Curbing the power of the supermarkets

BOGOF's or 'buy one get one free' offers, routinely used by the big retailers in the supermarket price wars, may soon be a thing of the past. These and other supermarket sales promotions, such as loss leaders, are the subject of proposals from the European Commission to clamp down on supermarket pricing policies to force supermarkets to stop selling everyday products such as bread and milk at below cost price.

These pricing practices are damaging to farmers who are forced by the supermarkets to supply their produce at ever lower prices and sometimes at prices below the cost of production. In a recent study by Deloitte and Touche the net farm income of a 500 acre British family farm was found to be £2,500 per year. In the last ten years the number of farms in Britain has fallen by 25% as farmers simply can't make farming pay anymore.

The use of loss leaders and BOGOF's create unfair competition between the supermarkets and the smaller retailers, who can't afford to sell at such low margins, as unlike the big supermarkets they can't cross subsidise loss making products with profits from higher margin products. The problems of below cost selling are also compounded for small retailers because they get far less favourable supplier terms than the large multiples.

Since the 1950s food retailing in the UK has undergone a radical shift from high street and district centres comprised of specialist food shops; grocers, greengrocers, bakers and butchers to the dominance of food retailing by the 'big four' supermarkets: Tesco, Asda, Sainsbury and Safeway. The number of superstores increased from 457 to 1,102 between 1986 and 1997, whilst eight independent shops have closed every day during the same period. The number of convenience stores has declined by almost 40% in the eleven years from 1986 to 1997.

France, Germany, Ireland and Spain already have legislation to prohibit below cost selling. France implemented the 'Loi Galland', to help small retailers and producers, in 1997. Research initially showed that in the three months after the introduction of the law food prices increased on average by 4% but were then compensated by price falls.

Selling below cost has and will continue to force small suppliers and retailers out of business creating an ever greater concentration of the retail market and placing greater power into the hands of a few large retailers to dictate prices. David Bowe MEP admits that in the short term prices may go up, but argues that the proposed EU legislation will be in the interests of consumers in the long term.

In 2000, Wal-Mart was found guilty of breaking German law by selling a range of grocery items at below their cost price. The world's largest retailer was ordered by the German Federal Cartel Office to halt the practice immediately, or face a fine of up to DM1 million (£308,000). In 2001, Wal-Mart, a company with a very aggressive attitude towards pricing, decided to pull out of the German retail market.

In contrast to elsewhere in Europe, the UK government, in bed with many of the retail giants, has done nothing to curb the power of the supermarkets, despite their negative impact on producers and on the retail landscape. In 2000, the Competition Commission looked at a number of aspects of supermarket competition and found that there were four situations where competition was distorted and operating against the public interest. The Federation of Bakers for example gave evidence to the Competition Commission that the sale of loaves for as little as 17p by the supermarkets was putting independent bakers out of business. The Competition Commission failed however to make any recommendations for changes to the law and gave the supermarkets a clean bill of health.

Retail analysts say the European Commission proposals are likely to cause the supermarkets, particularly Tesco and Asda who rely on loss leaders and aggressive pricing policies to draw consumers in, a great deal of damage. One anonymous chief executive of a leading UK retailer has admitted that the legislation could cause them 'immense harm'.

So while this proposed legislation will not resolve all of the problems of control of the food system by a few large supermarket chains, it is a step in the right direction and sets a precedent for further legislation to curb their immense power over consumers and farmers alike.

Kathryn Tulip
Food and Agriculture Campaigner

More information regarding the dodgy dealings of supermarkets can be found our new publication -'What's Wrong With Supermarkets'. Copies are available for £1.50, including postage, from Corporate Watch, 16b Cherwell Street, Oxford, OX4 1BG.