Safeway merger: supplier relations questioned

The UK Competition Commission has released an issues statement concerning its investigation into the proposed acquisition of the Safeway retail group. The Commission is currently investigating whether bids by Asda, Sainsbury, Tesco or Morrisons would be harmful to competition in the UK food retail sector, a market which is already the subject of much scrutiny by the Commission.

The Commission said in a statement that it had identified a number of issues that it wished to consider, arising from the information received by the parties involved in the possible takeover and from other sources, including representations made at the open meeting on 30 April 2003 from bodies such as Friends of the Earth.

An issues letter is always sent to main parties before the Commission has reached any conclusions and is designed to highlight those matters which have been identified by the investigating group for further consideration, and to ensure that nothing significant has been missed, the Commission said. The purpose of making the statement of issues public is to inform all interested parties and give them an opportunity to raise any further points with the Commission.

Among the issues raised by the statement are whether the market being investigated by the Commission needs to be redefined to include not only groceries but also other products (essentially non-food items) which are increasingly appearing on supermarket shelves, as well as the question of whether to include smaller stores, in particular convenience stores, in the assessment. At present, the Commission has been focusing on the market for one-stop grocery shopping from stores over 1,400 square metres.

The Commission said that it was also considering whether the geographical market should be defined as national, regional or local, whether Internet home shopping affects the geographical market definition and whether chains of substitution extending across localities or regions should be taken into account.

But the Commission is also seeking further information about the relationship between the various retail groups and their principal suppliers, and in particular is seeking to assess whether any of the mergers might be expected to result in an increase in the merged entity's buyer power. It also wants to assess how this might be brought about - for example, by virtue of suppliers having one fewer multiple grocery retail outlet for their products, and how any such increased buyer power might be expected to manifest itself - for example, in increased costs for suppliers, a reduction in the quality or diversity of products or services supplied by them, or in the levels of innovation they can attain in relation to those products or services.

Also under investigation is whether any increase in buying power by the merged company would have adverse effects on consumers, on smaller multiple grocery retailers or convenience stores, and any on the effectiveness of the Code of Practice governing relations between some supermarkets and their suppliers.

Full details of the Commission's statement can be found on the organisation's website​.