OFT takes long hard look at supermarket code
of Practice governing supermarket chains and their suppliers. But
with the balance of the UK retail market set to shift once again
following the Safeway deal, some organisations are calling for a
complete overhaul of the Code.
The UK Office of Fair Trading (OFT) is to conduct a review of the Supermarkets Code of Practice, just a year after it came into effect. The Code was introduced after a Competition Commission report in October 2000, which recommended a code of practice to put relations between supermarkets and their suppliers on a clearer and more predictable basis.
The OFT announced yesterday that it was writing to a wide variety of suppliers' organisations and the supermarkets themselves, asking for views on the Code and how it has been working in practice. Responses are expected by the end of March, and the OFT will then report on whether the Code is working effectively and whether it should be changed.
Despite coming at a time when competition in the UK supermarket sector has never been under closer scrutiny, given the imminent sale of the Safeway chain and the subsequent changes in the makeup of the market.
But the OFT said that the decision to review the Code was not related to the Safeway deal - which could see Tesco, Sainsbury's, Asda or Morrisons increase their nationwide store coverage, assuming a rival bid from entrepreneur Philip Green is unsuccessful - and that it was pure coincidence that the sale of the UK's fourth largest food retailer came on the anniversary of the Code's introduction.
The Code itself covers Asda, Safeway, Sainsbury and Tesco, all of whom have a market share above 8 per cent, but does not affect Morrisons or other smaller chains such as Somerfield or Iceland, as they have a market share below 8 per cent. The Code is being reviewed following the publication of the report of the Policy Commission on the Future of Farming and Food in December 2002, in which the UK government committed the OFT to publishing an annual report on how the code has been working.
The review of the Code has been broadly welcomed by the UK food and retail sector. The Food and Drink Federation's Deputy Director General Martin Paterson said: "We welcome the review, and will play our part in responding to the call from the OFT for views on the Code and how it has been working in practice."
For its part, environmental organisation Friends of the Earth, which has been vociferous in its denunciation of Tesco's bid for Safeway and its likely implications on competition, said that the Office of Fair Trading should delay making any recommendations about the Safeway deal until the review had been completed.
"The OFT is inviting comments on the Code of Practice until the end of March but it is expected to make a recommendation to the Secretary of State on the bids for Safeway by the middle of March," FoE said. "The OFT said today that its review of the Code 'will be treated as a separate issue from the supermarket mergers currently under consideration'. But Friends of the Earth says that because the supermarkets relationship with their suppliers is a key issue in the merger decisions, further consolidation in the market shouldn't be allowed if the Code is found not to be working.
"Friends of the Earth has already called for a full investigation into the merger proposals by the Competition Commission and is now stressing that evidence from suppliers about the effectiveness of the Code should be a key part of the investigation."
But FoE also said that it would be interesting to hear what the comments revealed about whether the Code is working or not. "There is already considerable anecdotal evidence that the Code of Practice, which applies to the four supermarkets currently in merger talks (Asda, Safeway, Sainsbury and Tesco), is not working. It has already been slated by Friends of the Earth, the Fair Deal Group (which represents supermarket suppliers) and the NFU which called it 'flawed and ambiguous'," FoE said.
The Competition Commission report in 2000 concluded that the existing market power of the biggest supermarkets already enabled them to engage in practices which are anti-competitive and against the public interest, according to FoE. The same report also pointed out that the resulting loss of smaller suppliers, and suppliers fearful of introducing new products, would lead to a decline in consumer choice and quality of goods.
"The Code of Practice between supermarkets and suppliers is the only action the Government has taken to address the problems highlighted by the Competition Commission report and even that does not seem to be working. Friends of the Earth is concerned that the additional buyer power that a merger would create would be disastrous for farmers and consumer choice."
