For our non-UK readers, Tesco is Britain's largest retailer that invites nearly the same level of ire as America's Wal-Mart. The complaints against Tesco are much the same: the retailing giant kills off small stores when it comes to town, squeezes suppliers to the bone, etc. Many smaller retailers thus banded together and cajoled the British Competition Commission to investigate the reviled Tesco for its unfair business practices. The results are in, and they are not exactly what the complainants would have liked: Britain needs more, not less big stores. In addition, the regulators now want to relax restrictions on the size of stores that can be opened. They got the opposite of what they wanted. Unsurprisingly, this turn of events has the Federation of Small Businesses whose membership is made up of small retailers up in arms:“The Competition Commission’s report seems to recognise problems such as below-cost selling and the shoddy treatment of suppliers, but claims that small independent retailers are not affected. This is absurd.
“Small independent retailers are closing at a rate of 2000 per year and you’ve only got to walk down your local high street to see the evidence of this.
“The suggestion that, to increase competition, the planning system should be relaxed to allow more supermarkets to be built is perverse.
“Consumers deserve more than a choice between four supermarkets selling the same products. The specialist retailers and independent stores that offer consumers real alternatives are suffering from the anti-competitive practices of the supermarkets. The Competition Commission’s latest report does nothing to address this.”
In any event, here is the Economist reporting on the findings of the Commission. It seems that the reviled Tesco now has the regulator's blessing to operate. Is England turning into a nation of Tescos from a nation of shopkeepers?Be careful what you wish for. Two years ago, after vigorous campaigning and a judicial review, small shopkeepers forced competition authorities to look at the conduct of the biggest supermarket chains. They complained that the giants were abusing their market power, squeezing suppliers too hard and selling goods at a loss to drive mom-and-pop stores off the high street. Their hope was that regulators would stop new superstores being built. Instead, when the Competition Commission released its provisional recommendations on October 31st, it stunned many with proposals that are likely to result in still more supermarkets springing up.The commission proposes to relax planning constraints on big new stores. It also wants to make retailers sell land to rivals, after finding that many have been buying up sites in towns where they are strong in order to keep out competitors.
Such proposals may seem counterintuitive, given widespread concern about the clout wielded by mammoth supermarket chains: the four biggest control almost 75% of the market and Tesco alone has 31%. The Federation of Small Businesses reckons the proposals are letting down both shoppers and small retailers, and the Association of Convenience Stores, which represents more than 33,000 shopkeepers, thinks they will entrench the dominance of existing big supermarkets.
Yet where many see cause for alarm, the competition regulator sees consumer choice in action. It thinks the rise of big supermarkets has been good for consumers, on the whole. Food prices have fallen a real 7% since 2000 (though they are rising again with higher international commodity prices), choice has widened as some 2,000 new products have been added to the shelves each year and most people in Britain live a short drive away from at least one large shop. “It's a free country and shoppers can shop where they like,” says Peter Freeman, the chairman of the commission. “The consumer is getting a reasonable deal from the retail industry.”
Crucially, however, the commission found that many of the benefits to consumers arise from competition between big supermarkets. In towns with few or just one, prices rise, or the range and quality of goods on offer decline. And the benefit of being the only big store in town can be substantial: such shops make an extra £25,000 profit a month, enough to create a clear incentive to try to prevent competitors from entering the market.
This would matter little if small shops could force supermarkets to pull up their socks. But although small shops compete vigorously with one another on price and quality, their influence on big supermarkets is negligible. This is worrying, for almost a quarter of all large supermarket stores have either no large competitor or just one within a 15-minute drive.
The commission's concern, then, is not that there are too many supermarkets, but that there are too few. One reason is Britain's sclerotic planning system, which keeps new entrants out of the market while encouraging the supermarkets already there to expand their existing stores. But it also found evidence that some big chains have been naughtily buying up land to keep out competitors. The four biggest are sitting on almost 900 undeveloped sites, half the number of the big supermarkets now operating.
Surprisingly, the commission also found evidence that supermarkets don't seem to hurt small stores as much as was previously thought, and perhaps not at all. Although lobbyists for small shops argue that their number is falling precipitously, the commission found a 70% increase in the number of convenience stores between 2000 and 2006, and more than half of the new ones were independents.
When a new supermarket enters an area, the watchdog found, although the number of small grocers fell, the number of bakers increased. And there was no discernible change in the number of butchers, fishmongers, delis and health-food stores. Whether they would survive a second supermarket nearby seems less certain. But they will have only themselves to blame if they are forced to find out.
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