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Keith Vaz: I was indeed surprised at those conclusions and, as I will discuss later, I am glad that the Office of Fair Trading has decided to look again at this issue following the representations made by so many interested parties. That is the right way to move.
The future competitiveness of the UK grocery market is becoming completely distorted, and I want to argue tonight for the introduction of an independent regulator that can fill the gap that clearly exists. None of the current watchdogs or interest groups seems to have sufficient power or teeth to regulate the market, and it is clear that something needs to be done.
Mr. Lindsay Hoyle (Chorley) (Lab): I congratulate my hon. Friend on securing this important debate and I agree that it is very important that we have a regulator. We asked the big four supermarkets to sign up to a voluntary buyer's charter to help farmers, but they refused to do even that: no wonder we need this debate.
My hon. Friend is right. I find it extraordinary that the supermarkets have not signed up to the buyer's charter, because it would be sensible and fair. My hon. Friend is not alone, because the Forum of Private Business, which represents 25,000 independent retailers in the UK, claims that 20,000 independent
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stores have disappeared from the UK high street since 1997a rate of 50 a week. The chief executive of the FPB, Nick Goulding, has said:
We have to ask whether we want to see the UK retail landscape completely redrawn and the high streets dominated by supermarket Metro convenience stores. No more butcher, baker and candlestick maker, just Metros, Metros and more Metros. The character and integrity of our town and city centres are being disfigured for ever.
Mr. Michael Foster (Worcester) (Lab): Does my hon. Friend agree that one of the problems with the growth of the Tesco Express and Metro convenience stores, which drive out small convenience shops, is that the consultants' reports that the planning committees see before they make their decisions bear no resemblance to reality? The reports make wild assumptions about the low level of spend, but as soon as the Tesco store opens, there is a high level of expenditure and that drives out and closes the small convenience stores. Does my hon. Friend agree that something needs to be done to tighten up those consultants' reports, perhaps through audits after planning decisions?
Keith Vaz: My hon. Friend is right. He highlights an important area that also affected the establishment of the Tesco store in my constituency in Hamilton. Promises were made and experts produced before the planning permission was granted, but as soon as it was granted they all disappeared. Local residents are left to face the inconvenience.
The Office of Fair Trading has been wavering on the dominance of supermarkets in the grocery sector. The OFT's goal is to make markets work well for consumers. Markets work well when there is vigorous competition between fair-dealing businesses. When markets work well, enterprise flourishes. In regard to supermarkets, that is clearly not the case. It has been difficult to make the OFT look into the matter and provide an adequate response and analysis of the situation. Indeed, the OFT has often been dubbed "Only Fair to Tesco".
In August, the OFT came to the conclusion that there was no need for supermarkets to be subject to a full review by the Competition Commission, which conducts in-depth inquiries into mergers, markets and the regulation of the major industries. The evidence presented by, among others, the Association of Convenience Stores was not considered to be compelling enough to warrant a further investigation. It is commonly agreed that there were large holes in the OFT's explanation for why it had decided not to refer the grocery market to competition regulators. However, on 28 October, there was a welcome U-turn. After heavy criticism, the OFT reconsidered its decision and said that it would consider investigating the four giants of the grocery market.
Mr. Colin Breed (South-East Cornwall) (LD):
I welcome this debate and the hon. Gentleman's
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suggestion of a regulator. In 1998, I published a report on the supermarkets and quoted from the BBC's "The Food Programme":
As well as the organisations referred to in the hon. Gentleman's report and the ACS, several other interest groups have growing concerns about supermarket expansion. The ACS is backed by consumer and campaign groups from the women's institute to Friends of the Earth, and even the New Economics Foundation. On 2 August 2005, the ACS launched its formal appeal to the competition appeals tribunal, arguing that the OFT did not give proper consideration to the evidence presented to it, especially on below-cost selling and the effects of buyer power on the grocery market. At the end of this week, the ACS will respond to the OFT with further detailed evidence covering all groundsenough in my view and that of others to warrant a thorough investigation into the grocery market.
Mr. Philip Hollobone (Kettering) (Con): I congratulate the hon. Gentleman on securing this important debate. I am a modest and humble member of the all-party group on small shops. Is the hon. Gentleman aware that the group is conducting an inquiry entitled, "Britain's high street 2015"? The year 2015 is the 200th anniversary of the battle of Waterloo, and Napoleon said that England was a nation of small shopkeepers. Does the hon. Gentleman share my concern that there will be tens of thousands fewer shopkeepers in 2015 as a result of the behaviour of the supermarkets?
Keith Vaz: The hon. Gentleman is absolutely right. I do not often visit his constituency, but sometimes I pass through Kettering on my way to Leicester when the M1 is blocked, and over the 18 years since I became a Member I have seen the changes there. Unless we take appropriate action the situation will get much worse.
Mr. Alan Reid (Argyll and Bute) (LD): I, too, congratulate the hon. Gentleman on securing such an important debate. He is presenting the case very well, and I support what he has said. To add weight to his argument, not only small shops suffer from the buying power of supermarkets; suppliers often suffer, too. Dairy farmers receive a farm-gate price for milk that is below the cost of production, yet supermarkets benefit from a huge mark-up when the milk is on their shelves. Suppliers as well as shops are suffering.
Keith Vaz: The hon. Gentleman is right of course. A little later I shall discuss the position of suppliers and how supermarkets, due to their power, have been able to exert unnecessary pressure on them.
The ACS response, due this week, is expected to present a number of conclusions and suggestions for remedies for the imbalance in the market. They include
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easier confidential complaint mechanisms for businesses; a ban on price flexing; transparency of buying prices; a market share cap; implementation of local competition policies; and initiating an independent proactive retail ombudsman to investigate supermarket dealings with suppliers.
Under UK law, the function of the competition appeals tribunalCATis to hear and decide appeals and other applications or claims involving competition or economic regulatory issues. The CAT is a specialist judicial body, with cross-disciplinary expertise in law, economics, business and accountancy. It is currently investigating the Association of Convenience Stores v. Office of Fair Trading, case number 1052/6/1/05. At a case management conference on 1 November 2005, and in the light of the OFT's indication that it wanted to withdraw its decision of 3 August, the OFT decision was formally quashed by the tribunal and referred back to the OFT, with a direction to reconsider the matter and make a new decision.
I turn to the issue of Tesco, which is by far the largest player in the market. Tesco controls more than 30 per cent. of the overall British grocery market, worth £80 billion. One in every eight pounds spent in retail is spent in Tesco. By 2010, the firm's share of the grocery market is predicted to be 45 per cent. Tesco has the largest market share in 67 of the 120 postal districts in the country, while Asda controls 23, Sainsbury's 14 and Morrisons 13. In 14 districts, Tesco has more than 40 per cent. of the market. In five towns, it has more than 45 per cent. of the market. That is a rather substantial domination, and we have not seen the end of it.
It would be wise to examine Tesco's expansion plans in yet more detail, as Tesco has accumulated enough land to develop up to 180 new stores and it plans to expand abroad. Tesco will open 150 stores abroad in the second half of this year. Its overseas operation, from Japan to the Czech Republic, now accounts for 20 per cent. of its turnover.
Of course it is important to note Tesco's contribution to the development of popular retailing in the United Kingdom in the past decade. Sir Terry Leahy, the chief executive of Tescoa world-class entrepreneurhas led the retailer's extraordinary success. Sir Terry's management method and clarity of thought has created a modern-day company that leads the UK market and ranks No. 3 in the world.
Shopping at TescoI declare an interest in that I shop at Tescoand other supermarkets is a wonderful experience. We all love the convenience of having a wide selection of choice under one roof, but there is a line to be drawn between innovation and dominance and between competition and monopoly. Sir Terry's visit to Bangalore in a bid to launch Tesco into the Indian market is worth noting. I admire his enterprise in seeking to sell basmati rice to the Indian population. I suppose that that is the retail equivalent of selling sand to Saudi Arabia.
It has been suggested that Tesco's expansion abroad is a masterstroke to draw attention from the controversy of the domestic market, so that it can continue to expand. The corporate affairs director of Tesco, Lucy Neville-Rolfe, told MPs last month that her company had grown
Many manufacturers and distributors have told me that it is complicated and very costly to sell their products on the shelves at Tesco. Rather hefty charges are levied to sell any product that is not its own brand. Other distributors are left with no choice but to pay those fees if they want to sell their products.
Some have argued that the payment of up-front fees amounts to corporate backhanders. If the distributors do not pay for their goods to be sold, they are not sold. If Tesco does not buy them, the distributors are out of business. Having taken on the goods and paid the listing fee and the commissions that Tesco and others demand, the suppliers then have to pay Tesco to promote their own goods. Given the lack of transparency, it is very difficult to issue formal complaints and suppliers are left absolutely powerless.
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