This week, a crowd of activists formed outside an art-house cinema in London’s West End. But they weren’t protesting about The Da Vinci Code or a French sex flick. They were protesting against Wal-Mart.
The release of the documentary, Wal-Mart: The High Cost of Low Price, and the media interest in it highlight how the giant supermarket chain has been labelled as being against local shops and local communities.
And Wal-Mart is not the only supermarket under attack. All of them have suffered bad press recently. While we all use them, we also love to complain about them. In the public mind, they are taking over our high streets, destroying communities and possibly even strangling alternative development.
And, with last week’s referral of the supermarket business to the Competition Commission by the Office of Fair Trading, that bad press can only get worse.
The OFT said its major concerns were the vast landbanks owned by Tesco, ASDA, Sainsbury’s and Morrisons. These landbanks could “aggravate barriers to entry”, it said, as could using the planning system and imposing restrictive covenants on their landholdings.
Responding for Tesco, which is expected to bear the brunt of the onslaught, chief executive Sir Terry Leahy said he welcomed the inquiry, claiming that it would give super-markets a chance to “address some of the myths surrounding our industry”.
Indeed, the announcement of the inquiry was followed just 24 hours later by Tesco’s own announcement. It outlined 10 promises to counter accusations that the supermarket’s expansion had come at the expense of local communities and the environment.
Leahy says the promises have nothing to do with the inquiry, but it has been widely noted that one is that the company is to introduce better consultation processes when building new stores. This is all part of what Tesco dubs its “good neighbour” policy.
But in spite of the promises, Tesco has made no promise to trim its landbank. Between them, ASDA, Tesco, Morrisons and Sainsbury’s own more than 300 plots of land that have not yet been developed. A further 149 sites are covered by options that can be exercised if planning permission is granted.
While the OFT report said it understood that landbanks were needed for future development, it is worried that larger operators could be buying land simply to freeze out rivals. Ironically, the bête noire of the consumer groups, Wal-Mart, is not to blame for this phenomenon, as the landbanks have resulted in the US-owned operator being partially shut out of markets. And it is this possibility of anti-competitive behaviour that has alerted the Competition Commission.
The length of time supermarkets are able to hold on to land without developing it is one of the areas where the Competition Commission could be minded to impose some sort of limit. According to the OFT’s research, the average age of undeveloped sites held by the four largest supermarket chains is more than four years, whereas the average age should be closer to three years.
If the Competition Commission rules that this is anti-competitive behaviour, the supermarket giants could be forced to sell off plots of land they have owned for what the commission says is “too long”.
This possibility should have the property industry pricking up its ears. “If supermarkets are found to be sitting on landbanks, we could force them to divest,” says a spokesman for the Competition Commission.
The supermarkets deny the accusations. “It’s difficult to tell how long it will take to develop a site when you buy it,” says Sainsbury’s property director Peter Bagley. “The commission needs to understand the issues we have to deal with.”
But the OFT claims that, even when a supermarket chain does decide to sell a plot of land or surplus store, it can still freeze out the competition. It says it found 69 instances of chains using restrictive covenants that banned rivals from operating stores from the sites for several years. In one case, using a site for a supermarket was outlawed for 125 years.
Using landbanking to block rivals, or to safeguard land for the possible construction of a new shop many years down the line, is having a knock-on effect on other developers, housebuilders in particular.
However, in some areas, such as south London, Tesco has become one of the biggest housebuilders (in partnership, of course) and it openly admits that this is simply so it can get planning permission for new stores.
The OFT also found the planning system was preventing or restricting access or distorting competition in the supermarket business and groceries sector.
“The planning regime acts as a costly barrier to entry, making it difficult for new stores to open and compete with those already in the market,” says its report.
OFT chief executive John Fingleton adds: “The ability of new entrants to open new stores is a crucial issue. Whether supermarkets are landbanking because the planning regime is slow, or there is a bit of playing the system to stop competitors getting in, I don’t know.”
If the OFT’s findings are pursued, restrictive covenants could also be swept away.
ASDA, which is owned by Wal-Mart, has said consistently that the restrictive planning regime was hampering its growth. In a statement published in response to the OFT’s findings, it said it shared the watchdog’s concerns over planning laws.
“In our view, the planning regime needs to be improved so that choice plays a role in whether planning consent is granted,” it said.
But the relaxation of planning laws will not necessarily give the smaller supermarket chains a level playing field. The OFT warned that a lighter touch could make it easier for the largest chains to consolidate their market positions. However, it did not ask for the laws to be tightened.
Despite calls for changes in the planning law, any movement is unlikely to be seen for some time. The Competition Commission has up to two years to conduct its inquiry and, although it now has new powers allowing it to instigate change rather than just recommend it, the commission has no power to directly change planning laws.
But, as the people outside that West End cinema suggest, and as Tesco’s 10-point plan seems to confirm, the supermarket giants may start adapting anyway if the customer insists. The customer, after all, is always right.
