Commission defies supermarkets over ombudsman

Author: By Martin Hickman, Consumer Affairs Correspondent

In a blow to the Big Four chains, the Competition Commission recommended
ministers create a new ombudsman to enforce a code of conduct designed to
curb their power in the £100bn-a-year UK groceries market.

The Commission said there was evidence from its two year inquiry that, if left
unchecked, supermarkets would harm shoppers by squeezing suppliers so much
they cut investment in new lines and products.

In emails from store buyers seized during its investigation, the Commission
found evidence of foul language towards suppliers together with demands for
retrospective discounts and payment for stock lost or damaged after delivery.

Business Secretary Peter Mandelson will decide whether to implement the
recommendation, which came in the face of steadfast opposition by the Big
Four store chains, Tesco, Asda, Sainsbury’s and Morrisons.

The British Retail Consortium, which represents the chains, accused the
watchdog of imposing a £5m a year scheme that was likely to lead to higher
costs for shoppers.

Groups representing suppliers, including the National Farmers Union, welcomed
the recommendations and called for their swift implementation.

The Competition Commission concluded in its final report into supermarkets
last April, that, overall, they acted in the interests of consumers by
lowering prices. But it expressed concern that unfair contracts with
suppliers would force them to drop investment in innovation, while also
finding some chains were becoming too dominant in certain areas ? and
recommended the introduction of a ‘competition test’ for new store opening.

Despite a challenge from Tesco, the Competition Commission announced last
month that it intended to press ahead with the competition tests for new
stores above 1,000 square metres.

Speaking yesterday, Commission chairman Peter Freeman, made little effort to
hide his frustration that grocery chains had resisted his recommendations
for an ombudsman. “Our inquiry clearly revealed problems that require action
and which, if left unchecked, would damage the consumer,” he said.

“We continue to believe that everyone’s interests – and that includes
retailers – would be served by tackling a problem that has clouded the
industry for many years now.”

He added: “Whilst some retailers have recognised this, regrettably the
majority have not.

“We made every effort to persuade retailers of our case as it would be the
quickest way to establish the Ombudsman.

“We are now left with no alternative but to set out the new Code of Practice
and recommend that the Department for Business, Innovation and Skills (BIS)
set up the Ombudsman to oversee its operation.”

In a veiled appeal to Mr Mandelson, Mr Freeman said the ombudsman should be
set up “as soon as practicable.” “It is obviously for BIS to consider these
matters very carefully but we are making our views as clear as we can,” Mr
Freeman said.

Mr Mandelson has the power to ignore the Commission’s recommendations. A BIS
spokesman said: “The recommendation of an Ombudsman for the grocery market
raises complex issues which could impact on consumers and the wider economy.
We will consider the Competition Commission’s findings very carefully and
issue a full response in due course.”

NFU president Peter Kendall said many farmers and small businesses were the
victims of “underhand practices” from the supermarkets and would be
“delighted” with an ombudsman. One would not have been needed if
supermarkets had treated farmers well, he added.

The code would also govern supermarket behaviour towards foreign suppliers,
which has been a contentious issue for years, with charities claiming that
they demand rock bottom prices of farmers in the developing world. “The
Government must ensure the watchdog is given sufficient powers and is
proactive in gathering evidence from suppliers, including primary producers
and overseas suppliers,” said Simon McRae, senior campaigns officer at War
on Want.

Andrew Opie, director of food policy at the British Retail Consortium, said an
ombudsman would increase costs on stores, which would be passed on to the
public. “Unlike other ombudsmen, which are usually set up to protect
consumers, this one seems to be set up to actually work against their
interests by interfering in the market and adding costs to the supply chain.
Great competition means great prices on the high street and we do not want
to see that being interfered with.

“We have made our opposition clear … and we will continue to talk to the
Government.”

Waitrose, Marks & Spencer and Aldi supported the creation of the ombudsman,
saying that their relationships with suppliers were so good they had nothing
to hide.

“Despite being found guilty of abusing their power over suppliers after a two
year inquiry, all the major UK supermarkets, except for Waitrose, refused to
voluntarily accept the Commission’s recommendations,” said ActionAid
Campaigner Jenny Ricks.

“The ball is now well and truly in the Mandelson’s court. The question is, is
he prepared to stand up to Britain’s biggest retailers to introduce a move
that would benefit consumers, producers and workers?”

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