Tesco.com - Competition Commission

The focus of our business is customers and we work hard to meet their needs and that’s the only reason Tesco is successful. We understand the merits of competition, and the benefits it brings to the consumer. From small beginnings, Tesco has grown to be the UK’s most popular supermarket and one of British business’ great success stories by fulfilling people’s expectations to have safe, nutritious, quality food at affordable prices. We have maintained our popularity by listening to customers and responding to their needs.

As a retailer, our stores serve a large number of communities, in which our customers and staff live and work. So we have always known that we have a wider responsibility in society. With the launch of our community plan we are doing more than ever to be a good neighbour, be active in communities, seize the environmental challenges, and behave responsibly, fairly and honestly in all our actions.

In May 2006 the Office of Fair Trading (OFT) referred the supply of groceries by retailers in the UK to the Competition Commission for investigation.

The focus of the inquiry is to find out whether the market is functioning effectively. Any Competition Commission Inquiry is required to examine whether there are any features of the market that prevent, restrict or distort competition. The Competition Commission also has to identify whether any adverse effect on competition has a detrimental effect on customers in the form of higher prices, lower quality or less choice of goods or services; or less innovation in relation to such goods or services.

Because we try to do the right things for customers, in many ways we share the Competition Commission’s remit – to ensure that the industry functions in a way that is good for consumers. We welcome the opportunity to share our views with the Competition Commission to help them gain a complete understanding of the marketplace and the perspectives of consumers, suppliers and stakeholders as well, of course, of supermarkets themselves.

How the consumer is benefiting

Britain is changing: shopping habits change as lives change. As life has become busier and more complex, and living costs more expensive, Tesco has helped make shopping simpler, more convenient and affordable. Customers have rewarded us with their loyalty. As customers’ lives change so does Tesco and its competitors, benefiting customers wherever they shop. Today's grocery shopper spends less, can get more of what they want, receives better customer service and has a wider choice than ever before:

Prices are falling. The OFT estimates that grocery prices have fallen by over 7 per cent in real terms between 2000 and 2005 and falling prices have saved consumers more than £3 billion over the last three years; overall Tesco prices have fallen by 17% since 2000.

Product quality is increasing. Many innovations in the supply chain have led to more (and better) choices of locally-sourced meats and produce, organics, high quality ready-meals, specialist bakery products, products such as Halal meats and environmentally friendly household products. All these have been delivered with improved product safety.

Product choice is increasing (range). The OFT estimates that larger stores have seen a 40 per cent increase in product range over the last five years; we have added around 8,000 new product lines in the last year alone. We have also recently announced that we will invest £2m in supporting locally sourced products and opening five regional buying offices to help us put more local products on the shelves.

Service levels are high and improving. There are more in-store facilities, longer opening hours, shorter queues, better trained staff and increased home delivery.

Supermarkets are doing more to address people’s environmental concerns with all the major supermarkets making more commitments to extensive long-term environmental improvement. As well as our plans to halve energy consumption in our stores by 2010 (compared with 2000) we are also spending £100 million developing renewable energy and other green solutions.

These are facts, recognised by the OFT, Verdict, the Institute of Grocery Distribution (IGD), Mintel, financial analysts and, most importantly by customers themselves – our evidence shows that 85 per cent of shoppers regard their shopping experience as either excellent or good.

Customers choose where they shop

Research shows that 94 per cent of consumers in Britain have a choice of three or more different supermarket retailers within a 15 minute drive. In the grocery market consumers can and do switch easily between the stores they use. Each time consumers go shopping they choose where to spend their money. If they choose to shop in a different store from one month to the next we call this switching. The value of this switching has nearly doubled since 2002 and in total amounts to more than £10 billion. Consumers have a wide range of retailers to choose from including Wal Mart/Asda, Sainsbury, Morrison, Waitrose, M&S, Somerfield, Aldi, Lidl and Netto, other smaller supermarkets, Costco and Makro, the Co-Ops, Symbol groups (e.g. Premier, Costcutter and Spar) and thousands of independent retailers.

The grocery market has undergone many changes is recent years, including the rapid growth of discounters such as Aldi and Lidl, and the introduction of M&S Simply Food outlets. Consolidation and new entry of Tesco, Sainsbury and Musgraves into the convenience market also demonstrates the dynamism and competitive rivalry in the UK grocery retailing market.

The fortunes of different retailers have, like Tesco’s, changed over the years as customers have exercised their choice. M&S, Sainsbury and Morrisons have each fallen from strong positions and then recovered. In the early 1990s Tesco too was in trouble, written off by many analysts. We set out a new strategy that put customers at its core – listening to customers and responding, as best we can, to their needs. This is still something that helps differentiate Tesco from its competitors and is one of the most important explanations of our recent success. It has helped us to prioritise our actions and to improve and accelerate our innovations. It has led us to expand into new product areas and to operate from smaller stores.

We do not take our recent success for granted. Consumers make choices about where to shop everyday. We know that if we fail to listen to customer needs and to respond, then they can and will choose to shop elsewhere. Doing what is best for customers is what motivates us and knowing they can choose to shop with a competitor stops us from being complacent.

The Competition Commission will look at several aspects of the grocery retail market, including supermarkets’ pricing policies, their relationships with suppliers and their strategy for opening new stores.

Please follow the links to read more on these and other issues.

• We have many ways of listening to our customers which directly influence the way we work.

• We care about being a good neighbour – our new community plan, which includes a £100m environment fund, brings even more ways to make a difference.

• How our pricing strategy delivers low prices everywhere.

• There is a single market for grocery retailing.

• In retail, success depends on a dynamic and sustainable supply base. We work in partnership with our local and international suppliers helping them to grow and innovate.

• We can bring the benefits of a new store to more neighbourhoods and more people.

• Tesco now brings low prices and choice into town centres.