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APPENDIX IVAppendix 4.
SUPERMARKETS INQUIRY: PROGRESS REPORTAs part of a policy to introduce greater transparency into its procedures, the Competition Commission has sent a letter to the chief executives of supermarkets with information about the progress of its inquiry into the supply of groceries from multiple stores. It covers progress on the taking of evidence needed for the inquiry; a broad indication of the nature of the investigative work we are doing, and of the analyses that are being carried out; our estimate of the timetable over the next few months; and ancillary issues. The inquiry is being chaired by Dr Derek Morris, Chairman of the Competition Commission. He and the other Commission Members responsible for this inquiry believe that in view of the interest shown by members of the public the text of the letter should be published. A copy of the letter is therefore attached. The text is also available from the Commission web site at www.competition-commission.org.uk/progl.htm Notes for Editors 1. This reference was made by the Director General of Fair Trading on 8 April 1999 (see OFT press notice 11/99) under sections 10(3) and (4), 47(1), 49(1) and 50(1) of the Fair Trading Act 1973. 2. “groceries”: include food, drinks (alcoholic and non-alcoholic), cleaning products, toiletries and household goods; but exclude petrol, clothing, DIY products and financial services. 3. “multiple stores” have been defined by the OFT as companies with 10 or more stores in the United Kingdom where more than 600 square metres of retail space is devoted to grocery sales of which more than 300 square metres is devoted to food and non-alcoholic drinks. 4. The Commission issued a press release inviting evidence on 21 April 1999 (see news release 4/99.) To: Supermarket CEOs Competition Commission inquiry into the Supply of Groceries from Multiple Stores In recent months the Competition Commission has been exploring ways of introducing greater transparency into its procedures. As part of this process I am writing to all the Chief Executives of the supermarkets which appear to come within our terms of reference with information about the general progress of this inquiry. The letter covers four broad issues:- (i)progress on the taking of evidence needed for the inquiry; (ii)a broad indication of the nature of the investigative work we are doing, and of the analyses that are being carried out; (iii)our estimate of the timetable over the next few months; and (iv)ancillary matters Progress so far Much of the time since the reference was made has been taken up with obtaining information from interested parties. We very much appreciate the co-operation and time that [name of company of CEO being addressed] has given to this. We are grateful, too, for all that has been done by your staff in response to various questionnaires and ad-hoc enquiries that have been sent to you, during the information-gathering phase of our work. My colleagues and I do recognise the inevitable burden of time and cost that is placed on parties to any of our enquiries, and I want to assure you that we do attempt at all times to keep our requirements to the minimum necessary to fulfil our duties. All supermarkets within the scope of our terms of reference have been sent a Main Party Questionnaire and a Land Questionnaire. The larger companies have recently received our request for pricing data. Price data requests will also be sent to the smaller multiples within the next few days. We have also sent questionnaires to a sample of some 80 large and 800 small suppliers. A selective sample of some 80 local authorities have been asked how they apply the relevant land use planning requirements, and invited to give their observations on the planning process as applied to food retailing in multiple stores. All the Main Party Questionnaires have now been returned, and most of the Land Questionnaires. The pricing data requests are due for return from the middle of November. Both large and small suppliers are currently responding to the enquiries we have made of them, and we should be in a position to undertake a thorough analysis of their comments by the end of November. The local authorities are due to reply to us in late November. In addition to the work involving formal questionnaires, we have been holding oral hearings with a wide range of third parties, including Government Departments, suppliers (both of branded and own brand goods), trade associations, agricultural producers, local authorities, academics, consumers groups and others interested in issues such as local patterns of food retailing and the effect of multiple food stores on local communities. Separately, we are collecting information on comparative prices in the UK and internationally. We are also conducting our own consumer survey and have sought information from supermarkets to enable us to consider questions of profitability, and to help us gain a picture of operating costs across the sector. Recognising the representations that retailers have made to us over the possible trade off between price and quality of service, we will be seeking some further data on classes of operating expenditure and, where available, quantitative indicators of quality, for a sample of stores. We also intend to carry out some international comparisons in specific areas of cost, which will (apart from a study of relative land costs to be conducted by Drivers Jonas) be based largely on published data and information already supplied to us. Current investigative and analytical work We have a wide range of studies under way. These cover economic analysis of consumer behaviour and competition between stores; international price comparisons; the extent of the pass through of wholesale to retail prices; the extent of price leadership and local price variability; consumer attitudes; and the way in which the land use planning system may affect the geographical distribution of supermarkets. We shall also be considering what effect UK land prices may have on overall supermarket price levels. These analyses will be complemented by our own assessments of profitability at company, store and product levels; cost structures and sources of profitability and efficiency; as well as a review of capital expenditure and of the corporate plans submitted to us. Turning to the supply chain, the evidence from suppliers, referred to above, is being used to build up a picture of customer/supplier relationships. We will be paying particular attention to supplies of fresh produce, and will be seeking further information from suppliers of such goods. Timetable issues These analyses are large-scale exercises and are heavily dependent on the requisite data being available. At present we can only give an approximate timetable for their completion. We recognise that the deadlines we have set are very tight and would hope that the studies referred to above will have been completed by the end of the first or second week of December. This will give the Inquiry Group time to consider emerging issues before the Christmas break. It may be necessary during this period to seek further clarification of some of the data or evidence submitted either in writing or at clarificatory hearings. This will be kept to a minimum, but I would appreciate a rapid response to any such requests. The Group will decide early in the New Year whether, on the basis of these analyses, and the other evidence submitted, any monopoly situation (within the technical meaning of the Fair Trading Act 1973) appears to exist and whether any issues relating to the public interest arise which they would need to pursue further with parties. If there are any such issues they will be set out in issues letters to parties together with relevant supporting material. If these are required, we would hope to send them out shortly before the end of January 2000. As has been the practice in recent inquiries a statement of the issues will also be made public, subject to arrangements for safeguarding commercial confidentiality. On this basis we would intend to hold main party hearings from the beginning of March onwards. If such is the case, the Commission will be requesting from Ministers an extension of some months in order to complete its inquiries. I can however assure you that in deciding what length of extension to propose we will take account of the need of all concerned for the inquiry to be completed as quickly as the proper conduct of the investigation will allow. Ancillary matters Most of the analysis which the Inquiry Group members will consider is being carried out by the Commission’s own staff, under the direction of myself and my Group colleagues. In a few areas the Commission has obtained specialist support-from Drivers Jonas on matters relating to land and property, from Dr Howard Smith of Oxford University on matters relating to statistical analyses of local competition between supermarkets, and from Mr Clive Vaughan of Retail Intelligence acting as our retail consultant. The consumer survey will be carried out in conjunction with Opinion Research Corporation International. I should however emphasise that:- (a)any findings arising from this work, and all the analyses on which these findings are based, remain the responsibility of, and subject to the judgement of the five Commission members alone; (b)all the above-named consultants are subject to entirely the same stringent requirements regarding the handling of confidential material as Commission Members and Staff, and are aware that it is a criminal offence to use or disclose such material without due authority; (c)all contact between parties and staff designed to facilitate the inquiry should in the first instance be through Barbara Varney and James Jolly, the Reference Secretaries to the Inquiry. The Group is planning to hold some hearings outside London. The first of these will be in Belfast on 2 to 4 November and I attach details for information. We are currently planning for a second one in Birmingham and will be in touch shortly about this. Finally, you will be aware that there has been extensive media coverage of the issues arising in this inquiry. I should like to re-emphasise that the Group’s conclusions will be based only on the evidence it receives and, when published, must be accompanied by such facts and reasoning as are necessary for a proper understanding of those conclusions. The Group has as yet had no discussion of any kind as to the possible conclusions of our inquiry nor has it formed yet any view on jurisdiction or public interest issues. A fortiori, it has not considered any possible remedies to any alleged public interest detriments. The Group will continue to pursue its enquiries in a fully independent and impartial manner, and it is on the basis of these enquiries and these alone that its conclusions will be drawn. Because of the general interest in this inquiry I intend to publish the text of this letter under cover of a short Press Release on Monday 1 November. Derek Morris SUPPLY OF GROCERIES FROM MULTIPLE STORES: MONOPOLY INQUIRY Northern Ireland hearings, Belfast: 2—4 November 1999
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