Tesco triumphs
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.
I'm 
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"when the Commission published provisional findings, it said that the market was working pretty well both for suppliers and for customers"
Don't you find it strange that they didn't consider alternatives, only "what works"? Very New Labour...
If anything the big benificiary of the Competition Commissions's findings is likely to be Tesco. They will find it easier to open new stores in the South East (especially London) where they are presently weak; whereas in other parts of the country where they dominate, even if other supermarkets open up, Tesco is still the supermarket of choice for a lot of consumers.
The CC can't stop people simply prefering Tesco - nor should they.
I tend to agree.
But I'm having difficulty understanding how Northern Rock and the credit crunch fit into all this? I'm supprised you haven't been able to find a way to link them in somehow?
When ever this country has a successful company it needs to be brought down. We are constantly told we live in a global village, Tesco is about a tenth of the size of Asda/Walmart. In order for the likes of Tesco to compete well with the likes of Asda/Walmart it has to have a dominance in it's home market, however, I suppose that we much prefer failed British companies and successful American companies to rule over us.
I cetainly believe that farmers have had a hard time with supermarkets,again though this is not down to just one supermarket.
Finally Supermarkets have kept food prices fairly low for decades now so other than the effect on farmer/suppliers the market seems to be working ok.
What is it with this country..?
Tesco has been one of its real success stories - so people just seem to be out to make life difficult for the company and its millions of satisfied customers.
Just don't get it.
The timing of the announcement is a bit of a puzzle - so late on a Friday with no time for the markets to form any sort of judgement. Why do you think that is, Robert?
@Ian
I'm not convinced that "people simply prefer Tesco" - your line sounds suspiciously like Tesco's stock "people vote with their feet when they choose to shop with us" line. Your surname isn't MacLaurin, by any chance?
People don't "choose" to shop at Tesco when the only choices they have is a Tesco Extra, a Tesco Metro and a Tesco Express, or a twenty minute drive to as Asda. I shop at Tesco more than I'd like, simply because the choice is Tesco, an extra hour on each shopping trip, another Tesco, another Tesco, or not buying any food. Let's not confuse 'accepting monopoly status' with 'actively choosing'.
The timing of the announcement is a bit of a puzzle - so late on a Friday with no time for the markets to form any sort of judgement. Why do you think that is, Robert?
For Jimmy #3. Clearly Tescos have vast amounts of dodgy CDOs stashed in off-balance sheet SIVs with huge losses yet to be disclosed!
It is about time the OFT had a go at some serious anti competative business like Microsoft and the distinct lack of competition or is that just too difficult?
@David Simmons
There will come a point where Tesco is too large and too influencial that it may stifle competition, although as the report states it has not reached that stage yet.
Competition is keeping the market healthy, unlike the fallacy of subsidised monopolies on public transport.
@Simon hb
I agree with your sentiment that accepting monopoly status is not the same as actively choosing.
Local councils must be given powers to resist over saturation of an area with any single business, regardless of pressure from councillors and other 'elected officials'.
It is about time the CC had a go at some serious anti competative business like Microsoft and the distinct lack of competition or is that just too difficult? Or do they just feel that they have to pull the rug from underneath any British success. In France Carrefour is much more dominant than Tesco in the UK and no one bats a eye.
The NHS doesn't work. The schools don't work. Criminal Justice doesn't work.
But at least you get always get a wide choice of groceries at a competitive price.
Now even that will be wrecked by socialist 'meddle, tax, bungle' policy.
I wonder how this "competition test" would work as in what weighting would you give it over other considerations.
Say if Tesco's dominated an area and wanted to build a new store, but Sainsbury's were also planning a new store down the road, should Sainsbury's be given preference even if the Tesco option is better?
The issue is more about the monopoly power of the supermarkets as customers rather than as suppliers.
The supermarkets generally satisfy their consumer clientele who always have the option to walk as I did when I got very tired of Tesco's increasingly limited food offer.
However the supermarkets have been known to beat up on and abuse suppliers. Now it can be argued that this is as much due to the cupidity or stupidity of some suppliers, but suppliers do not have the same capacity to walk away from a deal as a private consumer can.
For a free market place to exist there needs to be an equilibrium.
The abuse by supermarkets of planning laws certainly has a role in the decline of the independent sector.
However, the main force explicative of its decline is planning and parking decisions in the past few decades. The resulting serious market imbalance gives the lie to any suggestion that Tesco鈥檚 dominance is purely a result of consumer choice.
This is particularly true of inner cities and town centres, the prime target of supermarkets who have conquered out-of-town. In such areas, where the majority of residents do not own cars, local authorities have yet to demonstrate an awareness of the importance of public space in the local environment.
Why no commentator has picked up on this is a mystery, until you realise that they - as with most opinion formers - all own cars and would prioritise their right as a local resident to park in the street over the right of local shops to have free parking there instead.
Simon HB,Where exactly do you live? I have previously lived up Lancashire and now down in Hampshire and i have access to all 4 supermarkets within 10/20 minutes drive of my home.
After trying all of them, Ive actually gone back to Tesco because i have found them to be the best. We aren't forced to shop anywhere, i got most of my shopping from Tesco, however i do pop to Morrisons sometimes and i still use my local butcher too. I remember the days of driving for almost an hour just to find ONE supermarket, whoever it may be,when i were a kid.
I think its time not here in the UK but in all areas of business and around the world to implement " THINK GLOBAL BUY LOCAL " . Awareness needs to be generated and the government needs to work in this direction . TESCO's and ASDA's get their supply chain efficiencies but not at the cost of LOCAL economy or environment .
Simon,
With respect, if your experience were true for a sizeable amount of consumers in the UK the CC would have reached a different conclusion. In some areas Tesco do dominate, but where that is the case it is the fault of rival supermarkets for being slow to open and compete.
In my local area I have a choice between Sainsbury and Tesco - both 5 minutes away. Most people around me prefer Tesco simply because it is a better place to shop.
tescos provides exellent good well pricedproducts
its cheaper than shopping in co op etc
and provides everyone with a quick one stop area
what is the problem
why would we want to shop anywhere else when it is definatly dearer
bizarre
The thing is if this 'tesco test' does come into effect does this then mean ASDA is allowed to build massive supermarkets selling everything. It is going to force councils to agree to supermarkets that could be detrimental to the towns or else face huge legal costs. I don't think it is a good idea!!!! For example Inverness which is supposedly nicknamed a tesco town Asda have been granted permission to build a store. They did this fair and square so why do we need these new ideas?????? Why do we knock tesco's?????- a great british success story
Unfortunately, the scope of the Competition Commission's brief is too narrow to highlight possibly detrimental working practices of the operation in question.
The CC is unable to note concern regarding the vacuuming of money from local communities, to be deposited in the bank accounts of distant (wealthy?) shareholders. It will never have the opportunity to flag up potentially abusive practices 'outre-mer', and it can't highlight the ridiculous nature of a business reliant almost entirely on cheap transport through cheap oil.
Perhaps an Ethical Commission should be mobilised?
On the 'success story' front, 'dominance' and 'wealth' does not necessarily equal 'success'. The reason we care about this in the UK is that we, for the most part, are civilised, and we know how to value society and environment as well as economics.
I feel people do vote with their feet Tesco is so big and strong because it does everthing right for its customer. In my home town we have both a hugh Tesco and Asda 10 minutes walk apart and it is the tesco who's car park that is always full to bursting compared to the Asda. So I think it is right we leave them alone and praise their success for being the largest private employer in britian instead of beating them up at every turn.
I simply don't believe you, Ian, when you claim that you have three Tesco outlets before reaching any other shops. Where in the world are you located? Tell us, so that we can satisfy ourselves that this fantastic claim is true. I'm sure that loads of people on here would love to learn where this strange place is.
T
I'm all in favour of Tesco. If it didnt exist all the roughs would go to Waitrose
I'm having difficulty understanding how Northern Rock and the credit crunch fit into all this? Robert, surely you can find a link somewhere?
If you see Tesco and their invasive and Orwellian Clubcard scheme, their homogeneity and that the food they offer is medium quality selling for a high price as successful, then all power to you. Frankly, I dislike them in the same way as I dislike anything that's goal is to reproduce more stores, rather than present a high quality product to the public.
We shouldn't forget that ASDA was and still is British. It may be owned by Wal Mart but if you actually went into a store you would come across the most friendliest people you could wish to meet. I've shopped in both Tesco & ASDA and I know which one I prefer. I'd say we need more ASDA stores to compete with the likes of Tesco. I've shopped twice in Tesco in 30 years and they don't impress me at all. More ASDA's are need especially where Tesco dominate giving people less choice of where they want to shop. I have friends who travel to go to an ASDA store when they have a Tesco on their doorstep. Why can't we have an ASDA in my town/area. That's because the local councils support Tesco more.
Tesco has grown in success as a result of offering customers quality, value and choice...and by operating world class value chains. Toyota has achieved similar results in the automobile sector, where competition has also struggled to keep up. "Lean management systems" are core to both of their success. "Lean management" creates more value, prosperity and growth than any other approach, and every enterprise is having to raise their game in order to successfully compete in a global market.
David Clift
Member of the Future 500
Author "LEAN WORLD: The DNA of Success and the Path to Prosperity".
The voracious corporations will fight for market share, crushing the little guy and each other until there is only one mega corporation selling us everything.
it's evolution, it's inevitable, prepare to be consumed.
anyway I'd rather hear more about the credit crunch. Why no blog on UBS losses this week Robert?
I am currently living in South Korea in a provincial town 20 miles south of the capital. Tesco have a huge new store here called 主播大秀 Plus. It is organised just like a Tesco in Britain sells some products made in Britain. But the situation for Tesco and for the consumer is very different here.
Everyday small trucks appear by the side of the road selling very good fruit and vegetables at a far lower cost than Tesco. Also gangs of old ladies sit chattering on the pavement selling vegetables of all types - which they have grown themselves and brought into town to sell.
My wife is able to provide most of our basic food needs form these sellers and we only need to go to Tesco once a fortnight for special items you can't get locally (such as cheese)
We can basically get everything we need form small street sellers or small local shops within walking distance of where we live. And this is the case in every town all over South Korea
This set up works much better and is much cheaper than Brtain. When in Britain on holiday recently, near Retford, our food bill was at least 3 times (no exageration) what it is here and we had to go to Tesco nearly every day as there was simply nowhere else to buy food.
From here it is strikingly obvious that the big players have a strangle on the market in the UK and the consumer (as 7 above points out) has little or no choice.
Tesco's success is fair trading. It is up to the other supermakets to compete.
I have 6 different supermarkets within 10 minutes drive but mainly use Tesco, best value for money and the staff are helpful and happy.
Government intervention is not fair trading.
I've been reading Peston's blog for a while now and Comment 3 did make me larff!
The UK supermarket industry is a textbook example of an oligopoly however a broader view needs to be taken of which Peston ignores and Comment 4 elludes to; Tesco may have the dominant position within the UK supermarket industry but ASDA has the full support of the WalMart behemoth behind it, a corporation that makes Tesco look like small fry. (Albeit Tesco is giving them a run for their money in a niche sector of Los Angeles with Fresh&Easy). Therefore taking everything into account ASDA is in an arguably much better position (read: unfair) to benefit from land divestment than any other supermarket due to the deep pockets of its parent. However I am not sticking up for Tesco here, I think it would be a good thing within the market place for competitors to eat into some of Tesco's marketshare especially in TescoTowns such as Bicester.
This new 'OffShop' ombudsman should be given a more teeth too- it's a disgrace the way supermarkets in general pay their suppliers months and months and months after taking delivery of stock. Supermarkets are also in a prime position to change consumer perceptions about what fresh produce should look like with the aim to reducing waste in the industry (the cost of which I expect the suppliers bear not the supermarkets). Carrots don't have to be of a uniform shape and length, tomatoes shouldn't have to be of exacting dimensions to hit the supermarket shelves etc
I suspect that the fact that food is cheaper in South Korea has to do with the amount that is grown locally, not the fact that Tesco aren't there.
I'm one of the many people who has an "organic box" delivery from a local company each week, which is the bulk of our food.
For the rest, however, we choose to go to a Tesco that is further than the local Sainsbury or Asda, because it has a better range of products, a car-park that understands the needs of dads with two young kids in two, friendly staff, reliable supply, and good pricing.
I don't miss the days of local independents at all - I'm sorry, but the rose-tinted view of friendly shopkeepers sharing a joke with their happy customers, and having a smile for the japes of the local kids is, well, a world I never lived in. I remember them having second-rate food at expensive prices, and the customer service that comes with a local monopoly.
You want to come to Bicester in oxfordshire if you want to see a Tesco Town. Currently we have 1 Tesco superstore on the edge of town (which Tesco admit themselves is way too small to serve the population of Bicester, but the local council won't let them extend it). In the centre of town is a small Tesco Metro, then dotted around Bicester are 3 Tesco Express Stores. Apart from that we have a small somerfield in the centre of town and a smatterting of co-op convenience stores. If you want anything like a decent sized supermarket you have to either travel to Kidlingtion or Banbury. Other supermarkets have applied for planning permision on the edge of town but the local council always turn them down. I live in hope that one day we'll have proper choice here!
Given TESCo is growing worldwide, more of its profits will come from abroad, and it need not worry about smaller UK amrgins, and can even afford to lose market share. It is in a different ballpark to all the UK brands except Wal-Mart.
i agree with maggie costello, if the other companies are unhappy about tesco branching out then they should follow suit. they cannot complain about unfairness, its not as if tesco's ahve been allowed to do one thing and the other supermarkets told they can't.
if you want something you should do the work in order to achieve it.
I prefer to shop at Aldi, Lido and Morrison. The reasons are their goods are value for money. But if I want a special treat then I will go to Waitrose. Why? The reason is very simple - I do not like Tesco dominate the whole country and eventually charge what they like and pay as little as they like to the farmers and producers. All the supermarkets already squeeze most of the local shops out of business. If we only support Tesco do you think one date the only choice we have to shop it will be Tesco only? Anyway I don't think Tesco prices are that cheap! How much did you save? How much stuff you bought that you do not really need and have to throw away?