Talking Tesco: UK Competition Commission

Why are we publishing these comments?

Tesco has been reading with interest the third party comments on the Groceries Market Investigation that the Competition Commission has been publishing on its website. Our formal submissions have addressed many of the issues raised by these comments, particularly those of some of the professional lobbying organisations. However, a number of submissions on the Competition Commission's website contain more specific comments about Tesco which we have not covered in our formal submissions.

Some of these specific comments are inaccurate and misleading, and we are providing a series of short notes in order to put the record straight. In the interests of transparency we are today publishing the first such series of notes.

A Convenience Retailer

The convenience retailer complains that many supermarkets sell bottled lager or cider on promotion ‘below the delivered wholesale cost’. The allegation specifies selling two cases of 20 bottles/cans for £16. The complaint also mentions promotions concentrated around seasonal festivities and big televised occasions such as the World Cup.

The convenience retailer is right that we have run a small number of promotions of this kind for short periods of time. However, the products were priced higher for the vast majority of the year. Customers have told us they like promotions, and take advantage of them – including at Christmas and during the World Cup.

We negotiate the best possible prices with our suppliers in order to enable us to offer our customers the best possible prices. Customers recognise that we offer good value for money and respond by shopping with us for beer all the year round not just during times when it is on offer. Shops which choose not to use promotions can also succeed: due to space constraints we can not offer all the same promotions in our Express stores. These stores did not participate in the promotions cited by the convenience retailer, but sales of beer in our Express stores significantly outperformed our larger stores on the day of the first England match, demonstrating that convenience stores are well-placed to compete with these promotions.

The convenience retailer suggests that – once VAT and excise duty are deducted from the prices paid by customers – we sold our Value Whisky and Pavlov Vodka below the price on offer from wholesalers.

We can confirm that for the two examples cited Tesco has negotiated a better cost price than this particular retailer achieved from a wholesaler. However, we are not able to purchase these products as far below the wholesale cost as suggested. We would not want to reveal our confidential buying terms, but we can confirm that the figures quoted do not represent the actual price differential which is actually less than suggested.

It is difficult to draw comparisons between the prices that we buy at and those of wholesalers. The price we negotiate is based on several factors including security of supply, good payment terms, distribution efficiencies, technical support and volumes.

Our buyers are well trained and skilful in their negotiations with suppliers. This does not mean that other retailers and wholesalers do not have the skill to agree similar terms. As Nisa-Today’s note:

Nisa-Today's ensures that high quality products are always supplied, at the most competitive prices, to its vast and varied retail membership. It also continues to negotiate the same trading terms enjoyed by the major multiples, allowing even the smallest retailers to benefit from consolidated buying power.*

The convenience retailer may wish to ask their wholesaler if they are passing on the best possible price.

The retailer also claims that we demanded ‘extra free resources’ from suppliers at busy times.

We would never demand free resource from suppliers at busy times. However, we do operate ‘Helping Hands’ and Tesco Week in Store Together (TWIST) programmes for our head office staff and invite suppliers to join us. We have also offered journalists, lawyers and business analysts the chance to experience working in our stores. Every year at Easter and Christmas, head office staff go into stores to help out our hard-working store staff and to gain a better understanding of our business; giving them a vital opportunity to refresh their understanding of customers and identify potential improvements in our ways of working. In addition, in 2005/06 nearly 800 office and distribution staff spent a week working in over 600 stores. 36 of our suppliers also benefited last year by taking part in our TWIST programme. Spending time in one of our stores helps suppliers to develop their business by giving them the opportunity to have direct contact with our customers and to learn more about how we operate first hand.

* http://www.nisa-todays.com/site/index.asp