The Competition Commission (CC) has just issued a press release in relation to its long-awaited provisional remedies decision. According to Wragge & Co antitrust partner Bernardine Adkins, this matter isn't as straightforward as many commentators believe. And, with speculation that the 'Big Four' could fight back with a challenge before the Competition Appeal Tribunal, this will not be the end of the supermarket debate.
The CC's suggested remedies largely reflect those contained in its 'Notice of Possible Remedies', published along with its provisional findings on 31 October 2007. The most controversial recommendations relate to the introduction of a competition test into the planning process, the overhaul of the Supermarket Code of Practice (SCOP) and a new 'Supermarkets Ombudsman'.
The powers of a new 'Supermarkets Ombudsman' appear more far-reaching than predicted. The CC proposes a stricter crackdown on retailers' practices and behaviours by replacing the SCOP with an extended Groceries Supply Code of Practice (GSCOP). While the SCOP is voluntary, the GSCOP will include all grocery retailers with a UK turnover of more than £1 billion. The new 'Supermarkets Ombudsman' will investigate breaches of the GSCOP, and companies are to appoint in-house code compliance officers.
Bernardine Adkins says: "It had been reported that companies could face fines for practices that are common in the industry, such as 'pay to stay', 'slotting allowances', retrospective discounts and substantial price cuts. While many of these practices are covered by the SCOP, no action has ever been taken against a retailer under SCOP. There is no mention of possible fines in the press release and so it remains to be seen how much teeth the GSCOP will have."
"Although retailers have threatened to pass on the cost of these more stringent controls to consumers, it's unlikely that they would put an end to the very vigorous 'price-wars' between retailers."
The CC's proposals will be criticised by some commentators as overly interventionist. The recommendation to amend the Land Agreements Exclusion Order will mean grocery retailers' restrictive covenants and exclusivity arrangements will fall to be considered under the Competition Act 1998. The CC has even recommended that existing restrictive covenants, and problematic exclusivity arrangements, are released. The CC has at least recommended that no stores or land holdings are divested, nor has it uncovered any real evidence of so-called 'land banks'.
"The CC has also recommended the introduction of a competition test into the planning process. This is unprecedented. Its intention is to reduce the prevalence of so-called 'Tesco Towns' where consumers have little choice between grocery retailers. But how much difference will this really make to convenience stores and other smaller retailers? The CC has recommended that the Office of Fair Trading (OFT) acts as a statutory consultee to local authorities to assist in the application of this new competition test. It is difficult to see how this will work in practice, particularly given how opaque the judicial review process is likely to be."
The CC also proposes that all grocery store acquisitions with grocery net sales area above 1,000 sq metres should be notified to the OFT by the acquiring party.
Its final report is due at the end of April - the statutory deadline is on 8 May. Given the hotly debated issues, and the frequency of the investigations in this sector, it is unlikely to be the end of the story.