shop there. That figure represents your profit lost. Over time, the capital for fitting shops wears out and high street stores eventually close. The 75% of people left have to go to the supermarket. It may be competition, but it's unfair competition because the whole costs structure is completely different (for the supermarkets) so supermarkets become monopolist in many parts of the country."What is clear is that the only winners from the CC pre-report are the supermarkets, and sup- pliers and independents can expect little support from the report proper next year. n



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