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.

Consumer No.40 Mr Willits

Mr Willits has stated that the clearance of the purchase of T&S small grocery stores by Tesco has led to the demise of independently owned smaller stores.

Tesco's acquisition of T&S has been good for customers.

When we acquired the T&S chain (which as Mr Willits rightly notes was approved by the OFT) our intention was to improve these stores for the benefit of customers. Since our acquisition of T&S, prices in those stores (which now operate as Tesco Express or One Stop) have reduced significantly, and the range of products on offer has greatly improved. Feedback from customers has been positive with many commenting on the improved offer, especially the better ranges of fresh foods.

We appreciate that Mr Willits and others are concerned about the decline of independent smaller retailers. This decline is in fact long term and due to a number of factors. It is being driven primarily by long-standing societal, political and technological change. The end of rationing, the construction of motorways (allowing better distribution), the outlawing of resale price maintenance by the Resale Prices Act 1964, the emergence of bar-code scanning and the rise in car ownership have all affected the business models of both independent convenience stores and specialists, while on the supply side improved techniques in supply chain management and logistics have allowed retailers to better respond to changing consumer preferences. More recently, the rise in the number of working women, single households and the cash-rich/time-poor have meant customers' expectations of convenience stores have become more demanding.

The rate of decline in independent convenience store numbers is slowing.* Revenues of the convenience sector as a whole have increased, and parts of the sector are doing better than ever before. The IGD concluded in 2005 that, "the c-store sector is now more competitive than ever", and in 2007 that "undoubtedly the entry of retailers such as M&S, Sainsbury's and Tesco into the sector has driven customer expectations and competitor responses". Customers are responding to the increased rivalry – and the better quality products and lower prices that it has brought – and turnover for the sector is expected by the IGD to reach up to £35.8 billion by 2012, representing growth of some 44% on 2006 turnover of £24.9 billion.**

A recent academic study by Southampton University concluded that the conversion of T&S stores to the Tesco Express format had in fact helped attract shoppers into town centres, where they make linked trips to other stores (including independents). One customer put it like this:

"I do go into Tesco more now than I did the [former T&S store] and if I have time, or especially if I have some time to kill, because I’m there anyway I usually tend to wander around those other shops nearby… you know just to see if there’s anything in there that takes my fancy. If there is I’ll get it."

Mr Willits complains that in New Oscott, Sutton Coldfield, Tesco has opened an Express store on Chester Road, which he claims is not needed as it is only 2.5 miles away from an existing superstore.

Mr Willits is correct that we have an Express store 2.5 miles away from one of our larger stores. Both are very popular with customers – sales in the Express store are much improved since we acquired and converted it, while the Extra store offers a very broad range of products and other services. There are also a number of other convenience stores (such as the Nisa Local) in the locality.

* The IGD has reported that the number of convenience stores declined between 2000 and 2005, from 55,798 to 52,085 (6.7% over five years, or an average annual compound rate of 1.37%.) The IGD predicts that this decline will continue between 2005 and 2010, but at a slower rate (4.2% over the five years from 2005 to 2010, or an average annual compound rate of 0.8%). Moreover, the rate of net decline in the number of VAT registered retailers was slower between 2000 and 2005 than it was between 1995 and 2000.

** IGD, Convenience Retailing 2007, pages 3-7.