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March 13, 2006
UK: Wal-Mart gets their wish – sorta
Britain's Office of Fair Trading, the equivalent of the US Federal Trade Commission, has requested that the Competition Commission launch an investigation of the supermarket industry.
The Office of Fair Trade (OFT), in a statement to the London Stock Exchange, cited concern about a number of factors among them the country's planning system and supermarkets' increased buying power which may be presenting barriers to new entrants.
It added that there was evidence that the rapid development of the convenience store sector may be harming consumers in local markets in terms of product variety and choice of fascia.
"The convenience sector has changed rapidly, and given our evidence and theimportance of this market for consumers, our provisional view is that it would be appropriate for the Competition Commission to investigate," chief executive John Fingleton said.
There was an investigation in 2001, which found no problems. However, an article in Bloomberg notes that "specialist food retailers in the U.K. such as butchers and bakers closed at a rate of 50 a week from 1997 to 2002 ..." As important, no doubt, there is political pressure to investigate, coming from (among others) a 32,000-member trade group of small retailers.
There was also pressure of a sort coming from Lee Scott, CEO of Wal-Mart, and the head guy at Asda, Wal-Mart’s UK division. They both wanted the government to investigate Tesco, because they felt it was getting too big and powerful. (No, I’m not making that up.) Well, I guess they got what they wanted.
The top four UK supermarket chains control 75% of the market. Economists hold that there is a strong chance of market power having a negative effect on consumers where four-firm concentration exceeds 60%, and that 80% concentration is a sign of severe danger.
While US grocery concentration is not that great on a national level (it was about 35% in 2002, at the time of the last Business Census), since there are no truly national grocery chains, the fact is that we don’t buy groceries nationally, and local concentration in many markets, even the largest, is reaching dangerous levels.
Source: Market Scope by Trade Dimensions
This graph covers grocery concentration in fourteen major and mid-sized metropolitan areas. It is often believed that grocery concentration is a small-town problem, because Wal-Mart is destroying small local merchants. While that may be true, it is not the totality of the problem – retail concentration is encroaching on bigger cities as well. Every metro area except New York has concentration levels above 60%, and four have exceeded 80%. Although in general the largest metros have lower concentration levels, still Washington (the nation’s sixth largest) and Phoenix (#11) are both over 80%. Nine of the fourteen had increases, and none had a meaningful decrease.
It will be interesting to see the findings of the UK study, especially what it says about the effects of retail concentration on product innovation, which we discussed a couple of issues ago (“The Day the Music Died” – TPM Update, 2/23/06), and whether the FTC decides to undertake a similar study of the US retail landscape.
For more news and commentary on a daily basis, visit our blog, TPMtoday. Among the topics in the past few days:
Retail/manufacturer lines are blurring
The department store shuffle continues
Healthy eating
Asda offending vendors?
More bad news for hockey
Weekend quick notes
Related to today’s post:
Wal-Mart: Hypocrisy R Us | 
