Jekyll and Hyde Tesco
The two faces of Tesco are: 1) a great British success story built on a fearsome determination to win in a competitive market, to the great benefit of consumers; 2) a monster with excessive market share, which takes over entire towns and squeezes suppliers till the pips squeak.
So has the Competition Commission seen Jekyll Tesco or Hyde Tesco, during its 17-month investigation of the groceries market?
My sense is that it regards Jekyll Tesco as the dominant personality but that the preliminary findings (due to be published tomorrow) will be seen as curbing some of Hyde Tesco’s allegedly noxious habits.
That said, Tesco will not be singled out for special treatment by the commission. The recommendations will apply to all the big supermarket chains.
But because of the way that Tesco has acquired very large market shares in many towns and districts, inevitably it will be most affected by proposed reforms.
For me, the big story out of the commission’s report will be an attempt to give all of us a greater choice of supermarkets in our local areas.
And the debate it may spark is whether we actually want more supermarkets, whether the benefits of greater competition outweigh what many see as the negative impact on communities and landscape of superstore proliferation.
The commission believes that Tesco’s large national market share is not a particular problem, even if it does take one in every three pounds we spend in supermarkets.
More relevant is that only about a third of us have three superstores within relatively easy reach of us.
Some of us will see that as a blessing. But for proponents of competition, that’s a sign of inadequate competitive tension in some parts of the country.
How can it be corrected?
Well I would expect some technical proposals from the commission that could have far-reaching consequences.
It is likely, for example, to say that supermarket groups should be prohibited from buying up land near to an existing store and then sitting on it undeveloped for years with the intent of preventing a competitor from muscling in.
So supermarket groups may be forced to sell off those chunks of their so-called land banks that are competition-spoilers.
And it is also likely that there’ll be a ban on the groups’ use of restrictive covenants whose point is to prevent any parcel of land being developed by a competitor.
As the biggest holder of land, Tesco is bound to be seen as the most at risk here.
There may also be quite good news for Tesco’s competitors, in that I would expect the commission to agree with Kate Barker – the economist who advised Gordon Brown when chancellor on reform of the planning system – that the so-called “needs test” should be abolished. The needs test is a stipulation that new retailing capacity should only be developed in a locality if there is a demonstrable need for it, irrespective of competitive issues.
But if local competition is the big thing, who should decide whether Poole or Perth needs a new Sainsbury or a new Asda? Should it be the local authority?
Well the commission will probably say that its sister competition authority, the Office of Fair Trading, should have a wider role going forward.
The commission may argue that the distinction between a supermarket group buying an existing supermarket and buying property should be abolished, and that the OFT should have a role assessing the implications of each kind of deal – which would be logical.
Interestingly, however, the commission thinks that the groups’ superstores and their convenience stores operate in separate markets. It believes shoppers use small shops for motives and purposes that are very different from those they have when going to a huge supermarket. Which sounds a bit odd to me, but that’s what the research suggests.
Anyway it means, for example, that in assessing whether there are enough Tesco superstores in Bicester, its umpteen little shops there would not be regarded as a particularly important factor.
And what about the poor beleaguered suppliers? Well the Competition Commission did not come up with evidence that they are being systematically mistreated, in spite of trawling through thousands of e-mails sent by buyers at the big chains.
What’s more, to state the obvious, when suppliers provide supermarkets with more stuff at a cheaper price, that is in theory good news for shoppers.
But the commission can’t ignore the widespread belief that suppliers are being bullied and bashed up – and that they are just too frightened of retribution to squeal.
So there may be some changes to the code of practice governing relations between producer and supermarket.
And the commission will suggest, but only as one possible option, that an ombudsman could be appointed, to whom suppliers could take their complaints.
It’s the British way: if in doubt, create a new watchdog or ombudsman.