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Competition Commission publishes provisional supermarkets remedies report

04 April 2008

In November 2007, we reported on the provisional findings of the Competition Commission (CC) in its groceries enquiry.

That enquiry highlighted a number of concerns relating to local competition and certain aspects of supermarkets’ relationships with their suppliers. In March 2008, the CC published its provisional report on the remedies it would like to see introduced to address those concerns.

In its report, the CC found that certain supermarkets have a strong market position – “buyer power” – with respect to their suppliers. According to the CC, the supermarkets could exercise buyer power in a way that would have negative consequences for consumers. Specifically, retailers might not make future investments in new products if supermarkets increased retailers’ risks and costs by enforcing retrospective payments and making other unexpected changes to their terms and conditions.

To prevent supermarkets from exercising buyer power in this way, the CC has proposed a “beefed up” code of practice for supermarkets (the Groceries Supply Code of Practice – or “GSCOP”). The GSCOP would be based on the existing Supermarkets Code of Practice (“SCOP”), with some important “extras”:

For the purposes of monitoring supermarkets’ compliance with GSCOP, the CC’s preferred remedy is to establish a groceries supply code ombudsman, which would arbitrate disputes between retailers and suppliers arising under GSCOP. The ombudsman would have the power proactively to investigate retailers’ records in areas subject to complaint in order to determine whether breaches of GSCOP had occurred and to report to the public and the OFT on retailers’ compliance with GSCOP.

It is generally acknowledged that there have been few complaints made under the SCOP. Opinions vary as to whether this is because suppliers are generally happy with the terms and conditions on which they do business with supermarkets or whether it is because they fear reprisals from supermarkets if they do complain. An ombudsman with power proactively to investigate breaches of the code might go some way to addressing suppliers' concerns about the consequences of complaining. It remains to be seen whether any extra costs that supermarkets might incur in complying with GSCOP will be passed on to consumers in the form of higher prices.

The CC also recommended certain planning remedies and remedies relating to the release of restrictive land covenants.

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Peter Andrews

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T: 08700 86 5035
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