Tesco's bully-boy tactics and the Competition Commission

[Ecovillage Network UK]

Calls for an end to Tesco's bully-boy tactics have grown too loud to ignore

http://www.guardian.co.uk/comment/story/0,,1640801,00.html

The supermarket's dominance of the market should be the focus of a 
full-scale competition inquiry

Julia Finch
Saturday November 12, 2005
The Guardian


Shoppers across the UK will head off today to their high streets, retail 
parks and local stores to restock the fridge or pick up a few 
essentials. They might buy a few CDs or DVDs, maybe a book or two, a new 
outfit or a kitchen appliance. And more than £1 out of every £8 they 
spend today - in every shop in every shopping centre - will go into the 
tills of Tesco.

With 1,800 stores in the UK, Tesco accounts for nearly a third of the 
grocery market, 80% more than the second biggest operator, Asda. It is 
growing faster than any of its rivals and currently accounts for all of 
the growth in that market. Welcome to Tesco nation.

Earlier this year the retailer posted profits of £2bn, only four years 
after breaking through £1bn, and its development plans will further 
widen the gap with its rivals. The figures are astonishing by any standards.

Tesco's chief executive, Sir Terry Leahy, is restrained when describing 
his group's achievements. "Good" is usually as demonstrative as he gets. 
But he is not being bashful. Only a couple of years ago Tesco was happy 
to boast about selling more toiletries than Boots and Superdrug 
combined, and more chart CDs than HMV and WH Smith put together. Now Sir 
Terry is acutely aware that crowing about Tesco's muscle is not wise. He 
has been talking down Tesco's market power to prevent stirrings among 
the competition watchdogs, but has probably failed. A new, full-blown 
competition inquiry is more likely than ever and Tesco will be its 
focus. Sir Terry can argue against it until he is red and blue in the 
face, but the tide of opinion is turning. This week Professor John 
Bridgeman, a former director general of the Office of Fair Trading, 
added his voice to a chorus demanding an inquiry into the supermarket 
business.

It is hard, actually, to argue against Tesco. The fact is that shoppers 
just can't get enough of it. When Tesco acquired a few former Safeway 
outlets, the sales achieved in those stores more than doubled. The same 
is true when a Tesco Express replaces a local store.

The chain has had an unarguably beneficial effect on prices. Tough 
competition between the big supermarkets has cut food prices and mauled 
accepted price structures in other markets. Most recently, after 
deregulation, Tesco waded into the contact lens business. Prices have 
since fallen by 30%.

The consumer group Which? won't hear a word said against it. But it is 
the job of competition watchdogs to consider the future shape of markets 
and listen carefully to warnings. Tesco uses guerrilla tactics to win 
shoppers from rivals, offering up to 40% off their shopping bills. This 
is fair play when the rivals targeted are big beasts such as Asda, but a 
case of bully-boy tactics when it is picking on independent chains such 
as the five-shop family-run Yorkshire chain Proudfoot.

Tesco's vast Clubcard database gives it access to detailed information 
about shoppers that no other retailer can match. It also owns a 
controlling stake in an information company, Dunnhumby, which sells data 
to third parties.

Suppliers, especially farmers, have long complained about the 
supermarket giants squeezing their margins. An Office of Fair 
Trading-backed code of conduct was drawn up, complete with a mediation 
service, but it has never been used. The OFT reckons that without hard 
evidence from cases it cannot prove there is a problem, yet suppliers' 
lobby groups insist their members are too scared of retribution to complain.

The competition minister Gerry Sutcliffe has admitted that "something is 
wrong and needs to be done", and the director general of the CBI, Sir 
Digby Jones, has thrown his weight behind calls for the OFT to justify 
its two-market view of grocery retailing. It is this view - that 
convenience-store shopping and so-called "one-stop" shopping at big 
supermarkets are two completely separate businesses - that has given 
Tesco such a march on its rivals. It cashed in by buying up smaller 
shops and building a chain of 600 Tesco Express outlets in just three 
years. Last week it revealed plans for 600 more.

Pre-Tesco Express, convenience and one-stop shopping could rightly be 
viewed as different markets: they were independently owned, often 
members of a variety of buying groups such as Nisa, stocking different 
ranges and qualities. But Tesco Express outlets sell the same goods from 
the same suppliers as Tesco superstores and benefit from the same buying 
power and marketing campaigns. They are patently not separate operations.

Elsewhere, Lee Scott, the president of Wal-Mart, which owns Asda, has 
called for government intervention to halt Tesco's rapid growth on the 
grounds that it is increasingly hard to compete. Sainsbury's chief 
executive, Justin King, has demanded changes to stop Tesco's market 
share "climbing to 40% in short order".

King's beef is that Tesco has amassed a landbank of development sites 
for 180 new stores, which will ensure it can grow at 12 times the rate 
of Sainsbury. Such is the size advantage, says Mr King, that Tesco will 
always win the land it wants. He wants the OFT to influence which grocer 
gets what site. At the moment planning is the responsibility of the 
Office of the Deputy Prime Minister. Mixed-use planning applications 
might be viewed very differently if the competition authorities were 
involved. Take a proposed plan in Surrey: Tesco is backing a £100m 
development of 835 flats and 7,800 sq ft of space for other retailers, 
with a 60,000 sq ft Tesco at its heart - five minutes drive from an 
existing Tesco Extra superstore.

Some areas have shockingly high densities of Tesco outlets: London's 
Fulham Road, for instance, has 10 Tesco stores. Bicester, in 
Oxfordshire, has five Tescos and little else.

But it is the convenience-store operators that are proving the biggest 
thorn in Tesco's side. With thousands going out of business each year, 
the "c-store" lobby groups have mounted a loud campaign for a full 
competition commission inquiry. If such an inquiry does begin next year, 
the real problems will start. If it were to conclude that Tesco needs 
constraining, how could that be achieved? Could it be forced to divest 
parts of its business? What messages would that send about running a 
successful business in the UK? And would forcing Tesco to sell outlets 
to Asda really be any better?

· Julia Finch is the Guardian's city editor
julia.finch at guardian.co.uk


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