Referral by Office of Fair Trading of Groceries sector to the Competition Commission

The National Association of British Markets Authorities (“NABMA”) is the UK’s national association for local authority market authorities i.e. Unitary, Metropolitan, County, Borough , District and Local Councils which operate retail markets under their common law and statutory powers. The association was established over eighty years ago and represents 140 local authority members who operate over 1000 markets each week, offering stall space to some 30,000 market traders per week.

The referral of the groceries sector to the Competition Commission is long overdue and NABMA welcomes the opportunity to illustrate the negative impact that consolidation of the groceries sector into the “big four” supermarket chains has had on consumers and local communities. NABMA believes a strategic review of food policy in the UK is long overdue because too much influence is now concentrated in the hands of too few suppliers. The Tesco, Asda/Walmart, Morrisons/Safeway and Sainsburys chains now supposedly control over 85% of the UK groceries sector and their dominance exerts a profoundly negative influence upon shoppers, the UK economy and the environment. Lessons should be learnt from this and used to prevent similar problems in the non-food sector. The challenge for HM Government is whether to continue with laisser faire policies that favour economic growth at the expense of the environment and other sectors of the economy, or to intervene in such a politically-sensitive industry which has in reality driven down food prices over recent years.

Over the last 20 years NABMA has seen a major decline in the number of retail markets in the UK. This has been largely due to competition from the supermarket chains and their domination of the groceries sector – traditionally a mainstay of the markets industry. Today there are virtually no stalls selling preserves, dry goods, tinned goods and the like because of supermarkets dominance of those lines, enabled by their business model of sourcing long-shelf life stock in bulk, directly from the producer. Their domination of the market in staple groceries has forced most market traders out of those lines and out of the industry altogether leaving the consumer reliant upon a limited source of supply and the procurement and pricing policies that flow from it. This is not a healthy situation for either the economy or the consumer.

This is a twofold concern to our members because of (1) the financial implications on the Council revenue stream of fewer traders paying less rent and (2) the diminution in community service that results. Markets have always played a valuable role in fostering social–inclusion and supporting disadvantaged members of the community through the low prices possible due to low overheads. Many Councils recognise markets as an integral part of their policies to alleviate poverty so a shrinking markets industry reduces their effectiveness.

The argument can be made that such consolidation is good for the consumer as it forces prices down, but that ignores the local economic and social impact of shrinking employment. A survey amongst NABMA members in July 2005 (“The First National Survey of Retail Markets”) estimated that 96,000 people are employed in the UK retail markets industry and consolidation of the groceries sector into the self-serve aisles of supermarkets is putting their livelihoods at risk. Independent retailers support a high density of employment and “churn” of money in the local economy that supports sustainable local economies. They offer an outlet for local producers and an alternative to the onerous procurement policies of supermarkets.

Consolidation of the groceries sector is not a problem unique to the retail markets industry – it also affects producers, processors and distributors and makes it increasingly difficult for traders to source products through a shrinking wholesale groceries industry. NABMA is associated with the World Union of Wholesale Markets (“WUWM”) whose members confirm this problem is not unique to the UK. Buying pressure from supermarkets is forcing farm gate prices relentlessly downwards and simultaneously sourcing products from an expanded EU where welfare and hygiene standards may be less closely monitored. This poses potential risks to the UK consumer as evidenced by the recent H5N1 bird ‘flu scare emanating from Hungary and is a fundamental weakness of the UK economy if it fails to maintain a viable agricultural sector and becomes reliant upon imported foodstuffs. Anecdotally, it is said that there are now more civil servants working for DEFRA than there are farmers in the UK.

Consolidation of the groceries sector into supermarket chains has created an unprecedented rise in “food miles” and it’s environmental impact, unlike the predominantly locally-sourced products available on most markets. The recent pronouncements by some supermarkets that it they are “greening” their business is laughable when contrasted with their centralised distribution systems and air-freighting of non-seasonal foods. Consolidation of the groceries sector is negating government efforts to reduce CO2 emissions and tax allowances on fuel duty are allowing supermarket chains to avoid much of the cost of compliance.

Consolidation of the groceries sector has impacted on our members in other ways, including:

Reduced retail diversity in town centres – accelerating the “clone town” effect contrary to Council town planning policies and PPS6 etc.

Reduced economic “churn” within the local economy as the “shoppers pound” is remitted out of the local economy. Sales turnover lost to the local producer / supplier base dilutes Council attempts to create sustainable local economies, which is after all the motto of the ODPM.

Increased public over-reliance on a narrow supply base and the dangers that represents: e.g. fuel shortages caused by the recent petrol tanker drivers dispute and increased risk of widespread public health problems caused by over-reliance on a limited number of producers.

Reduced levels of local employment as supermarkets seek to drive down costs by expanding their self-serve aisles, inevitably employing fewer persons per square metre of sales space than the independent retailers they have forced out of business. Many supermarket jobs are part-time or short-term contract based, contrary to the objective of Council economic regeneration and development initiatives.