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Statement by OFT Chief Executive to All Party Small Shops Group inquiry

215/05    15 November 2005

John Fingleton, OFT Chief Executive, today appeared before the All Party Small Shops Group inquiry into small shops at which he made the following opening statement:

'On behalf of the OFT, I am pleased to be here today to give evidence to this inquiry. The timing of your original invitation was difficult, given the concurrent proceedings at the Competition Appeal Tribunal. The Tribunal's ruling of 1 November has made it possible for me to be here today but means that I am still constrained in what I can say on some of the issues I am sure you would like to question me on, which is a frustration for all of us. Please be assured that the OFT welcomes this opportunity to put its views on the application of competition law to the grocery sector on the record, and in doing so I intend to be as transparent as I possibly can.

'The grocery sector plays a vital role in the UK economy. With total annual sales of £120 billion, it accounts for almost half the total retail sector. Food and non-alcoholic drinks alone account for more than 10 per cent of the typical family's expenditure and an even higher percentage for those on lower income. The market affects a wide range of businesses in the food supply chain and everyone in the country – we're all consumers. As part of the OFT's mission to make markets work well, competition policy helps to deliver the benefits of efficient competitive markets to consumers. ONS statistics show retail food prices falling by 4.1 per cent in real terms between December 1999 and May 2005. Information provided to the OFT shows the range of grocery product lines in supermarkets increasing by nearly 40 per cent in the five years to 2005.

'We do not and will not hesitate to take action under competition legislation when it is warranted. Let me stress that this legislation is to protect competition, not competitors. Difficulty for individual or groups of competitors does not necessarily equal damage to competition or mean consumers are worse off.  In many scenarios consumers benefit from increased productivity and efficiency in terms of choice, wider availability, greater innovation and lower prices. The reality is that in competitive markets there are winners and losers, as a result of consumers voting with their feet and their wallets and exercising their freedom of choice. It is not the role of the competition authorities to protect businesses that do not respond effectively to the demands of consumers, or more generally to protect less efficient or less competitive business from the rigours of the market.

'The remit of this committee extends beyond areas in which OFT, as the UK competition authority, has jurisdiction. The complex underlying issues subject to your scrutiny here relate to cultural and social attitudes towards, and aspects of developments in, grocery and other multiple retailing. The debate about this market encompasses both matters on which the OFT has a key role to play, and wider concerns which have been raised about the future of the High Street, for example on social and environmental issues. There are issues that competition and consumer policy are not able to resolve. Having said that, in our work we are very conscious of, and take account of, the wider landscape associated with the grocery retail sector, and supermarkets in particular, and the very real concerns that many different interests hold.

'It may be helpful if I explain what kind of issues we can and do look at.

'First, we have powers under the Competition Act to take action against anti-competitive agreements and abuse of a dominant position.  I'm happy to answer questions about our approach to the use of these powers but I ask you to understand that I cannot talk about any current investigations in the grocery sector.

'Secondly, we must refer mergers which we believe may result in a substantial lessening of competition to the Competition Commission for further investigation. As you know, we have considered a number of acquisitions of convenience stores under the mergers legislation.

'Finally, and most topically, we have discretion to refer markets to the Competition Commission where we have reasonable grounds for suspecting that there are market features which are preventing, restricting or distorting competition.

'As you know, in August this year we decided not to make such a reference to the Commission, in response to a request from the Association of Convenience Stores and others. We asked to withdraw that decision following the appeal by the ACS. It has now been quashed, and we are considering the decision afresh. At this very early stage in our work, I do not prejudge any of the issues which are relevant to the decision we have to make. We want to be open and transparent in our decision-making, and we welcome the opportunity to reconsider our view and set out clearly the reasons for the fresh decision we will take.

'In the same spirit of transparency, I would welcome the opportunity to come and speak to you again in the future about this market, which I am sure will continue to occupy both your Group and the OFT.'

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