In 1998, government ministers turned on the supermarkets, echoing a public perception that consumers in the UK were being 'ripped-off'. This was partly due to the perception that European supermarkets are cheaper and partly because of the evident disparity between farm gate and retail price. Why, it was asked, were potato farmers losing between £17 and £27 on every ton of potatoes they take out of the ground?[71] Why is there a mark up of as much as 198% on apples and 439% on eggs in some superstores?[72]

In April 1999, the government launched a £20 million enquiry through the Competition Commission of the Department of Trade and Industry (DTI).

The 16-month enquiry received thousands of submissions highlighting the overwhelming power of big retailers. These amount to three volumes, over 1100 pages.

Lutterworth and District Dairy wrote that it was seeing the most alarming changes in its 100-year history due to the fierce activities of the multiples in undercutting doorstep milkmen.

The Federation of Bakers claimed that by selling loaves for as little as 17p, the chains were making massive losses, but doing small bakers out of business.

The Commission received complaints from both sides - some claiming that the supermarkets charged too much, ripping off consumers, and others that they charged too little, driving smaller rivals into the ground.

Despite listing 52 practices that illustrate a complex monopoly situation, and concluding that 27 of these practices work against the public interest, the report amazingly gave the supermarkets a clean bill of health. It concluded that they do not hold a monopoly in grocery retailing and that they do not charge more than their European counterparts, taking into account exchange rate differences and the high value of the pound.

Critics claim that the Commission was asking the wrong questions. Whilst nationally none of the supermarkets have a monopoly (more than 25% of the market share), they have been found to have extensive local monopolies. (see section 4). This means that there isn't a genuine local market to keep the prices down. Many also felt that the Competition Commission should also have investigated the social, environmental and health effects of supermarkets. These are also surely in the consumer's interest as well as price - which is the only monopoly effect that the Commission investigated.

Others argue that whilst no one supermarket has a monopoly over grocery retailing in the UK, the supermarkets together have an 'oligopoly', i.e. several superarmetks control the whole market and this situation constitutes a market failure and should be investigated. See section on ' Co-operation and Cartels'.

The report did admit to four situations where competition is broadly distorted and operates against the public interest:[73]

1. The relationship between big supermarkets and their suppliers.
   The Commission called for an enforceable code of practice to ban practices such as demanding payments from suppliers for buyer's visits, charging them for the cost of refurbishing stores and changing agreed prices retrospectively or without notice. (See section on 'Encouraging Industrial Agriculture')
   To the fury of the NFU and other supplier organisations, the DTI let the supermarkets draw up their own voluntary code of practice and dispute settling mechanisms. The only supermarkets included were those with over 8% market share, in effect 'the Big Four'.
   This came up for review in March 2003, by which time only one supplier, Express Dairies, had complained to the OFT, after Safeway dropped from three to two milk suppliers. Express were previously supplying 15% of Safeway's milk. However, it was decided that Express was not eligible as the contract with Safeway was signed before the Code came into practice.
   After taking a year to review the failings of the code, something that was surely very self-evident, the OFT decided that all it could do was to send auditors into the big four supermarkets to look for examples of malpractice. There is now a concerted call from suppliers large and small as well as development, environmental and farming groups for a binding code of conduct, independent dispute mechanisms and a retail regulator.[74] Meanwhile, farmers and other suppliers continue to suffer exploitation at the hands of the supermarkets.


2. Selling below cost price i.e. the use of loss leaders


3. Changing prices according to local competition i.e. price flexing. The Report found that in the South East, East Anglia and the West Midlands, shoppers pay more for their shopping. Tesco's prices varied as much as nine per cent regionally.
   The Commission, however, took the unprecedented step of making the recommendation to do nothing on the grounds that putting up the price would harm the disadvantaged. This was despite the finding that by undercutting small grocers and putting them out of business, supermarkets also restrict the choice of vulnerable consumers, such as the disabled, people on low incomes and the elderly with no cars.


4. There is limited choice of supermarkets in some areas. The Report found that in some places the giants have massive market shares: over fifty per cent for Tesco in Uxbridge, Milton Keynes, Cambridge, Twickenham and Salisbury. The same goes for Sainsbury in south-west London and Safeway in Dumfries. The Commission recommended that new planning legislation was be required generate competition and to give consumers more choice. It proposed that in areas where supermarkets were already strong, they should be required to obtain approval for new stores over 1000sq metres (around 10,800sq ft) from the Office of Fair Trading. The Commission was also concerned that certain chains are stifling competition by snapping up land on which rivals could build. Of 408 sites held in 'land banks', 190 are owned by Tesco.[75]

Are we being 'ripped-off'?

As a recent article in the Observer claims, 'supermarket pricing is a spectacular black art'.[76] From ensuring that the store layout leads you past expensive and 'fresh' items first, to making price comparisons difficult, the supermarkets know how to fleece the pockets of the unsuspecting shopper. Next time you are in a supermarket ponder this, what's at eye level? The cheapest or most expensive item?

In October 2001, it emerged that Tesco had, in fact, raised its prices in the weeks before it began its new one hundred million pound price cutting campaign, so as to maintain its profits.[77] Only half of these price cuts were published on its web-site where it was shown that more than 10 per cent had only fallen by a penny and a further 5 per cent by 2p. Safeway lodged a successful complaint with the Advertising Standards Authority (ASA) contesting Tesco's claim to be 14 per cent cheaper. It believes that Tesco's claim to be have cut prices by a billion pounds over five years has been offset by price rises on other ranges. The ASA also deemed the 'Pocket the difference at ASDA, always' ad campaign misleading.

In Asda's case, it had only been a couple of months since they it was fined for misleading customers over price cuts at a superstore in Hellesdon, Norwich. This complaint was brought by Tesco. Who else, after all, but the supermarkets would have the resources to monitor these price changes?[78]

In January 2002, Tesco was again accused by the Observer of a 'price cutting' scam. The Observer claimed that Tesco's website showed price increases on 1,750 popular items since Christmas. Tesco claimed these were special offers ending.[79]

Co-operation and Cartels

Despite the posturing, the supermarkets have often worked together to prevent new entrants to the market. In 1993, Sainsbury, Tesco and Safeway jointly hired a PR agency and planning consultancy to prevent US discounter, Costco, from operating in the UK.[80]

In 1996, the major supermarkets and twelve major food manufacturers drew up a pact to co-operate on promotions, launches and distribution.[81]

In March 2000, Tesco, M&S; and other international food retailers announced they were setting up a 'Worldwide Retail Exchange' - essentially a global buying club to purchase products more cheaply. This came just weeks after Sainsbury announced the formation of 'GlobalNetXchange' a joint venture with US corporation, Sears and French food giant, Carrefour.[82]

In January 2002, a former senior director of Sainsbury, accused Tesco and Sainsbury of having an "understanding" not to undercut each other's prices on the most popular products. The anonymous whistleblower told the Sunday Times "If you look at the prices charged for these items, they are identical, which is no coincidence. Senior staff constantly move between the supermarkets, which helps perpetuate the understanding."[83]

These allegations cast serious doubt on the clean bill of health given to the supermarkets on the cartel issue in the Competition Commission report (see section on 'Rip-off' Britain).

References
[71] 'Agriculture in Crisis: Why Britain's farmers are making a loss on nearly everything they grow.' The Independent 28th August 1999.
[72] Captive State p.184
[73] 'A Summary of Supermarkets: A Report on the Supply of Groceries from Multiple Stores in the United Kingdom'. DTI, UK.
[74] See 'Policy Recommendation' section and look out in the media for the Breaking the Armlock Coaltion.
[75] 'Supermarkets abuse power' by Paul Farrelly and Oliver Morgan. The Observer 1/10/01.
[76] 'Black arts flourishing amongst the black-eyed beans' by Neasa MacErlean. The Observer. Cash section. 3/3/02
[77] 'Tesco price drive under new attack' by Sarah Ryle, The Observer 9/10/01.
[78] 'Asda fined £9,000 after judge rules that it mislead customers over low prices', 21 Sep 2001 just-food.com
[79] 'Tesco under fire for price cut initiative, is it a 'scam' 18/2/02. www.just-food.com
[80] Captive State pp.177-178. See Further Reading section.
[81] Off our Trolley? Pg 27. See Further Reading section.
[82] Food Suppliers create Global Marketplace BBC online March 20 2000.
[83] Whistleblower alleges price fixing at Tesco and Sainsbury. 18/2/02 just-food.com