LONDON -- British food retailers are growing increasingly concerned about the U.K. government's antitrust investigation into the industry as well as the continued negative publicity surrounding the sector.
The government's Competition Commission currently is studying the leading British food retailers to determine whether their majority share of the market gives them monopoly power over pricing and distribution.
The commission's investigation began in April and followed a preliminary probe by the government's Monopolies and Mergers Commission. The commission recommended a fuller investigation by the Competition Commission.
The Competition Commission's investigation is expected to last at least another nine months. Industry executives are said to be worried the length of the probe will mean consumer confidence in the industry will continue to be eroded.
To combat this, The British Retail Consortium, a lobbying group representing 90% of U.K. retailers, earlier this year appointed an executive who specifically represents the food retailing sector. The official advises the government and other bodies on issues surrounding pricing, planning and competition, a B.R.C. spokesman said.
The government's probe was a result of contentions that U.K. food prices and margins were significantly higher than those in the United States and continental Europe. There have been a stream of articles in British newspapers alleging that U.K. food retailers were profiteering and using their market muscle to pressure suppliers to reduce their margins. However, food retailers were not then passing on these cost-savings to consumers, the articles claimed.
The four leading U.K. food retailers -- Tesco plc of Cheshunt, England; J. Sainsbury plc here; Asda plc of Leeds, England, and Safeway plc of Hayes, England -- contend that the cost structure of the British industry is completely different from those of supermarkets in the United States and continental Europe, which means price and margin comparisons are meaningless.
Land prices in Britain are significantly higher than those in the United States, while planning controls make it impossible for British retailers to open stores that are the size of those in America, meaning British companies can't get the same economies of scale as those in the United States.
The questions over the level of competition in food retailing have increased following Wal-Mart's announcement of its planned $10.81 billion takeover of Asda.
Analysts have questioned whether, given Britain's tight planning controls, Wal-Mart will be able to step up Asda's store opening program.
In addition, they believe it's unlikely Wal-Mart will ever receive planning permission to open stores the size of those it operates in the U.S.
Wal-Mart's American stores average about 100,000 square feet, while Asda's stores average about 40,000 square feet.
Given these limitations, some analysts wonder whether Wal-Mart can have a significant impact on British food prices. Many analysts believe the U.S. retailer will have a greater effect on prices for general merchandise in the United Kingdom.
Allan Leighton, Asda's chief executive, reportedly has called on the U.K. government to force Tesco and Sainsbury to divest themselves of stores in geographical locations where they have a significant share of the local market.
This would enable Asda to quicken the pace of its expansion, especially in southern England where Tesco and Sainsbury are stronger than Asda.
However, analysts question whether this will happen. They believe the Competition Commission is unlikely to issue any specific recommendations, given that U.K. food retailers already are among the best in the world in terms of systems and logistics and the industry is among the most competitive anywhere.
Any action the government takes would be seen as interventionist, going against its free-market stance, analysts said.