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What supermarkets have done, incredibly successfully, is provide their customers with what they want, at a time when they want it and at a price that they are
prepared to pay for it. There is no magic formula. There are no black arts in the front row, as was mentioned earlier. It is a simple formula for success. Why on earth would we want to try to stop supermarkets being successful and doing what they do so well-looking after their customers?
Another myth is that supermarkets make big profits only because they have a terrible relationship with their suppliers and screw them into the ground at every opportunity, and therefore that we need an ombudsman to intervene and stop that practice. That might be the populist view out there and it might sound perfectly plausible, but in the real world, no supermarket could even begin to work on that basis.
As my hon. Friend the Member for Weston-super-Mare made clear, a supermarket can be successful only if it has some product on the shelf. A supermarket does not become successful by selling fresh air. By definition, particularly in such a competitive marketplace, one of the things that supermarkets must always be conscious of is having a good relationship with their suppliers. They need a good relationship with their suppliers because, unlike other industries, food retailing is very difficult to predict. Knowing how much stock to have on the shelves on any given day is not easy.
We all go to the supermarket-I am as guilty as the next person-and want to buy something that is off sale because the supermarket has run out. We go crackers about that because it is so inconvenient when there is nothing on the shelf. Knowing how much product to order on any given day is not easy and depends on all sorts of factors. One large factor that affects the amount of stock a supermarket has on its shelves is the weather.
On a hot sunny day, people will want to buy lots of bottles of lemonade. That might not be a problem, because the supermarket can have large quantities of that in stock and it does not go off. Also, in hot weather, people want to buy lots of salads and not so many vegetables. In colder weather or when it is raining, people want to buy more vegetables, not salads. The supermarket cannot have a huge over-stock of those things or they will go to waste.
Supermarkets must be very good at predicting the weather and trying to predict the demand for products on a particular day. Given the vagaries of the British weather and therefore the uncertainty about the quantity of a product likely to be sold on a specific day, it is essential that a supermarket has good, strong, close relationships with its suppliers, especially its fresh food suppliers, because it needs some flexibility in how many of a particular product they will supply at very short notice.
I can assure hon. Members that if a supermarket was not treating its supplier well or fairly, or was not giving it a sufficiently good income, the goodwill that the supermarket relies upon in order to get the right amount of product to the shop on a particular day would quickly go. The idea that supermarkets can thrive by screwing suppliers into the ground might be a plausible theory, but I am afraid it is one born of utter ignorance.
Mr. Drew: Some years ago the Environment, Food and Rural Affairs Committee undertook an inquiry into the so-called missing 4p in the milk industry. What that ascertained was exactly the pressure that the retailers exerted on the processers, who then exerted it on the producers. Is he saying that our report was completely wrong?
Philip Davies: I suspect that it probably was not brilliant. I will not say that it was completely wrong. Most things have an element of truth in them and the rest is made up to suit the prejudices about the subject. But, of course, nobody here is saying that supermarkets are not tough negotiators. Of course they are, but suppliers are tough negotiators, too. Anybody who thinks that suppliers just roll over and do as they are told is living in a fantasy land.
If Labour Members want to start tangling with suppliers such as Mars, Pepsi and Procter & Gamble because they think that they are an easy target, I say to them, "Please feel free. Set up your own supermarket and see how far you get with them, because you'll find that they are very tough cookies, indeed." Why on earth the hon. Member for Ynys Môn (Albert Owen) wants to waste time setting up an ombudsman to support companies such as Procter & Gamble, Mars and all the other big multinational companies, many of which have marketing budgets that supermarkets could only dream of, is beyond me. Some people might need help in the world, but Procter & Gamble does not.
Philip Davies: No, I cannot. It does not surprise me in the slightest that the Labour party is in favour of setting up a grocery ombudsman, because we all know its modus operandi: it has to stick its nose into everything; it does not trust anybody to look after their own interests; the state knows best and has to protect everybody-even, it seems, big multinational companies; and the Government have to intervene in every nook and cranny of everybody's lives.
Equally, it comes as no surprise to me that the Liberal Democrats are in favour of the proposal, because they have detected-no doubt in their focus groups-that they might get two and a half or three extra votes out of doing so in seats that they need to win at a general election. As we all know, the Lib Dems will say absolutely anything if they think that, on the back of it, there are two or three extra votes to be gleaned in a marginal seat.
On the point behind the hon. Gentleman's intervention, I must say that it is incredibly curious and, equally, disappointing that a Conservative party that is supposed to be against Government-inspired quangos and Government intervention-that wants to try to let people get on and run their own lives-is in favour of a grocery ombudsman. I am afraid that I cannot offer any explanation for that, other than the contribution from my hon. Friend the Member for Weston-super-Mare, on the
Front Bench. I believe that my Front Benchers are grossly mistaken, and that their support for the proposal is very un-Conservative.
Albert Owen: The hon. Member for Weston-super-Mare made a logical response to the Bill. It was not about three and a half votes in Liberal constituencies or minorities on the fringe; it was about a whole body of our constituents who support the proposal. I am clear about where the hon. Member for Shipley (Philip Davies) stands on the matter of the ombudsman, and about how far away his stance is from that of his Front Benchers, but the code was set up because of market failings, so does he accept the need even for a code?
Philip Davies: I am not a big fan- [ Interruption. ] I am going to answer the question. I am not a big fan of the code, but it is in place and there is nothing that I can do about it. It is far too stringent and it goes far too far, but its existence knocks out completely the argument for an ombudsman, and we will return to that point later. However, it is incredibly curious that my hon. Friends are in favour of the ombudsman. It makes no rational sense, and I shall come back to the reason why an ombudsman is not a good idea-whatever side of the argument one happens to take.
On suppliers, I shall expand on my intervention about offers on the hon. Member for Llanelli (Nia Griffith). Owing to a few misapprehensions, the hon. Member for Ynys Môn may well think that many people in the country are in favour of setting up an ombudsman, and if those misapprehensions were cleared up that support might no longer exist. The idea that supermarkets insist that suppliers introduce and pay for "buy one get one free" deals is, frankly, out of cloud cuckoo land. In fact, suppliers fall over themselves, saying to retailers and supermarkets, "We want to do a 'buy one get one free' on our product," and, "We want to do this product at 'three for the price of two'."
Many companies, such as Procter & Gamble and Mars, introduce such special offers because of their colossal marketing budgets. They want people to try their product, and they judge, probably rightly, that consumers will do so if it is part of a special offer, such as "buy one get one free". The companies hope that, when the offer ends, people will have formed the habit of buying that product and will continue doing so. Such offers are inspired not by the supermarket but by the suppliers, which want more people to buy their products. It is a marketing strategy carried out by the supplier for the benefit of the supplier.
My experience at Asda is in direct contradiction to what the hon. Member for Llanelli said. Things might well be different now because it is five years since I left, but during my time there, when suppliers came to us saying that they wanted to do a "buy one get one free" or a "three for the price of two" offer on their products, we said that we would prefer it if they did not. This is not a state secret. Rather than having a special offer that applied for only one week or month, meaning that a customer would have to have the pure luck of being in at the right time to take advantage of it, we would have preferred a permanently lower price.
We would ask suppliers whether they would be prepared to invest the money that they would have put into a special offer in a smaller but more permanent price reduction. We thought that that would be better for our
customers-particularly, I might add, for pensioners who lived on their own and might not want two products for the price of one or three for the price of two. They would prefer a permanently lower price. The idea that supermarkets force suppliers into making special offers is completely and utterly wrong.
I come back to the intervention made by the hon. Member for Ynys Môn. If people realised the things that I have mentioned and if the myths that have been built up were exposed, perhaps his constituents would not be so keen on a grocery ombudsman. A lot depends on how the question is framed. If we say to people, "Nasty, big, terrible supermarkets are screwing suppliers into the ground. Do you think that there should be an ombudsman to try to referee that relationship?", of course people will say yes. However, if we say, "An ombudsman is going to be introduced and the upshot will be higher supermarket prices," a different answer might be gleaned from those same constituents. I am not entirely sure that the public would support a grocery ombudsman when they realised the full facts of the matter and the full implications.
The hon. Gentleman mentioned the groceries supply code of practice, and I want to spend a bit of time on that. I should set the scene. We have to realise that supermarkets are already the most regulated part of the food sector. There has been a code of practice for the four largest grocery retailers since 2002. The new code, which came into effect only on 4 February, if my memory serves me, will apply to the 10 companies that cover more than 90 per cent. of the groceries sector by sales.
It seems to me that hon. Members here do not understand the full implications of the new code, which builds on the code that was already in place. The new code adds a requirement to put all agreements in writing within three days of the agreement's being made. That is a huge undertaking for a supermarket. The average Asda store, which is what I know most about, will probably have in the region of 40,000 products on sale at any one time, so putting all the agreements in writing within three days is a big commitment.
The new code puts a prohibition on retrospective changes to agreements, which was one of the points made by hon. Members. The Competition Commission considered that such changes were the principal manner in which excessive risks or costs could be transferred from retailers to suppliers, but it has to be pointed out that the changes are prohibited even when they are to mutual advantage. A retrospective change to an agreement can sometimes be of benefit both to the retailer and the supplier. For example, if an order for extra stock is made, that may well be to the benefit of the supplier. However, even those changes are prohibited. The code imposes a prohibition on charging suppliers for shrinkage. The Competition Commission believed that the retailer was best placed to control the risk of shrinkage and minimise losses. The code has an overarching "fair dealing" provision, which the Competition Commission considered balances the need to curtail unreasonable behaviour on the part of retailers with the need to allow a measure of commercial flexibility. It states that a retailer may only de-list a supplier for genuine commercial reasons, and expressly not for exercising its rights under the code.
In response to an intervention by my hon. Friend the Member for Christchurch (Mr. Chope), the hon. Member for Ynys Môn talked about anonymous complaints, and the hon. Member for Hendon (Mr. Dismore) said that anonymous complaints were to be welcomed because suppliers would be driven into the ground by the nasty, unscrupulous supermarkets if they made it clear that they had complained. However, as I said, the code clearly states that a retailer may only de-list a supplier for genuine commercial reasons, and expressly not for exercising its rights under the code of practice.
I am afraid that these concerns are completely null and void, because such practices are already banned under the existing code, which is overseen by the OFT. That means that any supplier who feels that they have been badly treated by the supermarkets can go to the OFT to say that the code has not been abided by. The OFT already provides independent, effective scrutiny of the code whereby suppliers can raise their concerns and grievances. When the OFT commissioned research on the previous code in 2005, it found that, by and large, supermarkets were compliant with the code, and found no evidence that disputes between supermarkets and suppliers were leading to any significant impact on competition in this market.
Even if one is in favour of all this intervention and the more draconian parts of the code, setting up an ombudsman is a solution looking for a problem, because the solution is already there-it is called the Office of Fair Trading, which oversees the code that everybody signed up to. Given what hon. Members said earlier, it seems that they support the code of practice that has been agreed. Why do we need an ombudsman when the OFT is already there to deal with any complaints? It is a complete and utter waste of time. We hear hon. Members on both sides of the House saying that we need better regulation and smarter regulation, and that we do not want excessive regulation, yet they are proposing to set up an additional body that duplicates the existing role of the OFT with regard to the grocery supply code of practice. That is completely and utterly pointless.
What would happen in the real world if we had a grocery ombudsman? That was considered by Professor Lyons, who was one of the panel members during the Competition Commission's investigation, and one of the two panel members who worked on the supplier issues work stream. The hon. Member for Ynys Môn said that the findings of the commission were clear, but not unanimous. He may well think that, but I would not concede that they were clear. Professor Lyons is a professional economist with particular expertise in this field. I would be so bold as to say that he has more expertise than those who have contributed to this debate. It therefore seems to be particularly notable that it was Professor Lyons who dissented from the majority view on the panel and objected to the proposal for an ombudsman. The commission's report states that Professor Lyons
"believed that the Ombudsman would be counterproductive...He was concerned that the Ombudsman may find a role 'proactively' representing the interests of suppliers, including global manufacturers and large intermediaries, which he considered would reduce the benefits of competition."
"susceptible to external pressures and regulatory creep."
Anyone who lives in the real world knows exactly what will happen. The ombudsman will not sit there for a year, at the cost of x million pounds, and at the end of it say, "During the course of the previous year, I can report that I had nothing to do." That is not how that kind of quango operates. If nothing is reported to it, it will go out and stick its nose into matters on which nobody has reported a particular problem. That was clearly what Professor Lyons concluded.
The OFT has previously reported that it could not see any material breaches of the supermarket code of practice, so we can presume that the same thing will happen with the new code of practice. If an ombudsman is set up and the supermarkets stick faithfully to the new code of practice, does anybody here seriously believe that the ombudsman will produce a report each year saying, "In the course of the last year I did nothing, I have absolutely nothing to report and I do not envisage doing a great deal for the next year either"? If anyone wishes to intervene to say that that is what they expect, I will be delighted to take their intervention. Now is their opportunity.
Andrew George: The hon. Gentleman prays in aid a professor who is entitled to his opinion. There is a debate about this matter, and as the hon. Member for Ynys Môn (Albert Owen) made clear, Professor Roger Clarke from the Cardiff business school has undertaken a deep study and takes a contrary view. His paper, which was published last year, concluded clearly that the introduction of an ombudsman would protect the interests of shoppers and would
"lead to more choice, better quality products and lower prices."
Of course there is debate among academics, just as there is in the Chamber. The hon. Member for Shipley (Philip Davies) is entitled to his view, just as others are to theirs. There is a debate, and he seems to have drawn his own conclusions, which is fair enough.
Philip Davies: I note that the hon. Gentleman did not take up my offer to say what he thought the ombudsman would do, so I rescind the statement that I had one taker. It seems I had none. He says that we are having a debate, but if it were not for me and my hon. Friend the Member for Christchurch, we would not be. As my hon. Friend made clear earlier, we have yet another cosy consensus in the House. Nobody wants to stand up and say something practical, because they think some people might be opposed to it or offended by it.
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