| Previous Section | Index | Home Page |
Mr. Colin Breed (South-East Cornwall): Does the hon. Gentleman agree that the four supermarket companies to which he refers are complex monopolies? Each company consists of a huge number of single-store local monopolies, and therein lies the problem: each supermarket is, in itself, a local monopoly--a fact that is not recognised under current OFT rules.
Mr. Martlew: I covered that point when I spoke about superstores. They are the sole occupants of a site, to which the consumer has driven three or four miles. There is no competition nearby--probably the nearest competitor store is on the other side of the city--so the consumer buys from the superstore. The DTI must now give some guidance to the companies, and tell them, "The game is up. We know what you are doing, and it is going to stop."
1.17 pm
The Minister for Competition and Consumer Affairs (Dr. Kim Howells): I congratulate my hon. Friend the Member for Carlisle (Mr. Martlew) on having raised an important subject. It currently occupies a great deal of space in our newspapers, and rightly so, because it has an impact on every family in the country.
I find it amazing that, until the hon. Member for South Holland and The Deepings (Mr. Hayes) arrived a few minutes ago, there was not a single Conservative Member, Plaid Cymru Member, or Scottish National party Member in the Chamber, despite the fact that they all paint themselves as the farmers' friends. I do not know about theirs, but my front room in Pontypridd has been fullof farmers complaining about the buying power
of supermarkets. If Opposition Members were that concerned about the issue, they would have turned up for a debate on a subject that we rarely have the opportunity to discuss.
Mr. John Hayes (South Holland and The Deepings):
That is why I am here.
Dr. Howells:
I am glad that one Conservative Member is here--that is more than usually show up for debates such as these.
In no uncertain terms, my hon. Friend has emphasised the image of supermarket chains as market tyrants. I shall try to deal with the subject from the point of view of the Department of Trade and Industry. He has described how the big four--Tesco, Sainsbury, Asda and Safeway--have been able to dominate the buying market, especially the market for farm and primary products, and how they have moved into other areas.
My hon. Friend knows as well as I do that others would paint the supermarkets, especially the big four, as market heroes, citing as evidence their ventures into selling designer goods at low prices. Recently, the chief executive of one chain asked me, "Where is the sense in my being able to go to New York and buy a pair of top-range Levi Strauss jeans for $30 or $40, when they are sold in the high-street specialist outlets in this country for £55 a pair? There is something wrong with that." His chain is now selling those designer jeans at £30 a pair, and I am glad about that.
I glad that the supermarkets are pushing the edges of the envelope by exploiting the possibilities offered by so-called parallel or grey imports--terrible phrases, but unavoidable. They are introducing real competition into the markets for such goods. The high streets are no nirvana for shoppers. I am sure that an enormous amount of careful price calculation goes on--I was going to refer to price fixing, but as a Minister I can no longer use such terms.
Retailers are looking carefully at what the market can bear. Companies trading in well-known branded images and products can make a good profit in countries such as Bulgaria. However, those of us who are very naive and have simple views about these matters wonder why UK companies can buy those products in Bulgaria and sell them in this country--whether in the supermarkets or on the high street--at prices lower than those in retail outlets, and still make a profit. One wonders about the profit margin of those retailers that pitch the original price in this country. We must ask some serious questions, and my hon. Friend can rest assured that, as the new Minister for Competition and Consumer Affairs, I shall ask those questions every day. I want to uncover the real situation.
My hon. Friend asked about comparisons between United Kingdom prices and those across Europe and the United States. The DTI does not have a section that deals with pricing issues. I was amazed--I suppose I should not say that as a Minister who speaks on behalf of the DTI. I was told that such matters were too complex to examine, but I think it is about time that we had that information. I open newspapers every day and see price comparisons, some of which my hon. Friend mentioned. Where is my database that will allow me, as a Minister, to say what is and is not true?
The excellent officials in my Department are beginning to construct a prices database so that we will know where we are. Price information is very important for families in
this country. I have seen articles and editorials in the Sunday Times that refer to "rip-off Britain". I am very glad that those reports have been published. Someone should try to compare the prices of goods in the United States, France or Canada with those in this country. That is an excellent policy for newspapers to adopt, and I shall respond as best I can.
My hon. Friend and the hon. Member for South-East Cornwall (Mr. Breed) have raised some interesting and important points in this debate. The definition of the boundary or extent of a market is vital. My hon. Friend's constituency of Carlisle is very much like many constituencies in Wales: it is a mix of urban and rural areas. It is easy for supermarkets to dominate a particular region or locality without having a dominant share of the UK market. We must examine that situation carefully, because dominance can easily distort markets, in terms of prices or selling power and so on.
I am extraordinarily glad that the right hon. Member for Kensington and Chelsea (Mr. Clark), and the hon. Members for Salisbury (Mr. Key) and for Mid-Norfolk (Mr. Simpson)--three very distinguished members of the Conservative party--have just entered the Chamber. It is excellent to see the hon. Member for Salisbury, for whom I have great regard, on the Front Bench. That is welcome news, because this is an important debate.
We are determined to ensure that there is transparency of pricing for all, whether it is the farmer trying to sell his farm produce to supermarket chains or the shopper trying to secure the best bargain. I think that that is what my hon. Friend is seeking. There are many variables involved in the selling equation. There is no question that supermarkets have revolutionised retailing. I will admit from the Dispatch Box that I quite enjoy shopping at my local Tesco. I like the fact that I can drive there and do my shopping for the week or the fortnight. There is wide choice inside the supermarket, and it is convenient. Unfortunately, the appalling car parking situation in my home town makes it difficult to shop in the town centre.
Mr. Breed:
Does the Minister accept that, although dominance in the marketplace is not illegal as such, the abuse of that dominance is a concern? Companies may dominate the market, so long as they trade fairly.
Dr. Howells:
The hon. Gentleman has put his finger on the problem. We must discover whether this country's great supermarket chains are abusing their dominant positions.
My hon. Friend mentioned that the Director General of Fair Trading, Mr. John Bridgeman, is currently examining this matter. His team at the Office of Fair Trading is investigating the profitability of the major supermarkets in the grocery sector, focusing on whether competition between the majors has been distorted to the detriment of consumers. Mr. Bridgeman is due to report early in the new year, and I am sure that all hon. Members are looking forward to those findings.
In the meantime, what evidence do we have of abuses of market power? It depends where we look. The farmers who were in my front room complaining about the situation will tell us that, yes, the market is being distorted and abused. We approached Tesco and pointed out that, although the current market price of a steer is £490, the shelf prices of the products derived from that steer total £1,124. We asked where that extra cost had come from.
The supermarket told me that it costs £634 to process the steer into saleable meat. It gave us a breakdown of that sum. It said that 63 per cent. of the steer is waste and must be thrown away, and that the remaining 37 per cent. of the steer must sell for an average of £5.13 per kilogram--or £2.33 per pound for those of us who still use the imperial system--in order to cover costs. Tesco also told us that £4.83 per kilogram is its average selling price, so it is making a 30p per kilogram loss on beef sales. [Interruption.] Hon. Members are groaning--and I can understand why. Those figures should be examined in light of the declared profits of some supermarket chains, and the OFT, under John Bridgeman, will do just that.
I do not think that it is easy to compare the profitability of United Kingdom supermarket companies. A report published this week by Verdict Research claims that there is no easy way of making that comparison. The report states:
"Verdict does not believe that Britain's grocers are overcharging . . . the market is too highly competitive for that to happen and competition is intensifying. The average operating profit margin of the four leading grocers has fallen by nearly one fifth, from 7.2 per cent. in 1992/93 to 6 per cent. in 1997/98. British grocers are not more profitable than their Continental counterparts once factors like longer European supplier payment terms, and the preponderance of leasehold property, are taken into account. UK retailers are all quoted and have traditionally sought to maximise their profitability to attract investors. Most Continental retailers are privately owned and minimise their reported profits in order to pay as little tax as possible. This helps give the impression that they are giving customers a much better deal than British companies."
My hon. Friend raised many issues in his short and very pertinent speech. Although we recognise the extra choice, convenience and lower prices that supermarkets have provided for consumers in the past 20 years, and although we welcome the entry of supermarkets into the retailing of non-food goods such as clothing and electrical products--which will strengthen competition in those sectors--I stress that, as Minister for Competition and Consumer Affairs, I shall continue to champion the rights of consumers. I welcome the OFT inquiry into the profitability of major supermarkets in the grocery sector. We will ensure that, at long last, the DTI becomes the consumers' champion.
| Next Section
| Index | Home Page |