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Tesco triumphs

• Robert Peston
• 15 Feb 08, 09:43 AM

Today鈥檚 proposals by the to increase competitive pressure in the food retailing market will, I expect, be seen by many as tinkering.

And the net effect may be viewed as reinforcing a status quo in which has double the market share of its nearest rivals.

That should not be seen as a great surprise 鈥� because back on October 31 last year, when the Commission published provisional findings, it said that the market was working pretty well both for suppliers and for customers.

The Commission highlighted the potential for Tesco to exercise excessive market power, while saying it was not yet doing so.

It pointed out there was a risk that suppliers might not invest enough in research and new products, if supermarkets persisted with the practice of demanding retrospective payments (for example), but said that right now most suppliers were in pretty healthy shape.

In other words, the Commission was never going to come up with some bold plan to break the power of Tesco or to create some huge new regulatory body to act as the suppliers鈥� champion.

What it will propose is an independent ombudsman and adjudicator, appointed by the , to resolve particularly intractable disputes between suppliers and the big supermarket chains, under the existing code of practice.

But this won鈥檛 be some new regulatory body. There won鈥檛 be an OffShop, to add to all those other Offs that dominate the regulatory landscape.

It will be a man or woman and a dog (as it were), whose primary role will be to give confidence to suppliers that there is someone out there who will back them if they really have been brutally beaten up.

In fact, I suspect that the proposals that the Commission makes this afternoon will be viewed as less radical even than those it mooted back in the autumn.

For example, there was an expectation in October that Tesco and other supermarkets could be forced to divest land holdings pretty promptly, if that land was being retained as a spoiler, to prevent competitors getting hold of it.

Well, in the end, the Commission doesn鈥檛 seem to believe that kind of defensive investment goes on to any great extent 鈥� so I am not anticipating there will be vast forced sales of land by Tesco or any of the other chains.

That said, the Commission will crack down on the use of covenants in land leases and exclusivity agreements in development contracts, whose only point would be to create or protect cosy little local monopolies for one or other of the big supermarket groups.

So in theory, it should become easier for a or an to set up shop in one of the so-called Tesco towns.

But Asda, Sainsbury or will not gain the power to make serious inroads into Tesco鈥檚 daunting 30% share of the market.

The troika of Tesco challengers will take heart at the recommendation from the Commission that there should be an explicit competition test in planning decisions for new supermarkets.

That would mean that if there were already a big Tesco in an area, but no other supermarket group, the planning authority ought to look more favourably on a development plan put forward by an Asda, Sainsbury or Morrison.

But competition will not be the only test. And the Commission has decided not to opine, in the end, on whether there should be abolition of the 鈥渘eeds test鈥�, the stipulation that a new supermarket should only be built if there is a palpable local need for one, irrespective of competition issues.

That means there is no reason to believe that new Asdas, or Sainsburys, or Morrisons will suddenly shoot up all over the place.

So I would anticipate that Tesco鈥檚 rivals will be disappointed by the Commission鈥檚 recommendations, that small independent shopkeepers will feel that nothing is being done to help them, that suppliers will be marginally encouraged that they now have a shoulder to cry on, and that the anti-Tesco lobby will be pretty miffed.

And over at Tesco HQ, the mood will doubtless be one of quiet satisfaction.

UPDATE 17:15 Food companies and farmers will probably be most pleased with today's recommendations - especially the proposed inclusion of lots more retailers in the code that protects suppliers from bullying.

They will also like the idea of being able to take their woes to an independent ombudsman.

Also, there could be marginally improved opportunities for Asda, Sainsbury and Morrison to set up big stores near a Tesco, if the Commission gets its way on changes to planning processes and on the removal of anti-competitive clauses in land contracts.

But none of this represents a wholesale reform of the way that food is sold to us, and nor will it pose even the faintest threat to Tesco's position as the number one British supermarket group.

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