Supply chain challenge to retailers

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Supermarkets are distorting competition through supply chain practices that transfer excessive risks and unexpected costs to suppliers, according to the Competition Commission.

In its provisional report, “Market Investigation Into The Supply Of Groceries In The UK”, the commission also points to control of land in highly-concentrated local markets by incumbent retailers acts as a barrier to entry, by limiting entrants’ access to potential sites for new larger grocery stores.

It also argues that the planning regime (in particular, PPS6 in England, SPP8 in Scotland, PPS5 in Northern Ireland and MIPPS 02/2005 in Wales), and the manner in which the planning regime is applied by Local Planning Authorities, acts as a barrier to entry or expansion in a significant number of local markets.

The commission has proposed a number of possible remedies, including:

* Requiring grocery retailers to divest land holdings in areas where concentration is weak.

* Prohibiting grocery retailers from using restrictive covenants or exclusivity arrangements that reduce the likelihood of land being used for a competing supermarket.

* Recommending changes to the planning system that would provide greater opportunities for developments on the edge of town centres, while maintaining constraints on out-of-town developments.

* Introducing a competition test that would allow the existing local position of a grocery retailer to be taken into account in planning decisions.

* Including more retailers in the scope of the Supermarkets Code of Practice (SCOP), tightening of various provisions within the SCOP, and changing arrangements for its monitoring.

Lucy Neville-Rolfe, Tesco’s executive director for corporate and legal affairs, said the commission findings “lay to rest the claims that Tesco’s position in the market means that other retailers cannot compete or is acting as a barrier to expansion by other grocery retailers.

“As expected, this provisional report looks at detailed points on suppliers, land and the planning system which we will discuss with the Competition Commission in the coming months. As in other Inquiries, they have set out a wide range of possible remedies. Our job is to make sure that any remedies are justified, have no perverse effects and that the consumer is the winner.”

The commission is now consulting on its findings. The deadline for comments on the provisional findings is 30 November 2007 while comments on the notice of possible remedies have to be submitted by 23 November 2007.


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