OFT to refer grocery market to Competition Commission

84/06 9 May 2006

The OFT has announced today that it will refer the supply of groceries by retailers in the UK to the Competition Commission (CC) for a market investigation.

Download The grocery market - The OFT's reasons for making a reference to the Competition Commission (pdf 520 kb).

This decision comes after a period of public consultation, which follows the OFT's earlier proposal to refer the grocery market to the CC on 9 March 2006. During this period, over 1,200 responses were received from businesses, consumers and other interested parties, the majority of whom supported the OFT's decision. Having considered the views of respondents to the consultation, the OFT has concluded that there are a number of competition concerns that warrant a full investigation by the CC.

The evidence compiled by the OFT suggests that:

the planning regime acts as a costly barrier to entry, making it difficult for new stores to open and compete with those already in the market
big supermarkets have significant land holdings which could aggravate barriers to entry or otherwise harm consumers
in some instances, supermarkets have attached restrictive covenants when selling sites
there is also evidence to suggest that the big supermarkets' buyer power has increased, and that some aspects of their pricing behaviour - such as below-cost selling and price flexing - could distort competition.

The CC investigation is not limited to considering only the issues that the OFT has identified.

John Fingleton, Chief Executive of the OFT said:

'This reference will allow the Competition Commission to examine in detail all aspects of the grocery sector, ensuring that consumers are able to benefit from strong competition through even lower prices, improved quality and choice, and continuing innovation in the market.'

NOTES

1. The OFT has included in its analysis of the relevant market both one-stop shopping, which takes place in stores over 1,400 square metres; and secondary shopping, which takes place in stores of all sizes, including 'convenience' stores of less than 280 square metres.

2. Under section 131 of the Enterprise Act 2002 (EA02), the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.

3. Under section 169 of the EA02, where the OFT is proposing to make a decision on a reference to the CC it must first consult, so far as practicable, any person on whose interests the reference is likely to have a substantial impact. This consultation ended on April 6 2006.

4. The CC has up to two years to conclude the investigation from the time the OFT makes a reference.

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