The alternative to the Groceries Order would be damaging for retailers, suppliers and wholesalers and would lead to less employment, fewer Irish goods and less choice, writes Chris Martin
A group of independent retailers in the UK is fighting a rearguard action to challenge a number of decisions made by the Competition Commission in relation to the grocery market. A recent ruling in this case should sound alarm bells for Minister for Enterprise and Trade Micheál Martin if he believes that competition law is an alternative to the Groceries Order.
The ongoing debate on the Groceries Order acknowledges that there are a number of activities that are not in the public interest. These include loss leading, ie where a retailer selectively reduces prices on some products but selectively increases prices on others to recoup the loss; predatory pricing, which is used to put competitors out of business; the demanding of hello money; and abuse of credit terms.
These are all recognised as damaging and abusive practices with consequences for suppliers, smaller competitors and consumers.
The Groceries Order contains clear and precise provisions that are not expressly addressed in the Competition Act. Without measures to control these abuses, the Irish retail, grocery and food trade will have unbalanced and distorted competition. This will affect consumers, retailers, suppliers and wholesalers and will lead to less employment, less Irish goods in shops and less choice. It is hard to see how this is in the long-term interest of Irish society.
If we accept that there is a need to combat anti-consumer behaviour and provide a level playing pitch, we need to ask is competition law an alternative to the Groceries Order. If not, we need to amend the current legislation and make it work.
Recent developments in the UK provide a clear example of the inadequacy of competition law. In November 2004 a number of independent retailers submitted a request to the Office of Fair Trading for a market review of the grocery market. This was rejected and so they launched an expensive lawsuit against the decision.
Last week the Office of Fair Trading in the UK conceded that it had displayed "insufficient reasoning" and had now been forced to reconsider its position.
The British Times said: "The authorities need to ensure that supermarkets do not turn into bullies. Regulators need to ensure that there is adequate diversity in food retailing. There are issues about providing access to food for elderly, infirm or otherwise immobile shoppers. It is also important that we do not become reliant on too few food suppliers." There are clear parallels for the Irish debate.
So why does this matter? This decision shows that there is a need to work with competition law in a timely manner. The process was long winded, costly and impractical and has been compounded by the fact that the regulator said it had displayed "insufficient reasoning" on such an important issue.
Since this action started, some 2,000 independent retailers have gone out of business in the UK.
In Ireland many of the key provisions of the Competition Act are untried and untested and the Competition Authority can only act after the event. For example, the Competition Authority will only act on issues such as predatory pricing where there is clear evidence of dominance, and yet, there is no definition of dominance.
The UK experience surely exposes the inadequacies of competition law and suggests that if we want to prevent abuse of dominance and anti-consumer practices, we must amend the current legislation and make it work effectively.
Furthermore, there is no way back once the order has gone. This is why France, Germany and Spain have legislative constraints to prevent predatory activities and have acknowledged the benefit of having a preventative measure rather than implementing regulatory retrospective damage control.
The independent retailer wants "fair competition" and a level playing field. The independent retailer is a major investor in Ireland and supporter of Irish food manufacturers and producers. Over a third of the groceries consumed in Ireland are purchased from independent retailers.
Whether they are a one-person business or a family franchise, independent retailers play a vital economic and social role providing access to high-quality groceries at competitive prices to a wide range of people such as the elderly, disabled or poor in Ireland, and to those who live in the more sparsely populated regions.
Competition law will provide no protection for the independent retailer who has been forced out of business as the damage has been done. Consumer protection and the prevention of the abuse of dominance require preventative fair trade regulations.
There are aspects to the Groceries Order that protect the consumer and the Minister needs to listen to all participants in the debate and work with them to make it effective.
There are echoes in the debate on the Groceries Order of the decisions in the 1950s to get rid of the trams and much of the local rail network on the basis that they were outdated and old-fashioned .
The Luas has cost € 750 million and the recent transport plan foresees at least €400 million to be spent on the western corridor. Retail infrastructure and food manufacturing jobs won't be replaced as cheaply.
Chris Martin is chief executive of the Musgrave Group