17 May 2006 | Anusha Bradley
The buying power of UK supermarkets is to come under scrutiny from the Competition Commission.
The Office of Fair Trading (OFT) told
supplymanagement.com it referred the industry to the commission after it received fresh evidence that supermarkets' purchasing clout and pricing regimes are distorting competition.
While individual supermarkets or sectors have faced scrutiny from the commission in the past, it is the first time the industry as a whole is to be investigated, an OFT spokeswoman said.
The latest evidence was supplied to OFT investigators by the largest supermarkets themselves, she said. However, she could not say what that evidence was. She added: "From this sample we concluded that it is probably representative of the whole industry."
A survey of suppliers by OFT investigators found wholesalers and buying groups paid on average about 7 per cent more for goods than the four largest supermarkets: Tesco, Asda, Sainsbury's and Morrisons. The Association of Convenience Stores said the "big four" paid on average 10 per cent less for the same products than most local shops.
Tesco said the inquiry would help the "myths surrounding our industry" to be addressed.
A report by the OFT outlining reasons for referring the matter to the commission added that suppliers' incentives to invest or innovate in new products could be distorted if supermarkets used their buying power to reduce the prices paid to them.
It added that suppliers squeezed by supermarkets would be forced to pass on the cost to other customers, such as convenience stores.
"It has been suggested that this places smaller retailers at a competitive disadvantage because they face higher costs which are not justified on purely commercial grounds," the report added.
The OFT said there was also evidence of price-fixing and price-flexing - a method by which customers pay different prices for the same goods according to store location.
In addition, respondents questioned during the OFT's investigation said it was "essential" the commission also investigate the impact on smaller suppliers, particularly farmers, because it could lead to lower wages and job losses.
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