Convenient shopping-(06.11.05)

The Competition Appeals Tribunal last week required the OFT to revist its decision not to investigate properly the concentration of the major supermarket chains into convenience stores. The ultimate sanction that is had in mind by this decision is to break up convenience stores because of the market power that they impose on the supply chain. Others such as the New Economics Foundation have suggested a cap of around 8% market share should be imposed on any one supermaret chain, although this was slightly perversely based on high street chains and the rather simplistic analysis that was included in their 'Clone Town Britain' report.

The OFT preferred to sit back and see how the market developed rather than taking preventative action now. Some of the reasoning given included recognising that there probably was a problem, but they couldn't measure it or do much about it. Given the woolly reasoning here it is hardly suprising that the CAT referred the issue back to them.

However, there is a more plausible reason for rejecting the requirement to do anything now and to see how the market develops. The beneficiaries so far from greater concentration in the supermarket sector have been consumers. Risk through lower prices has been transferred from suppliers through to consumers as supermarkets have competed for market share. To protect suppliers, where there is a lack of real examples of unfair pressure to reduce prices (for instance through exclusive agreements), would not be in consumers interests. This does not mean that there is not a potential market flaw that may develop that would require correction in the future, but it would be reflected in higher prices to consumers rather than market pressure being applied.

A focus on other claims, such as low wage jobs and affect on local suppliers also should be rejected, for now. In an economy close to capacity the supermarkets have mostly focussed on bringing people who would otherwise have not been employed into work by allowing flexible working. Out of town supermarkets only affect high streets to the extent that they reflect people's lifestyles, something that changing the market structure in that sector will not resolve. Competing on quality rather than price on the high street (see the success of farmers markets and farm shops) is the answer through providing consumers choice to price competition.