The Competition Commission (CC) has recently been investigating the supply of groceries in the UK under its market investigation powers. The CC’s Provisional Findings Report, published in late 2007, gives a useful insight into its views on “category management”, which views could inform future analysis in this area.
The Provisional Findings define “category management” as the exchange of information between a retailer and a supplier with the overall objective of improving sales or performance across a category of products sold by the retailer, noting that it might relate to sales volumes and trends, consumer demographics, profiles and preferences. They note that this may involve the retailer taking advice from a supplier on the range of products displayed, placement and size of the product displays, pricing, promotion, supply chain improvements, stock management, or customer experience improvements. The Provisional Findings also distinguish “category captaincy”, which sees delegation of full responsibility for a given category of products to only one supplier, from other forms of category management.
Whilst recognising that category management may directly benefit consumers and result in increased total sales for the category from a retailer’s perspective, the Provisional Findings identify a number of concerns which may arise regardless of the form of category management:
- The potential advantage that a supplier in a category management role may have over other suppliers by virtue of receiving better or more detailed information from the retailer. In addition, there is concern that the category manager could offer biased advice aimed at improving its own market share relative to its competitors or to exclude other suppliers.
- There is potential for collusion between retailers where the retailers might all react in the same way to the category management advice received from the same supplier, thereby dampening competition. Alternatively, the category management function could be regarded as facilitating collusion between retailers if it facilitates the exchange of sensitive confidential information between the retailers.
- There is potential for collusion between suppliers through increased information exchange between them, whether directly or indirectly via retailers.
- Finally, there is a risk that the closer relationship between the retailer and the supplier will result in anti-competitive co-ordination (for example, on resale pricing).
The CC notes that it is possible to mitigate some of the adverse effects which might arise from the process of category management, for example, by the introduction of effective “information barriers” between a supplier’s category management staff and its planning and negotiation departments. Further, the CC expects that retailers would be unlikely to organise their category management in a way that facilitates collusion between suppliers and would be likely to seek to validate the information they receive from suppliers.
Despite the concerns identified in the Provisional Findings about category management, the CC did not propose any remedies in respect of them. It remains to be seen whether this will still be the case when the final report is published. Regardless of this, the fact that the Provisional Findings considered category management arrangements in some detail suggests that the competition authorities are likely to scrutinise them closely in the future.