Beholden To the Mob

After wriggling its way through every possible excuse for inaction, last weekthe Office of Fair Trading decided to launch an inquiry into the behaviour ofthe big grocery chains. It's about time. But alongside it we need another one:into whether the OFT, like almost everything else in this country, has itselfbeen taken over by the superstores. The problem the competition authorities areinvestigating-the dominance of companies like Tesco and Walmart-is theresult of 25 years of regulatory failure.

The failure was at first engineered by government. The policy imposed byMargaret Thatcher's administration-which later came to be known as theTebbit doctrine(1)-determined that the public interest could bereinterpreted as "the consumer interest", and even this could be defined inthe narrowest terms. The regulators would look at price, but not at issues suchas employment, local investment, diversity, social networks, environmentalimpact or even competition in the wider sense. As long as the superstores weredeemed to be competing among themselves, there was no need for any other shops.

In 1981, the Monopolies and Mergers Commission decided that the way in whichthe superstores twisted the arms of their suppliers to extract specialconcessions was "beneficial to competition and to the consumer"(2). In 1985,the Office of Fair Trading announced, to the amazement of those who supplied thebig chains, that it "was unable to identify any particular case which amountedto an abuse of buying power or other anti-competitive practice."(3) In 1996,after discovering that the superstores were engaged in predatory pricing-driving bakeries out of business by selling bread at less than the cost ofproduction-it decided to take no action.

The regulators' refusal to acknowledge any wider public interest sentthousands of small shops, farmers and food processors to the wall. The survivorslooked to the Labour government and its new body-the Competition Commission-for relief. They were disappointed. The authorities stuck to the doctrine.

The selective vision this required became weirder by the year. In 2000 thecommission released a report which announced that big stores and corner shopswere "separate markets"(4). As Tesco controlled only 6% of the country'sconvenience stores, it should be allowed to expand in that sector as much as itpleased, even though-in grocery sales as a whole-it had already passedthe monopoly threshold of 25%. The commissioners were plainly suffering from themisapprehension that human beings have two sets of digestive systems. While theydecided that predatory pricing did in fact operate against the public interest,they refused to take action. Nor would they do anything about the fact that thebig chains charged more for their goods in poor places than in rich ones.

The result, which all those of us who had been following the issue predicted,was that thousands more shops went bust. The Office of Fair Trading's ownfigures show that between 2001 and 2005 the number of "unaffiliatedindependents" in this country fell from 34,250 to 26,873: a decline of 22%(5).Last month a parliamentary inquiry predicted that by 2015 independentconvenience stores and grocers are "unlikely to survive" and independentnewsagents and filling stations are "very unlikely to survive"(6). Tesco, onthe other hand, has increased its share of the grocery market by 15% (to 31%)since the commission's report was published.

The commission also found that the big chains had been engaging in what lookslike blackmail and extortion. Because the farmers and other producers hadnowhere else to go, the superstores were able to demand payments to stock ordisplay the farmers' produce; retrospective "discounts" on produce theyhad already bought; "compensation" when sales were deemed insufficient; and "contributions" to the costs of opening new stores. Any supplier who did notcough up was threatened with "de-listing" and therefore bankruptcy(7).

The commissioners noticed "a climate of apprehension" among farmers andprocessors. "Even very large suppliers were concerned about what action theirsupermarket customers might take if they found adverse evidence had been givenagainst them. Most suppliers were extremely concerned that their submissions andcomments should be kept confidential … Even so, many suppliers refused tosubmit evidence"(8).

So how did the regulators address this problem? By asking the superstores tosign a code of practice, under which they would undertake to stop extortingmoney. But though it knew that they were too frightened to speak out, the OFT "was unable to guarantee the anonymity of suppliers"(9).

When the office reviewed the code last year, it found that not a single caseagainst the superstores had been processed. It concluded that because "evidencehas not come forward that the code is being breached", it "should remainunchanged"(10). Because the farmers hadn't complained, in other words, therewas evidently nothing to complain about. But a survey in 2003 by Friends of theEarth-which did guarantee anonymity-found that 34% of the suppliers whohad not come forward "gave their reason as being "fear of de-listing"."(11)

Now, having been bounced into re-opening their inquiries by a series ofdamning reports, the competition authorities are starting to admit that theymight have got it wrong. But their hand-wringing exercise seems to have more todo with public relations than any serious intention to change the way the marketworks. There is still no sign that the Tebbit doctrine has been abandoned.

It is true that the Office of Fair Trading has now accepted that human beingshave only one stomach ("it appears that grocery stores of very different sizescan exercise a degree of competitive constraint on one another"). But it seesthe new takeovers, "overall", as a good thing. "We believe that consumershave benefited from competition between the supermarkets and their expansioninto the convenience store sector"(12). And while it concedes that "aspectsof the supermarkets' pricing behaviour … provide reasonable grounds forsuspecting that competition is being distorted," it "cannot conclude, on thebasis of the evidence we have collected, that consumers are harmed."(13)

Instead, its referral document emphasises the barriers, such as the planningsystem, which prevent other large superstores from entering a local market.There is no discussion about whether superstores as a body are a problem: aslong as they are seen to be competing with each other, the regulators' job isdeemed to have been done, even if this means that the United Kingdom is leftwith just one farmer and no independent shops.

But the worst thing the OFT has done is to give the Competition Commissiontwo years in which to report. By the time it publishes a new list of excuses,its conclusions will be of greatest use to social historians. Even the OFTrecognises that the wholesalers who supply the small shops are approaching the "tipping point", beyond which they go out of business(14). This wouldtrigger a chain reaction through the independent sector, pulling down thousandsof businesses. The network of small farmers, wholesale markets, cash andcarries, dairies, auctioneers, news distributers and small abattoirs, with allits expertise and investment, is collapsing at an extraordinary rate. It is hardto see how it could ever be replaced.

For 25 years the competition authorities have been claiming that there isn'ta problem. Now they have half-acknowledged that there is. I suspect that theyintend to keep wringing their hands until there is nothing left to weep over.

www.monbiot.com

References:

1. Colin Breed MP, March 2003. CheckingOut the Supermarkets II: Competition In Retailing.

2. Monopolies and Mergers Commission, 1981. Discounts to Retailers. TheStationery Office, London.

3. Office of Fair Trading, 1985. Competition and Retailing. The StationeryOffice, London.

4. The Competition Commission, October 2000. Supermarkets: a report on thesupply of groceries from multiple stores in the United Kingdom. The StationeryOffice, London.

5. The Office of Fair Trading, March 2006. Grocery market: proposed decisionto make a marketinvestigation reference.

6. All-Party Parliamentary Group for Small Shops, 2006. HighStreet Britain: 2015.

7. The Competition Commission, ibid.

8. The Competition Commission, quoted by Joanna Blythman, 2005. Shopped: theshocking power of British supermarkets. Harper Perennial, London.

9. All-Party Parliamentary Group for Small Shops, ibid.

10. Office of Fair Trading, 3rd August 2005. No need for more supermarketregulation. Pressrelease.

11. Friends of the Earth, 17th Monday 2003. Farmers and the Supermarket Codeof Practice.

12. The Office of Fair Trading, March 2006, ibid.

13. ibid.

14. ibid.