Committee Reports > List of Committees > Joint > 2000 > Committee on Enterprise and Small Business > Report on the Groceries Order

TITHE AN OIREACHTAIS

HOUSES OF THE OIREACHTAS

Joint Committee on Enterprise & Small Business

An Comhchoiste um Fhiontraíocht agus Mionghnóthaí

Report on the Groceries Order

An Tuarascáil maidir leis an Ordú faoi Earraí Grósaera

8th February 2000

JOINT COMMITTEE ON ENTERPRISE & SMALL BUSINESS

Report on the Groceries Order

1. Introduction

1.1 The Joint Committee on Enterprise & Small Business was established in November 1997 by Orders in Dáil Éireann. A list of Members of the Joint Committee and its Orders of Reference are attached at Appendices 1 and 2, respectively. Since its establishment, the Joint Committee has taken a major interest in the food retail trade in Ireland. This sector has been an important part of its ongoing work programme. To date the Joint Committee’s work has included consideration of matters such as the location and size of superstores; relevant parking and traffic issues; the entry of UK and European multiples into the Irish market; threats and opportunities arising for Irish suppliers; the challenges specifically facing distributors and agents due to the increase in centralised distribution and the issue of trading hours, including Sunday trading.

2. Joint Committee’s Position

2.1 In the light of its ongoing consideration of the food retail trade, the Joint Committee wishes to report its views and findings in relation to the Restrictive Practices (Groceries) Order, 1987 (S.I. No. 142 of 1987). Specifically, it wishes to respond to the Proposals for Discussion of the Order which were published in December 1999 by the Competition & Mergers Review Group. Members of the Review Group discussed these proposals at a meeting of the Joint Committee on 25th January 2000. At that meeting the Competition & Mergers Review Group was represented by Mr. Gerald FitzGerald (Law Society), Mr. Moore Mc. Dowell (Economist) and Mr. Myles O’Reilly (IBEC) - a transcript of the meeting is attached at Appendix 3.

2.2 The Joint Committee on Enterprise & Small Business considers that the Groceries Order must be maintained. As already outlined, it has formed this view on the basis of a number of submissions and presentations made to it, most recently in relation to the Proposals for Discussion of the Competition and Mergers Review Group (December 1999). It has previously expressed its view that the Order should be maintained as a specific finding of its Report on Superstores (May 1999 - Item 8, page 14). In preparing the Superstores report the Joint Committee heard presentations from 29 relevant organisations. As a direct result of that work the Joint Committee went on to commission the National Institute for Transport and Logistics (NITL) to prepare a report entitled, “The Impact of Centralised Distribution on Distributors & Agents” (December 1999). The Joint Committee on Enterprise & Small Business has, therefore, formed its latest views on the Groceries Order with extensive knowledge of the context and relevance of the Order’s current application to the retail sector.

3. Broader Positive Context

3.1 While public debate on the Groceries Order tends to focus on below-cost-selling and requests for suppliers to provide finance to have their products sold, the Joint Committee would wish it to be recognised that the Order performs other important and positive functions in both the economic and social spheres. These are outlined in the course of this report.

4. Sustaining Communities

4.1 An absence of local suppliers and retailers has in the past undermined the viability of urban and rural communities and hindered efforts to rejuvenate them and to make them attractive places to live. This is borne out by the fact that even some recently developed areas of our larger cities have suffered because of a lack of supporting infrastructure, including a lack of locally based retail services. While it can be argued that urban or rural renewal would create new retail sale and supply outlets, the Joint Committee consider it unreasonable to use this as an argument in favour of a less structured competitive market which would ultimately lead to the demise of such outlets. The Directive (S.I. No. 194 of 1998) issued by the Minister for the Environment on retail floor space limits is a welcome support which reflects the importance of small independent retailers to the viability and sustainability of urban and other areas, i.e. as a means of preventing urban blight.

5. Fostering New and Fair Businesses

5.1 It would, in the Joint Committee’s view, be detrimental to the continued nurturing of the nation’s entrepreneurial and small-business capacity, if the protections afforded by the Groceries Order were to be arbitrarily removed. Moreover, the Joint Committee considers that seeking to repeal the Groceries Order on the basis that there is broader competition legislation in place renders the two mutually exclusive when in fact they are complementary and mutually supporting. The Order is not merely intended to foster competition but rather to foster fair competition and should be considered in that fuller context. A structured competitive market is essential if new businesses are to be encouraged as the basis of our continued and future prosperity. This will not be achieved by abandoning the small/independent retail sector to domination by a select group of retailing giants.

6. Stability for Wider Investment

6.1 The Groceries Order has, in the view of the Joint Committee, provided the stability conducive to continued investment in the retail sector. This is evidenced by the fact that there has been over IR£600 million investment in quality food retail outlets, particularly in the small independent retail sector. This investment has brought about a visible improvement in the quality and level of retail services now available to the consumer throughout this jurisdiction. It has ensured that food retailing has gone to the people rather than become confined to a few major anchor tenants for whom the economies of scale of local trading are of no interest.

7. In the light of its deliberations and presentations made to it, the Joint Committee also considers that:-

7.1the Groceries Order has delivered reasonable, stable prices to consumers

7.2the Groceries Order has not contributed to inflation and this is evidenced by the fact that food price inflation in Ireland is lower than general inflation and less than that prevailing in the UK and other parts of Europe.

7.3price wars do not of themselves lead to an enduring overall reduction in prices and should not therefore be put forward as a workable alternative.

7.4small outlets support small producers, small suppliers and small service providers (e.g. market gardeners, transport/storage providers) who by their nature form the core of local economics.

7.5the absence of the Groceries Order would allow the strong to swamp the weak and encourage cartel-type practices.

7.6in Ireland own-brand products enjoy only a fraction of the customer loyalty they enjoy in the UK where they monopolise and have shown a propensity to be used to undercut other brand providers. This in turn has led to reductions in brand choice for consumers.

7.7retention of the Groceries Order reflects the situation in most of the EU and under US fair trade laws. A notable exception is the UK, including Northern Ireland where, as a result, the level and standard of retail services available at local level does not compare to that which the Groceries Order has helped to facilitate elsewhere in Ireland.

7.8retailer’s margins have not in fact increased as a result of the Order.

7.9small retailers continue to enjoy a loyal customer base which in turn leads toreinvestment by all concerned in their own localities and communities.

7.10the Order protects retailers from anti-competitive threats and measures, e.g. being forced to sell baskets of goods, to carry loss leaders or to succumb to other coercive marketing measures.

7.11the retail sector is in a period of unprecedented transition with the entry of new, larger multiples. This is already threatening small suppliers, wholesalers, distributors and retailers.

7.12if the Order is repealed it will inevitably exacerbate the negative impact of centralised distribution. On the basis of the findings of the Joint Committee’s December 1999 Report (cited above at para 2.2 - Report on the Impact of Centralised Distribution on Distributors & Agents) centralised distribution is already threatening 25,000 jobs. This figure is likely to double if compounded by the impact on jobs of a repeal of the Groceries Order. It is in response to these concerns that the Tánaiste has recently arranged for the Director General of the National Institute for Transport and Logistics (NITL) to discuss the issue with the relevant people in the retail trade and to develop a co-operative strategy between the players concerned.

7.13multiples have not been pressing for the lifting of the Groceries Order and the Order clearly has not been a disincentive to their entry into the Irish market where the economies of scale are smaller than those of larger markets.

7.14the lifting of the ban on below cost selling would have a particularly negative impact on producers of vegetables and fruit. The Joint Committee therefore shares the concerns about this danger which have been expressed by An Bórd Glas and others.

8. Conclusions

8.1 The opinion of both the Joint Committee and the majority of organisations who have made presentations to it is that the Groceries Order has been, and remains, an extremely valuable tool which protects small retailers and suppliers. The Joint Committee considers that the Order has served the nation well and that its basic justification remains. We believe therefore that it should not be repealed as some commentators have proposed.

8.2 The Joint Committee believes that the Irish food retail sector is currently undergoing unprecedented change brought about mainly, but not solely, by the increased use of centralised distribution and the increasing number of foreign entrants to the Irish retail market. There is also a change in the dynamic of the retail market being brought about by the growth in Internet Shopping and the full impact of this and other elements of e-commerce has yet to be reliably evaluated. Taking account of this current transition, the Joint Committee considers that a structured competitive market is more important than ever if fair play for the Irish food retail sector is to be maintained. In short, it considers that the current period of disruption and transition in the retail sector makes the merits of retaining the Groceries Order all the more apparent and prudential.

8.3 The Joint Committee is firmly of the view that the retention of the Restrictive Practices (Groceries) Order, 1987 will sustain growth and development in the Irish food retail sector which is of fundamental importance to the growth of new business and to the viability of local economies and communities. It considers that retention of the Order will ensure that the Irish food retail sector and its suppliers, distributors and other supporting services are allowed to meet current market challenges in a manner which ensures fairness for all.

Ivor Callely T.D.

Chairman,

8th February, 2000