Tesco claims dismissed as 'absolute joke'
proposal will be good for customers, local communities and
suppliers - claims which have been rubbished by environmental group
Friends of the Earth.
While the Office of Fair Trading studies the various bids for the UK's fourth-largest food retailer Safeway, the PR campaign on the part of the bidders continues apace. This week Tesco sent a letter to a number of what it called 'stakeholders', explaining why it believed its bid was the best for customers, employees, local communities and suppliers.
But Tesco will have to hope that its argument is more persuasive when it comes to the OFT, at least if the reaction of one of the so-called stakeholders is concerned. The UK-based environmental organisation Friends of the Earth has responded in typically outspoken fashion to the Tesco letter, dismissing the claims as "absolute rubbish".
FoE's director Tony Juniper issued a statement responding to each of Tesco's claims. For example, on the subject of stores, Tesco said that it believed it would be able to retain around three-quarters of the Safeway portfolio, ensuring competition in many local markets. Juniper disagreed.
"Tesco is the UK's biggest retailer so many people do not have the choice other than to shop at Tesco. A Tesco takeover of a rival supermarket would reduce choice further, particularly in areas where both Tesco and Safeway already have a large market share," the statement read.
"For example, in the south east and East Anglia, a combined Tesco/Safeway deal would give Tesco 60 per cent of the grocery market and in Northern Ireland 86 per cent. A monopoly is defined as one company controlling 25 per cent of the market. Selling just a quarter of Safeway stores will make little difference to choice or competition."
On Tesco's claims that it would be able to offer a broader range of products and store formats to serve all communities and consumers, FoE was equally as scathing. "Tesco stores do not serve 'all communities'. A recent report by Demos showed that the growth of supermarkets at the expense of smaller local shops has been detrimental for low income households.
"Supermarket low prices also don't seem to extend to healthy food. A recent survey by Friends of the Earth found that supermarkets are the most expensive place to buy apples, with market stalls and greengrocers beating the supermarkets, including Tesco, on price. The Competition Commission found that supermarkets, including Tesco, put prices up in areas where they don't have strong competition. The proposed takeover of Safeway would reduce competition among supermarkets but is also likely to lead to further closure of local shops which better serve local communities."
The retailer's claim that a takeover of Safeway would lead to a better deal for local suppliers was also rubbished by the environmental group. "The Competition Commission found that the big supermarkets, including Tesco, enter into unfair trading practices with their suppliers. Supermarkets are squeezing prices to farmers, with, according to the Competition Commission, Tesco paying the lowest prices.
"A recent opinion poll found that 84 per cent of shoppers want supermarkets to give preference to British produce when it is in season. A Friends of the Earth survey found that at the height of the UK apple season less than half of the apples on offer in Tesco were home-grown."
Juniper concluded: "Tesco really is having a laugh. This supermarket chain already has British farmers and consumers in a stranglehold - now they want to squeeze even tighter. Their claims defy belief. It really is time for the Secretary of State for Trade and Industry to step in and demand an investigation by the Competition Commission. A Tesco monopoly over our food supply is bad news for consumer choice and bad news for farmers in this country and abroad."
He added that FoE had written to the government and the OFT calling on them to refer all the proposed takeover bids by rival supermarkets to the Competition Commission for a detailed investigation, including an assessment of the potential impact on consumers, farmers and local economies.
A referral by the OFT is indeed looking increasingly likely, a move which will drag out the sale process but which should at least ensure that the sale of Safeway will lead to greater choice for consumers rather than simply increased profits for the major players.
