Westminster Hall
Tuesday 13 May 2008
[Mrs. Joan Humble in the Chair]
Supermarkets
Motion made, and Question proposed, That the sitting be now adjourned.—[Siobhain McDonagh.]
9.30 am
Mr. Mark Field (Cities of London and Westminster) (Con): The Competition Commission has just completed its third full-scale inquiry into supermarkets in the last eight years. The Office of Fair Trading continues periodically to delve into some more specific complaints regarding supermarkets. However, this House has not had the opportunity to discuss the OFT’s recommendations or to raise some of the genuine concerns that I am sure many hon. Members’ constituents have about the fast-changing patterns of high street shopping in recent years.
At the outset, I should perhaps say that I am neither here to bury nor unduly praise supermarkets; I certainly will not do the former, which I know is somewhat more favoured than the latter by some Members of Parliament. I say this because I believe that the time is now ripe to have a very broad debate here in Parliament on supermarkets, as well as an open discussion about how best we can balance the concerns of small retailers and suppliers with those of the supermarkets. In my view, that national debate should be conducted without the threat of new or excessive regulation; instead, we should allow supermarkets to recognise and react positively to public concerns.
In recent decades, the British weekly shop has undergone a revolution. One supermarket giant alone, Tesco, controls a quarter of the nation’s massive £128 billion annual grocery budget. Supermarkets now seem willing and able to provide us with everything—from televisions and insurance to clothing and credit cards—as we rummage through the vegetable aisle and pick up our everyday bread and milk.
However, with the rise of Tesco and the rest of the big four supermarkets—Sainsbury, Asda Wal-Mart and Morrisons—talk of our shopping habits seems to have taken on the type of language that is more appropriate to a horror story. People now bemoan the emergence of ghost towns; they decry the death of the local store, and they fear the looming, inexorable power of a monstrous monopoly that swallows land, spits out small businesses, destroys community spirit and ruthlessly subdues suppliers. Nowhere has there been a more effective and outspoken campaign than in the pages of my own “local” newspaper, the Evening Standard.
For my own part, while all is not necessarily rosy in our groceries market—I shall discuss some of my specific concerns later—I believe that supermarkets are all too frequently given a hard time. Their detractors seem to have an irrational and often downright hypocritical hatred of the success of big retailers. However, I myself am inherently mistrustful of a cause that seeks to punish success, hard work and good business practice. Let us
make no mistake: supermarkets are one of this country’s great retail success stories. The idea of putting a penalty on such characteristics as success and hard work, borne out of misplaced resentment and unrealistic sentiment, is unhealthy for both the market and the consumer.
David Taylor (North-West Leicestershire) (Lab/Co-op): The hon. Gentleman rightly says that the supermarkets’ triumphs are often based on “success” and “hard work”, and then he added “good business practice”. However, is it not the case that even the suggestion in the Competition Commission’s report that there should be scope for an ombudsman in dealing with such concerns will not tackle the climate of fear that still exists for small suppliers, who do not wish to alienate their mega-customers, the big supermarkets? That was the problem with late payment legislation; will it not be a problem in this regard, too?
Mr. Field: I understand the hon. Gentleman’s point and I will come to the issue that he rightly raised about the disequilibrium between small suppliers and large, almost monopolistic, retailers, whom suppliers are obviously reluctant to do anything about, other than acting entirely as they wish. The ombudsman suggestion would be a retrograde step; it would be an added layer of bureaucracy and a move away from the transparency that is very much in the interests of all parties concerned.
As a young boy, I remember seeing pictures of life on the other side of the iron curtain. As you know, Mrs. Humble, I have forefathers—as I know you do yourself—from the part of Germany that is now in Poland. One of the most profound differences between life in the west and life under communism was the presence of long queues in eastern Europe for basic foodstuffs. To those of my generation, the well-stocked shelves of a supermarket represented the most visible signal of the success of free markets, choice and capitalism.
The Competition Commission’s most recent investigation sought to establish whether consumers are receiving the benefits of vigorous competition. After about 550 submissions, 65 hearings and the receipt of data from 14,000 grocery stores, the commission released its recommendations back in February. Its conclusions indicate an overall “not proven”—indeed, one would argue, “not guilty”—verdict for supermarkets on the charges of pushing competitors out of the market, bullying suppliers and limiting choice.
Some of the tactics adopted against suppliers have rightly been subject to widespread public scrutiny, and the “big four” supermarkets have agreed to make some material changes to their operations. However, many people felt that the commission missed the point. Too often, it obsessed about competition between the big supermarkets, rather than examining ways to protect smaller businesses and to freeze in time the British high street. It is indeed true that the commission’s recommendations have looked primarily at how to stop the domination of one big supermarket chain—Tesco—over the others. However, calls excessively to regulate and punish the success of the market leaders should not be indulged.
Among its recommendations, the commission proposed three main changes. The first is a “competition test”, which is designed to put a stop to new stores if they allow an operator to become overwhelmingly powerful
in a particular area. The so-called “60 per cent. rule” would mean that a specific retailer would have a new store blocked if that store resulted in giving the retailer three fifths or more of the large-store floor space in the locality. Of course, the definition of what constitutes a “locality” is the nub of this sort of problem. Also, I fear that the new rule will not necessarily prevent the vast majority of proposed new stores from going ahead. It will simply result in consumers getting to choose between, say, Tesco, Waitrose and Sainsbury, rather than there being a Tesco superstore and a Tesco Extra store within half a mile of each other.
The second significant proposal to come out of the Competition Commission’s inquiry is a plan to combat land banking. This is a practice whereby retailers hold on to land and, indeed, place a restrictive covenant on it to prevent a competitor from joining the local market. Such tactics will now be banned and the “exclusivity” arrangements that have been in place for more than five years will have to be surrendered. In other words, retailers will not be able to retain undeveloped land with the express purpose of keeping out competitors. However, I fear that this proposal will also be a gold mine for lawyers, as the determination of proof of “express purpose” is an extremely high hurdle to overcome.
Thirdly, the Competition Commission has given a nod to the suppliers’ concerns by suggesting that the code of practice for dealing with suppliers should be tightened and incorporated into contracts. A grocery supply code ombudsman will now be appointed by the OFT to monitor that code of practice. However and as I mentioned earlier, I am not convinced that that is necessarily the right way forward.
Philip Davies (Shipley) (Con): Does my hon. Friend agree with me that the majority of suppliers to big supermarkets are, by definition—because of the scale of supplies that supermarkets need—big businesses in their own right? Many of them are multinational companies that themselves make huge profits. Therefore, any type of restriction on supermarkets in dealing with their suppliers will lead only to those suppliers making bigger profits and, at the end of the day, customers paying more for their products.
Mr. Field: My hon. Friend hits the nail on the head. One of the issues has been that the consumer has had a pretty good deal over the last 10 years. There is also no doubt that, over the last six to nine months, there have been some widespread increases in the prices of basic foodstuffs. However, that has been the exception rather than the rule, and we have all got used to the idea of relatively inexpensive food, but part of that inexpensiveness has been due to the work between suppliers and supermarkets to try to keep their costs down. We all rejoice in the idea of relatively cheap food, and now that we suddenly see food prices and inflation going up, we recognise precisely how the consumer could lose out if, on top of large-scale increases in the prices of basic foodstuffs, we were also to see ever more regulation that tightened the market.
Mr. Roger Williams (Brecon and Radnorshire) (LD):
The hon. Gentleman is right to make a note of increased food prices. However, have not supermarkets become
the victims of their own bad practices? In using uncompetitive processes to procure their food, they have driven down the amount of food being produced and now there is a shortage. If the supermarkets had only been a bit more far-sighted and worked with their suppliers a bit more productively, perhaps we would not be in this situation.
Mr. Field: As the hon. Gentleman is well aware—representing as he does an agricultural and very rural Welsh constituency, compared with my inner-city London seat—I perhaps have a different perspective and have perhaps had less direct lobbying from the farming interests. If I may, however, I will come to that subject in a moment or two.
The commission’s findings caused outrage in certain consumer campaigning quarters, and the investigation was branded a whitewash. Small businesses, environmentalists and even anti-poverty campaigners attacked the commission’s inquiry. They believe that in addressing only competition between big supermarkets, the commission to a large extent ignored smaller shops and the difficulties that they face, and that it did not heed concerns about supermarkets’ relationships with suppliers or the problems of the shops’ environmental impact.
I suspect that Tesco executives, despite mild protestations about the commission’s findings, will, on balance, be breathing a sigh of relief. Given the hostility toward Britain’s biggest retailer, Tesco might have expected more stringent recommendations regarding its future conduct than came to pass. For instance, many of the retailer’s detractors would have been happy to see the enforcement of the sale of stores in areas where it enjoys a particular dominance.
However, the analysis ignores the inescapable fact of the groceries debate: supermarkets are successful primarily not because of unfair or immoral practice but because consumers regard themselves as well served by them. It may be an unpopular view, but, as an inner-city MP without an agriculture lobby to pacify, I can articulate what others in rural seats cannot. By and large, supermarkets have been a positive force in an ever more frenetic world in which consumers increasingly demand convenience. They provide excellent value for money and a phenomenal choice of high-quality produce. They bring to shoppers goods that would not have been heard of only a decade ago.
Bob Spink (Castle Point) (UKIP): The hon. Gentleman is making a compelling case, but does he acknowledge that we have to get the balance right, and that perhaps the Competition Commission missed a trick in not dealing with the metro, express and one-stop stores that are springing up in our communities? Perhaps it should have dealt with that, as well. We must get the balance right and preserve high streets, which offer services to vulnerable groups.
Mr. Field:
The hon. Gentleman is absolutely right. Of course, the reality is that many of those high streets were already dying. In fact, the emergence of a Tesco helps to re-energise them, albeit without necessarily being able to counter some of the concerns about monopoly practice. That is particularly the case in the sort of constituency that he represents. One has only to
look at several suburban London high streets that, because they are within a relatively short distance of Bluewater, Lakeside or another big shopping centre, are dying on their feet. What might seem perverse is that when a Tesco or a Sainsbury emerges, things suddenly begin to pick up, to an extent.
Some folk whimsically reminisce about the days when one separately visited the local butcher, fishmonger, baker and greengrocer, but most working people would admit that they have neither the time nor the inclination to queue at a range of stores on a Saturday or even Sunday afternoon. Even if they did, it is unlikely that local stores would have the capacity to serve the needs of our growing consumerist, fast-paced population; nor, too frequently, do such stores appeal to the desire of increasingly discerning consumers for innovation.
In Britain, we have been happy in recent years to perpetuate the myth that small and local equal good. The local store is a place where the quality of goods is high, the relationship between shopkeeper and customer warm and the benefit to the community immense. As Jay Rayner so wonderfully put it in The Observer:
“We love to imagine the rosy-cheeked, melon-bellied butcher who always has time for everyone and the greengrocer helpfully picking out the finest of produce for his customers.”
The supermarket, on the other hand, is portrayed as cold and clinical, and staffed by a down-trodden, unenthusiastic work force, but that parody is simply not true. Yes, some local stores truly offer a brilliant, personalised service. Upper Tachbrook street in my constituency is two minutes away from a flagship Sainsbury market store and three minutes away from Tesco, yet it has a couple of delicatessens and a specialist cheese shop. They do a tremendous job, and I admit that I never buy my cheese at Tesco or Sainsbury. I always go to the specialist shop, and I hope that other consumers do likewise.
It is true that elderly folk and young mothers value the genuine local shop where, in otherwise lonely lives, they may have a personal conversation with someone they know rather than being ushered through a check-out. Yet customer service may come down to individual employees as much as the shop in which they work. I hope that supermarkets will take that on board and try to encourage community spirit, particularly in the smaller express-type stores. Furthermore, we have all been to as many well-stocked, quality corner stores as we have to disappointing mini-markets with a poor range of produce at high prices.
The supermarket may often be the only truly integrated place in a community with an ethnically and socially diverse customer base. Far from being uniform, supermarkets often cater to their unique market and provide a place where everyone in a community feels happy to shop. The aisles in the Sainsbury in Whitechapel, for example, accommodate the needs of the specific ethnic communities in the area and include Afro-Caribbean, Bangladeshi and Jewish produce. In my local Tesco in Pimlico, a small section is dedicated to Polish foodstuffs. As the son of a Silesian mother, such foodstuffs bring back wonderful childhood memories.
Supermarkets understand the intense competition in the groceries market and constantly look for ways to diversify and appeal to new customers to gain an advantage over rivals. As a result, they are generally receptive to the fast-changing desires of the consumer and lead the
way in best practice. Marks & Spencer, for example, aims to be one of Britain’s most environmentally responsible retailers. It is phasing in a charge for plastic carrier bags and is beginning to use food waste to power some of its stores. Similarly, Asda Wal-Mart aims to cut its packaging by one quarter in this year alone in response to customer complaints.
Supermarkets are responsible for around one half of all the Fairtrade products sold in this country, and that proportion is rising quickly. Their size gives them the power to drive through positive change that smaller businesses may not be able to initiate but will, I hope, feel inclined to follow.
Despite some of the advantages that supermarkets may have over smaller rivals, the Competition Commission stated:
“Large retailers do not always get the best price from suppliers...convenience and specialist store numbers are not in such a state of decline to suggest that a waterbed effect exists...The evidence is that convenience stores and specialist grocers that provide consumers with a strong retail offer will prosper.”
Yet when supermarkets acted to promote UK milk producers by guaranteeing prices—to the detriment, at the margins, of consumer prices—they promptly found themselves subject to an extensive OFT inquiry that reported earlier this year and resulted in a huge fine for practising a cartel. That was a classic example. Many of the supermarkets involved were understandably sore about that. They felt that in trying to promote British produce in a sector such as milk, which had been in such difficulty in recent decades, they had lost out.
Andrew George (St. Ives) (LD): The hon. Gentleman probably misses the point when he concentrates on price and gives the example of the difficulties that the supermarkets got into as a result of their negotiations on the price of milk. The problem for suppliers is not about price at all but about retrospective changes to unwritten contracts: the payment for shelf space, the late payment of bills, the cost of using the supermarkets’ preferred hauliers, and packaging. That set of attached conditions, which are often retrospective, bears down on the viability of suppliers. The issue is not just about price. Will he not accept that?
Mr. Field: I will accept that; the commission went into great detail about the precise nature of some of those complaints. Certainly, I would never accept or defend retrospective changes to supplier agreements. That is very unfair.
We are missing some of the excitement around the Finance Bill this morning, and we will be heading to that debate after this one. The reality is that retrospective taxation and, indeed, retrospective arrangements along the lines described by the hon. Gentleman are entirely without justification.
Of key importance, too, is the area of newspaper and magazine distribution, where there are valid concerns about the potential domination of supermarkets over smaller retailers and publishers. One of the great strengths of our newspaper and magazine industry has been the rapid distribution of material to all corners of Britain. Under existing distribution agreements, newspapers and magazines are sent to retailers through a system of exclusive territories. The arrangement encourages a free and diverse press.
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