onh_the right to retail

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Can localism save Britains small retailers?

April 2011

The Right to Retail

Adam Schoenborn

Economy Unit


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About ResPublica

ResPublica is an independent, non-partisan UK think tank ounded by Phillip Blond in November 2009.

We ocus on developing practical solutions to enduring socio-economic and cultural problems o our

time, such as poverty, asset inequality, amily and social breakdown, and environmental degradation.

Our research combines a radical civic philosophy with the latest insights in social policy analysis,

economic modelling, behavioural economics, management theory, social psychology and technological

innovation to produce original, implementable solutions. We would like to oster new approaches toeconomic inequality so that the benefts o capital, trade and entrepreneurship are open to all. We

believe that human relationships should once more be the centre and meaning o an associative

society, and that we need to recover the language and practice o the common good. Our work seeks to

strengthen the links between local individuals, organisations and communities that create social capital.

About ACS

ACS (Association o Convenience Stores) is the voice o local shops, representing over 33,500 convenience

stores. ACS helps local shops thrive through lobbying, support and networking opportunities.

www.acs.org.uk

Te Right to RetailResPublica 2011

www.respublica.org.uk


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Contents

Foreword by James Lowman, Chie Executive, ACS

Executive Summary

Introduction: The Decline of Ownership

Part 1: The Rise of Supermarkets

Part 2: Why are Small and Medium Sized Retailers Disappearing?

An Unfair Advantage?

Part 3: Competition without Competitors

Part 4: Enabling Local Ownership

Local and Civic Recommendations

National Recommendations

Recommendations for a Joined-Up Retail Economy

1

3

9

12

17

20

28

32

32

38

40

The Right to Retail ResPublica April 2011


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1The Right to Retail

Foreword

by James Lowman, Chief Executive, ACS

You could orgive independent retailers and those who love theirlocal shops or being gloomy in the Spring o 2011. High street

vacancy rates are rising, the superstores are growing their marketshare, customers have less money to spend and the cost o regulationis increasing. However, we believe that the drive to localism oershope and opportunity.

Tis report makes a compelling case that now is the time or a radical look at the way regulationand competition policy aects local shops. For too long, policy-makers have hidden behinda notion that competition between a handul o massive retailers is enough - that its all thecompetition that consumers need. Until we expose this assumption and really examine it, localshops will be operating at a disadvantage.

It is inconceivable that an independent retailer starting out today could grow to become a marketleader, as esco and Sainsburys have done in the past. Its time we addressed whether the currentbig is beautiul competition policy is the right one or the communities o the uture, and thisis the perect time or a new Government one which has local communities in its DNA - to

challenge the received wisdom.

As well as national competition policy, the Government has other policy levers to consider:rates policy to actively promote the high street, more powers or local communities to decide oncompetition in their area, support or businesses who want to operate on a mutual basis or to co-operate more meaningully, planning policies that stop out-o-town development, and supportinglocal lending.

In commissioning this report rom ResPublica, we didnt want them to produce the denitiveanswers to all o these complex questions, but to put the debate on a dierent ooting. I hope that

stakeholders - whether they are players on the national political stage or local people who just careabout the uture o their local retailers - engage in this debate.

ResPublica and ACS would welcome your views.


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Executive Summary

Introduction The Decline of Ownership

Britain today has an economic model which is indierent to ownership. At the end o a period oeconomic boom and attendant high levels o individual and geographical redistribution, only 12per cent o British households hold any business assets.[1] Tis 12 per cent includes the extent oour private and social entrepreneurs, rom publicans and crasmen to B & B proprietors and asthis report will explore in greater detail our grocers and ood retailers.

Tis report ocuses on and interrogates trends in ownership in the grocery retail marketspecically. Has this crucial market become more concentrated? Will small retailers still be

viable in the uture? Has competition policy ailed small owners? Can markets be recongured to

marry ownership with growth? Or will this require new approaches to ownership? What policyinterventions, at a national or at a local level, can promote market entry and sustain diversity?What civic action is needed to support this?

Part 1 The Rise of Supermarkets

Some o the most important markets or our daily lives have concentrated so quickly that, on thehigh street, we can see and eel it happening. Groceries are arguably the most important retailmarket to communities in the UK, accessed and needed by all and home to a large proportiono the UKs small business owners, with approximately 50000 convenience stores, 40000 otherspecialised retail grocery outlets, 6000 grocery suppliers and 400 grocery wholesalers reachinginto communities around the country. For every pound spent in British shops, more than 50p isspent on ood and grocery sales.[2]

Despite the continued growth in the grocery market, the number o shops selling particularlysmall and independent shops has been in marked and sustained decline. In 2008, theCompetition Commission completed a major inquiry into the grocery market, which ound that:Te number o larger stores [2,320+ square meters] located out-o-town increased rom justunder 300 in 1980 to more than 700 by 1990 and to almost 1,500 in 2007.[3] While over the sameperiod:

Te number o specialist grocery stores has declined signicantly ... Te number obutchers and greengrocers declined rom 40,00045,000 each in the 1950s to ewer than10,000 each by 2000. Te number o bakeries declined rom around 25,000 in 1950 toaround 8,000 by 2000 and the number o shmongers declined rom around 10,000 toaround 2,000 over the same period.[4]

1. ONS (2010) Wealth in Great Britain: Main Results rom the Wealth and Assets Survey 2006/08.

2. Institute or Grocery Distribution. Available at: http://www.igd.com/index.asp?id=1&d=1&sid=7

3. The Competition Commission (2008) The supply o groceries in the UK market investigation, page 33. Available at: http://www.competition-

commission.org.uk/rep_pub/reports/2008/ulltext/538.pd

4. The Competition Commission (2008) The supply o groceries in the UK market investigation, page 34.


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4 The Right to Retail

Te UKs 8151 supermarket outlets today account or over 97 per cent o total grocery sales, andmore than 76 per cent o groceries are sold by just the our biggest retailers.[5] Te CompetitionCommission stopped short o condemning this market settlement, deending this model oretail market concentration as suciently competitive and oering unique social benetsas supermarkets leverage their market share to provide good value or consumers througheconomies o scale and negotiating power with large suppliers. As a result, the cost o groceriesdeclined 8 per cent in real terms between 2000 and 2007.[6]

Part 2 - Why are Small and Medium Sized Retailers Disappearing?

In order to discern what small and medium sized retailers saw as the main obstacles acingtheir businesses going orward, we conducted a snapshot survey o 183 small and medium-sized grocery retailers across the United Kingdom. Te most commonly identied obstacle was

competition rom a national chain, selected by nearly 4 out o 5 retailers surveyed (78.0 per cent).Tis was ollowed closely by the economy in general (73.8 per cent), taxation (66.5 per cent) andregulation (63.4 per cent). Nearly hal o all retailers surveyed (47.0 per cent) selected competitionrom national retailers as the primary obstacle acing their business.

While it is clear that the mass supermarket model has competitive advantages owing to the scaleo the multiple retailers and the economies that this scale allows, our survey revealed that morethan 85 per cent elt that this advantage was unair. Te two most common reasons given weresupermarkets pricing behaviour (86.6 per cent) and buying power (84.1 per cent). An unair biasin the planning system was also a major concern (68.2 per cent).

Part 3 - Competition without Competitors

As the competition authorities in the UK enter into a period o undamental reorm, we need topause to consider:

Is the concentration o a market the sign o a properly unctioning approach to competition, wherethe most ecient business models naturally eliminate their competitors, or does the inability o smalland medium sized businesses to compete represent the opposite: an uncompetitive market?

Te nding o the Competition Commission in 2008 that the grocery market represents agood deal or consumers has exposed the limitations o our national competition ramework.We participate in our economy not just as consumers but as employees, community-members,investors and crucially as owners. As such, competition law must go beyond price-basedconsideration o consumer interest. It must create and sustain markets and a model o growth thatcan sustain small owners alongside the big. I instead we continue to be indierent to ownership,we will continue to be a society without assets, practicing capitalism without capitalists.

5. Kantar WorldPanel grocery market gures, published 21 March 2011. The Competition Commissions ndings were based on an estimated 85 per

cent market share or large retailers, with 65 per cent market share attributed to the our biggest retailers.



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Te reality is that, without signicant change in retail market trends, past and even current levelso popular retail ownership are unsustainable. Non-aliated independent retailers in the groceryand convenience market have been in long-term decline, ollowing in the path o specialistgrocers such as butchers and bakers towards becoming marginal, niche players in the oodeconomy.

Part 4 Recommendations

Our recommendations refect both the Governments wider commitment to local and civicempowerment and the specic commitment to review the National Planning Policy Frameworkin order to make it localist in its approach, handing power back to local communities to decidewhat is right or them. Our recommendations aim to make explicit that a successul localistagenda would be one which not only gave communities and individuals the power to shape their

physical environment, but also, crucially, their local economy.

We will seek to ensure a level playing eld between small and large retailers by enablingcouncils to take competition issues into account when drawing up their local plans toshape the direction and type o new retail development.

- Te Coalition programme or government


Recommendation 1 Allow Communities to Designate Retail Mix in Neighbourhood PlansAs part o the provisions set out or communities in the Localism Bill, communities will be givena new right to draw up a neighbourhood development plan. Tis will allow communities tospeciy where they would and would not like development, and what sort o development theywould like. As part o this process, community orums should have the power to designate thedesired retail mix or their neighbourhood, speciying what type o retail development they would

value. Tese plans could pertain not only to the location and look o new retail developments, butto the use o existing premises.

Recommendation 2 A Community Right to AppealUsing the orum and reerendum mechanisms laid out above, communities (as dened by theLocalism Bill) should also be granted the right to initiate a planning appeal, where an approveddevelopment contradicts the parameters o an existing neighbourhood plan. Tis right shouldinclude the entitlement to legal support.

Recommendation 3 Treat Shops as Local Assets

Te Localism Bill will also introduce a requirement or local authorities to maintain a list o assetso community value. Crucially this community right should extend to local shops (as well as otherplayers in the local economy) which local orums, constituted in the way described in the


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Localism Bill, decide are critical to community lie. Subject to a xed one-year period and opento annual renewal, shops designated in this manner should qualiy or exceptional support romlocal authorities, including:

Recommendation 4 Business Rate Reduction for Designated RetailersAs the Government considers mechanisms or a new system or Business Rates and GovernmentGrant, it should consider allowing signicantly more fexibility in the local distributiono business rates. By designating a business as a signicant community asset through themechanisms established in the Localism Bill, the community would enable their Local Authorityto issue a standard level o business rate relie to the business.

Te debates in Scotland and Northern Ireland around levies on large or out-o-town retailerscould oer a model or micro-redistribution at a local level, and empowered Local Authoritiesshould have the fexibility in rate setting to refect locally set priorities or the high street.

Recommendation 5 A Community Right to BuyAs recommended above, communities themselves should be given the tools through theNeighbourhood Plans introduced in the Localism Bill to decide what eatures o theirneighbourhoods are essential community assets, and where a business deemed a community assetis seeking a major reclassication o use order, community groups should have a prioritised Rightto Buy including time to develop a bid and raise the money to buy the asset when it comes onthe open market.

It is important that the Community Right to Buy be designed and applied in such a way that it

increases the local services available to a community, and does not act as a barrier to businessownership or entrepreneurs in the community.

Recommendation 6 A Community Right to TryFinally, as with other assets designated to have community value, i a property in question isowned by the Local Authority or is in a state o disuse (the town centre vacancy rate at the end o2010 was at 14.5 per cent)[7], community groups should be extended a preliminary and priorityRight to ry allowing the creation o a test cooperative venture, i a viable business plan can beproduced. Tus, in communities where a particularly valued shop or market was designated orclosure, the community themselves would have the rst opportunity to take it over, opening the

possibility or enterprising community groups to sustain local retail through community-runinitiatives (see Recommendation 11).

Recommendation 7: Embed Small and Medium Owners in Local Enterprise PartnershipsOur surveying o small and medium sized retailers ound that nearly 7 out o 10 had not heardo Local Enterprise Partnerships, which are set to replace Regional Development Agencies byMarch 2012 and are to be made up o local business people and council representatives. All LocalEnterprise Partnerships should refect the local economy with a range o small and medium sized businesses represented as ull members.

7. Local Data Company (2011) Terminal Illness or Gradual Decline: A review o GB shop vacancy in 2010.


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Recommendation 8 A Community Interest Clause in Competition Law

Our rst recommendation called or the right or local communities to designate neighbourhoodretail mix. Tis would in eect entitle communities to set their own standards or localcompetitiveness, ensuring that communities could approve or prevent uture planning permissionbased on their vision or the local high street.

Tis must be supported by a change in the national competition ramework to recognise a morerobust notion o consumer interest. It is recommended that competition regulation be amendedsuch that the interests o a local community (where set out using the orum and reerendummechanisms established in the Localism Bill) should take precendence over more narrowconsiderations o consumer interest. Rather than approaching competition as a remote and

technocratic debate, the best place or public interest to be established and specied with regard tothe high street is at a local level, by communities.

Recommendation 9: An Annual National Report on Buying Power and Price FlexingOne o the key ways to enable local people to open up the debate around competition is tomake inormation available about the nature and extent o market distortions caused by price-fexing and buying power. In the same way that opening the public sector to unprecedentedtransparency allows citizens to understand and challenge the use o public money, introducingpublically available data on wholesale buying price dierentials and variations in selling prices willallow a ull public debate on the uture o the grocery market, and inorm community decisionson neighbourhood plans.

Te Grocery Code Adjudicator should have a statutory responsibility or publishing an accessible,anonymised report annually and should have corresponding statutory powers to collect, accessand distribute the relevant data.

Recommendations or a Joined-Up Retail Economy

Adopting new and more mutual models o retail cooperation and ownership will be crucial tostemming this decline.

Recommendation 10 Encourage Mutual Retail ModelsOne o the challenges or the grocery retail market, with or without reorm to the competitionramework, will be or small retailers to nd innovative ways o harnessing the advantages oscale while preserving retail diversity and small-scale independent ownership. One way thatindependent retailers have sought to survive is by increasingly joining together in order toleverage their combined scale or marketing, branding and buying power. Tis typically takesthe orm o membership in a (oen mutually owned) symbol group such as SPAR, Londis orCostcutter, which have rapidly increased their market share to nearly one third o the conveniencemarket. National and subnational growth strategies must not be indierent to ownership neither

in terms o scale or diversity - and should oer specic incentives or nancial organisations thatlend to and support mutually owned businesses.


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Introduction: The decline of ownership

Te past three decades have largely been a period o great renewal and advancement, onewhich has given rise to a popular and cross-political expectation o steady growth and managedinfation. In exchange or this, the trade-o that we have accepted has been the withdrawal opopular participation as owners in the economy and o general access to local markets. Tus,while the easing o credit conditions has meant that home ownership has steadily increased acrosssociety over these decades, ownership o virtually all other types, rom liquid savings to businessownership and investments, has declined in nearly inverse proportion. Britain every year is lessand less a nation o shopkeepers assets and ownership are concentrating, nance has becomethe preserve o the City o London and high streets have converged as though by centraliseddesign.

Concentrated markets, those dominated by a ew big players, can be highly ecient at deliveringlow prices and good value to consumers, as big players benet rom economies o scale and usetheir market power to reduce the costs o their inputs. Big players can buy more, cheaper andundersell their rivals the essence o competition.

However, concentrated markets by denition have ewer small and independent players. Whilethere is little by way o longitudinal data on business ownership, today only 12 per cent o Britishhouseholds have any business assets.[8] Tis 12 per cent includes the extent o our private andsocial entrepreneurs, rom publicans and crasmen to B & B proprietors and as this report willexplore in greater detail our grocers and ood retailers.

Even amongst business owners, the distribution o business asset value is stark. Te median valueo household business assets held by business owners is estimated at only 25,000 - comparedwith a mean o 256,000 (see Fig 1).[9] However, the bigger issue here is the asset gap between thetwelve per cent o business-owning households and the remaining 88 per cent o society.

Fig 1

Great Britain

Mean 1st quartile Median 3rd quartile

Business value 256,000 5,000 25,000 140,000

1 Results are or business owners only.

Source: Oce or National Statistics




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On the high street, we can see this market concentration happening. We can see that smalland medium-sized retailers are disappearing rom our high streets, and the rst section o thisreport will examine the extent o this transition. Te sections that ollow will examine why it ishappening and what can be done to create an environment where regular people can enter themarket and create their own business assets.

High street UK has changed dramatically over the past twenty years compared withFrance or Germany, where there are laws that prevent entry to local markets without theconsent o existing retailers

- Advisor to the Mayor o London in evidence

We can also see the downsides o an economic settlement which allows and privileges marketconcentration - they include the centralisation o capital, assets, risk, decision-taking and nance;the loss o local distinctiveness, traditional varieties, cra production, and a sense o belonging tothe community; the draining o money rom the communities where it is spent; and the insistentuniormity on our own high streets.

Te Governments Big Society agenda depends on more diverse and wider assetownership, alongside greater competition.

- Phillip Blond

Tree decades ago, the average person would have bought local produce rom a locally-ownedshop; would have borrowed money rom a local lender and would have been more likely to worklocally and invest in a local business, i not their own. Economic activity is deeply connectedto our social and built environment, and has historically played a role in reinorcing place and

building social connectedness.

Te trust o a city street is ormed over time rom many, many little public sidewalkcontacts. It grows out o people stopping by at the bar or a beer, getting advice rom thegrocer and giving advice to the newsstand man, comparing opinions with other customersat the bakery and nodding hello to the two boys drinking pop on the stoop, hearing about ajob rom the hardware man and borrowing a dollar rom the druggist.

Most o it is ostensibly utterly trivial, but the sum is not trivial at all. Te sum o suchcasual, public contact at the local level most o it ortuitous, most o it associated with

errands is a eeling or the public identity o people, a web o public respect and trust, anda resource in time o personal or neighbourhood need


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Tis anecdotal observation made by Jane Jacobs in her seminal 1961 workTe Death and Lieo Great American Cities has since been substantiated by a signicant body o research into thesources o our (declining) stock o social capital, which amongst other things has ound that:

Te results are clear and consistent: the more places respondents report being able towalk to in their neighbourhood, the higher their level o social capital. Tis relationsuggests that walkable, mixed-use neighbourhoods are better generators o socialcapital...[10]

Te separation o economic activity rom place has had a proound and largely ignored impacton our sense o identity and local solidarity, and consequently on our social capital. While thesubstitution o managers or owners and proprietors hasnt deadened trivial public contact, theeconomic shape o our communities is linked to our declining social capital and our elt loss othe web o public respect and trust. Social capital and local economies have historically been

mutually sustaining as our sense o social and public obligation has waned, we have stoppedsustaining our riends and neighbours in the local economy and vice versa.

But it has been an economic crisis not a social one that has raised the most serious concernabout our current economic settlement, underlining as it did the inherent vulnerability oa remote and centralised economy. In grocery retail, this maniested as a sudden reversal osustained price defation and the return o ood security as a concept o public debate. For therst time in a generation, concerns were raised about the supply and distribution o ood. Tesustainability and social justication o our economic model have been called into question by thehigh level o economic concentration which it has engendered and sought to leverage.

When we talk about rebalancing the economy, what we are really talking about is shiingback the locus o ownership and economic control to communities. Te goal and evidence o agenuinely new economic settlement, o any political stripe, must be the end o this declining trend inpopular ownership. Te challenge o the next settlement in the retail industry as in the economy atlarge will be embedding the small and the local owner into our economy, without compromisingcompetitiveness or consumer benets.

Tis report will ocus on and interrogate trends in ownership in the grocery retail market. Hasthis crucial market become more concentrated? Will small retailers still be viable in the uture?

Has competition policy ailed small owners? Can markets be recongured to marry ownershipwith growth? Or will this require new approaches to ownership? What policy interventions, at anational or at a local level, can promote market entry and sustain diversity? What civic action isneeded to support this?

10. Kevin M. Leyden, Social Capital and the Built Environment: The Importance o Walkable Neighborhoods. American Journal o Public Health. 2003

September; 93(9): 15461551.


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Part One: The Rise of Supermarkets

In ew markets has the concentration o the British economy been as visible as it is in the retail and particularly the grocery retail industry.

Groceries are arguably the most important retail market to communities in the UK, accessed andneeded by all and home to a large proportion o the UKs total ownership, with approximately50000 convenience stores, 40000 other specialised retail grocery outlets, 6000 grocery suppliersand 400 grocery wholesalers reaching into communities around the country. For every poundspent in British shops, more than 50p is spent on ood and grocery sales. In 2010, this amountedto over 150bn spent on groceries, which is approximately 2425 per person, up 3.1 per cent rom2009.[11]

Despite the continued growth in the value o grocery sales, the number o shops selling particularly small and independent shops has been in marked and sustained decline. At the endo the 2009-10 nancial year, there were 48,410 convenience stores in the UK convenience storesbeing those ood and grocery stores which have less than 3,000 square eet o foor space andopen or long hours every day o the week. Tis was a year-on-year decrease o 1.6 per cent overthe previous 12 month period.[12] Te decline o small grocery retailers has largely been localisedto non-aliated independent shops, which have been in long-term collapse, the total number ostores in this segment alling by 5.0 per cent last year alone, rom 21,950 to 20,860 in the 2009-10nancial year.

It is not just that existing independent retailers are closing, new independents arent entering themarket. Between 2001 and 2006, two large ormat stores opened every week. O these, only onewas independent and three were Co-ops. Te rest were opened by large multiple retailers.[13]

One way that independent retailers have sought to survive is by increasingly joining togetherin symbol groups, such as SPAR, Londis or Costcutter, which share branding, marketing andbuying power. Symbols have seen rapid development (a 7.8 per cent increase in the number oshops in 2010) as independents nd it too dicult to go it alone, and now represent 31.2 percent o the convenience store market (see Fig 2).

11. Institute or Grocery Distribution (2010) UK Grocery Retailing Available at: http://www.igd.com/index.asp?id=1&d=1&sid=7

12. Institute or Grocery Distribution (2010) UK Grocery Retailing Available at: http://www.igd.com/index.asp?id=1&d=1&sid=7

13. The Competition Commission (2006) Working paper on barriers to entry, page 16.


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Online3%

Traditional Retail

4%

Supermarkets

71%

Co-operatives

3%Forecourts

3%

Multiples

3%

Symbols

8%

Non-a liated

Independents

5%

Convenience

21%

Total Annual Sales

Fig 2

Fig 3

Traditional Retail

35,250

Supermarkets

7,970

Co-operatives

2,448

Forecourts

6,506

Multiples

2,912

Symbols

16,072

Non-a liated

Independents

20,351

Convenience

39,335

Number of Stores


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Fig 4

Te Competition Commission stopped short o condemning this market settlement, deendingthis model o retail market concentration as suciently competitive and oering unique socialbenets, as supermarkets leverage their market share to provide good value or consumersthrough economies o scale and negotiating power with large suppliers. As a result, the cost ogroceries declined 8 per cent in real terms between 2000 and 2007.[16] Tis meant that in 2008 only12.4 per cent o household spending was on ood, drink and tobacco, compared with 14.3 per cent

in 1998 and 17.3 per cent in 1988.[17]

Driving down the cost o groceries is socially progressiverom the perspective o consumers, particularly benecial to those on the lowest incomes whotypically spend a larger proportion o their income on ood.


17. Institute or Grocery Distribution (2008) UK Grocery Retailing Available at: http://www.igd.com/index.asp?id=1&d=1&sid=7&tid=0&olid=0

&cid=94

0

10

20

30

40

50

60

70

80

90

100

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Market Shares - The Big Four

Tesco

ASDA

Sainsbury's

Morrisons

TOTAL


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0% 10% 20% 30% 40% 50% 60% 70% 80%

Keeping up with new technology

Keeping sta

Competition from local retailers

Obtaining nance

Recruiting sta

Cash ow

Regulations

Taxation (VAT, PAYE,

National Insurance, business rates)

The economy

Competition from national chains

Which of the following are obstacles to the success of your business?[Select all relevant answers]

Part Two: Why are Small and Medium Sized Retailers

Disappearing?

What can explain the slow but steady erosion o locally-owned and independent retailers romthe high street? In January 2011, we conducted a snapshot survey o 183 small and medium-sized grocery retailers across the United Kingdom, in order to determine what they saw asthe most serious obstacles acing their businesses going orward. At the heart o our analysisand recommendations is the evidence that we have received rom these small retailers throughour survey, structured interviews and a roundtable which brought together small retailers withcompetition experts and policy advisers to identiy possible solutions.

We began this process by asking shopkeepers which o the ollowing obstacles their businesses ace.

Fig 6

Te most commonly identied obstacle was competition rom a national chain, selected bynearly 4 out o 5 retailers surveyed (78.0 per cent). Tis was ollowed closely by the economy in

general (73.8 per cent), taxation (66.5 per cent) and regulation (63.4 per cent). Te other obstaclesidentied were less widespread, with ewer than 30 per cent o small grocery retailers surveyedselecting cash fow, sta recruitment or retention, nance, local competition or obtaining newtechnology as an obstacle.


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When asked to select the main obstacle to their business, the challenge presented by nationalretailers became even more apparent. Nearly hal o all retailers surveyed (47.0 per cent) selectedcompetition rom national chains as the primary obstacle acing their business.

Fig 7

Other actors were much less pronounced in the survey responses - although more than a h

(22.8 per cent) identied the state o the economy as their chie concern, refecting the impacto the economic downturn and fagging consumer condence. One in ten (9.4 per cent) wereprimarily concerned with taxation.

Issues posed by the competition environment are clearly a signicant source o concern or smallgrocery retailers. Overwhelmingly, by a margin o nearly 7 to 1 (see Fig 8), small and medium sized retailers elt that their biggest competitor was a national chain. Market analysts expect thiscompetition and market concentration to intensiy now that Asda, Waitrose and Morrisons are allplanning to enter the convenience market, especially given Asdas acquisition o 147 stores romNettos UK chain.

Te intensity o this competition is signicant. As Fig 9 details, nearly two-thirds (65.4 per cent)o small retailers surveyed identied three or more national competitors in their local area, risingto 85.0 per cent o retailers having 2 or more national competitors.

47.0%

22.8%

9.4%

4.7%

3.4%

12.7%

What is the main obstacle to the success of your business?[Select one answer]

Competition from national

chains

The economy

Taxation (VAT, PAYE, NationalInsurance, business rates)

Regulations

Obtaining nance

All other responses


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Fig 8

Fig 9

85.5%

12.5%

2.0%

0%

20%

40%

60%

80%

100%

Supermarket chain store

(including e.g. Tesco Express,

Sainsbury's Local)

Local shop Don't know

My biggest competitor is a:

3.9%

11.1%

19.6%

25.5%

19.6%20.3%

0%

5%

10%

15%

20%

25%

30%

0 1 2 3 4 5 or more

How many supermarket chain stores are there in your local area, excluding your own?


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An Unfair Advantage?

While it is clear that the mass supermarket model oers competitive advantages owing to the scaleo the multiple retailers and the economies that this scale allows, there is considerable concernthat the market share o multiple retailers also creates serious, perhaps insurmountable, unairand anticompetitive advantages or big players.

While small and medium sized grocery retailers eel that their national rivals have a signicantcompetitive advantage,[19] our survey revealed that more than 85 per cent elt that this advantagewas unair (see Fig 10).

Fig 10

In order to ascertain what they elt was unair about the advantage held by national supermarkets,we asked the surveyed retailers to select relevant actors (Fig 11). Te two most common answersgiven were pricing behaviour (86.6 per cent) and buying power (84.1 per cent). An unair bias inthe planning system was also a major concern (68.2 per cent), whereas supermarket land holdings(43.9 per cent) and rent aordability (20.4 per cent) were not viewed by the majority o thosesurveyed as unair advantages.

19. 98.7 per cent o the shopkeepers surveyed agreed that supermarkets have a signicant advantage in the market, gure not included.

85.4%

11.9%

2.6%

Supermarket chains have an unfair advantage in the market.

Agree

Disagree

Don't know


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Fig 11

Pricing Behaviour

Tere are a number o pricing behaviours which, when practised by companies with a signicantshare in a given local or national market, actively reduce the competitiveness o that market.

When the Competition Commission made its rst report into the grocery market in 2000, oneo the key ndings was that major retailers routinely practised below cost selling, which whenconducted by Asda, Morrison, Saeway, Sainsbury and esco, i.e. those parties with market

power, operates against the public interest.[20] Lowering prices below cost and absorbing theloss (or passing it on to suppliers) creates a situation in which competing retailers, and even thewholesalers that supply them, can only compete at a loss.

In 2007, the Competition Commission identied ten grocery retailers that engage in below-costselling. While they noted that this practise was small in the context o their total revenues,the Competition Commission did state that this practice may also unintentionally contributeto the exit o smaller grocery retailers and specialist stores.[21] Several European countries haveinstituted outright bans against below cost selling, including the Loi Galland(1996) in Francebanning selling below the cost o production and equivalent German legislation prohibiting

selling below wholesale price.

20. Competition Commission (2000) Supermarkets: A report on the supply o groceries rom multiple stores in the United Kingdom.

21. Competition Commission (2007) Groceries Market Investigation: Emerging Thinking.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

All other responses

Rent a ordability

Land holdings

The planning system

Buyer power

Pricing behaviour

Which, if any, of the following factors do you feel give supermarket chains an unfair advantage?


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A second, related issue is price fexing. Price fexing is the practise o a large retailer pursuingglobal pricing strategies, varying pricing in particular markets in order to exploit its localmarket share or additional prot or its national market share to weaken local competitors. TeCompetition Commissions 2000 report also ound that price fexing practices were practisedby Budgens, the Co-ops, Netto, Saeway, Sainsbury, Somereld and esco. [22] Although theCompetition Commission observed that this behaviour was still common when it reported againin 2008, they ultimately concluded that it did not constitute behaviour that was predatory.[23]

A business is deemed to be pricing unairly i it is selling its products at a loss with the intentiono driving its competitors out o the market.

Buying Power

Issues o pricing are complicated and compounded by the enormous and expanding disparity inbuying power between large retailers and their independent competitors. Te act that multipleretailers are today responsible or 97 per cent o total grocery sales, including 76 per cent accruingto just the big our retailers, has given rise to a second complex monopoly situation. [24] Te UKood market exhibits many o the eatures o an oligopsony purchasing market, in which a smallnumber o buyers have sucient market power to distort prices and are eectively able to dictateterms to their suppliers.

Tis has been a prominent issue in the grocery competition debate, prompted by the manyallegations rom suppliers over the main supermarkets behaviour. According to the Competition

Commission:

Te existence o buyer power among some o the main parties has meant that the burdeno cost increases in the supply chain has allen disproportionately heavily on small supplierssuch as armers.[25]

Te Competition Commissions most prominent interventions into the grocery market havecentred on the issue o buying power and the treatment o suppliers, including multiple iterationso a code o practise or retailers towards their suppliers and, most recently, the introduction o anombudsman to proactively enorce this code.

Te impact o a purchasing oligopsony in the ood sector is not only elt by armers and othersuppliers, but by other grocery retailers and ultimately by consumers. Despite the CompetitionCommissions interventions into the market, in 2006 the Oce o Fair rading noted that:

Tere is evidence to suggest that the buyer power o the big supermarkets has increasedsince 2000, and that the diferential between suppliers prices to large supermarketscompared with those to wholesalers and buying groups has risen Tis could harmconsumer choice by undermining the viability o alternative business models includingwholesale distribution to the convenience store sector.[26]


23. Competition Commission (2008) Groceries market investigation.

24. Bill 18 o 2009-10, Research Paper 10/21, House o Commons Library, Grocery Market Ombudsman Bill, 2010.


26. Oce or Fair Trading (2006) The Grocery Market: The OFTs reasons or making a reerence to the Competition Commission.


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In 2000, the Competition Commission concluded that a buying share o at least 8 per cent o totalgrocery purchases was sucient to distort both the supplier market and the retail market, as:

Five multiples (the major buyersAsda, Saeway, Sainsbury, Somereld and esco),each having at least an 8 per cent share o grocery purchases or resale rom their stores,have sucient buyer power that 30 o the practices identied, when carried out by any othese companies, adversely afect the competitiveness o some o their suppliers and distortcompetition in the supplier marketand in some cases in the retail marketor the supplyo groceries.[27]

Tere is considerable evidence that these distortions include a prominent waterbed eect,dened as a situation in which price reductions, which are not cost related, are negotiated withsuppliers by large retailers and result in higher prices being charged by suppliers to smallerretailers either directly or through wholesalers.[28] Suppliers passing the costs o doing business

with large supermarkets to their independent rivals amounts to a perverse and unsustainablesubsidy o supermarket prots and low prices, and exaggerates the disadvantages o scale to whichindependent shop owners and retailers are already subject.

While purchasing prices are protected by commercial condentiality, 2006 modelling by theCompetition Commission estimated that the big our retailers pay approximately 13 per cent lessor grocery supplies than their high street competitors.[29] Tis is an enormous price dierential,one which creates a playing eld on which we cannot expect small and independent players tosurvive or grow.

Planning

When it comes to planning permission, local authorities dont eel able to challenge largeretailers.

- John Noble, British Brands Group

Te nal area where the majority o shopkeepers polled elt that they had an unair disadvantagein comparison with major supermarkets was in the planning system. In this, they echo a view heldby many communities and activist groups that have struggled to exert control o their local highstreets.

Concerns include that the resources available to major retailers make it signicantly harder orlocal authorities to challenge submissions by supermarkets or planning permission, comparedwith smaller retailers. Particularly, local authorities decisions maybe infuenced by a cost-benetassessment on the basis that supermarkets are able to und costly appeals against reusals and


28. Europe Economics and Association o Convenience Stores (2006) The Waterbed Efect. How Non-Cost Related Discounts to Large Retailers can

Harm Consumers.

29. Competition Commission (2008) Working paper on supplier pricing to grocery retailers and wholesalers, p 17.


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Fig 12

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

TheBigFour-TotalMarketShare

Competition in the Grocery Sector 1997 2010

Apr 1999The supply of groceries in Great Britain

from multiple retailers is referred to the

Competition Commission (CC) for

investigation and report under the

monopoly provisions of the Fair Trading

Act 1973 (FTA) on account of:

1. A public perception that the price of

groceries in the UK tended to be higher

than in other comparable European

countries and the USA

2. An apparent disparity between

farm-gate and retail prices, which was

seen as evidence by some that grocery

multiples were proting from the crisis in

the farming industry

3. Continui ng concern that large

out-of-town supermarkets were

contributing to the decay of the high

street in many towns.

Oct 2000The Competition Commissions report foundthe supermarket industry was broadlycompetitive but identied a number ofpractices that it considered operated againstthe public interest.

Oct 2001The Supermarkets Code of Practice (SCOP) isintroduced following the 2000 CompetitionCommission report as a voluntary agreementregarding the treatment of suppliers.

Jan 2002The Policy Commission into theFarming and Food Sector raisesconcerns about the eectivenessof the Supermarket Code ofPractice.

Feb 2006The All-Party ParliamentarySmall Shops Group

recommends that eectivemechanisms require theprotection of anonymity forsmall retailers providingevidence to inquiries.

Aug 2005In response to a marked expansionof supermarkets into theconvenience market, the Oce ofFair Trading (OFT) releases a reviewof the Supermarket Code ofPractice concluding it shouldremain unchanged but be usedmore eectively.

May 2006OFT formally refers theentire UK grocery marketto the CC specicallyraising four concerns: landbanks, the planningregime, buying power andsupermarket impact in theconvenience store sector.

Feb 2008CC informally releases itsproposed remedies,which includes a newGroceries Supply Code ofPractice (GSCOP) and anombudsman, but fails tocome to a resolution

concerning planning andland banks.

Apr 2008CC nal report does notnd proof ofanti-competitiveactivities and defendssupermarkets asdelivering a good dealfor consumers, despitestating that action isneeded to improvecompetition in localmarkets.

Feb 2009CC publishes adraft code in anattempt toreach avoluntaryagreement.

Mar 2009Tescosuccessfullychallenges theCCs proposalto introduce acompetitiontest into theplanningsystem.

Aug 2009CC achieves avoluntaryagreement onGSCOP, but notconcerning amarketombudsman.

Aug 2010Coalition Govt.

establishes aGroceries CodeAdjudicator withinthe OFT toproactively enforcethe Grocery SupplyCode of Practiceand curb abuses ofpower.


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Part Three: Competition without Competitors

Te Competition Commissions 2008 inquiry was a major opportunity to revisit the currentsettlement in the grocery industry and to set a standard or competitive markets across theUK. However, as in 2000 and despite the escalating market concentration in the interim, theCompetition Commissions conclusions and recommendations oered little to challenge thestatus quo. Tis was the major opportunity or reorm in a crucial market but three years later thegrocery market remains unchanged, leaving us to consider whether the competition ramework isserving its purpose.

When the Competition Commission began the inquiry into the grocery sector, it articulated itsmission as ollows:

Our starting point is that in a competitive market, commercial success should notbe penalized unless there is clear evidence o an abuse o market power and harm toconsumers. We also do not necessarily attach particular signicance, in the context ocompetition between retailers, to the national share o any one grocery retailer, althoughwe have not come to a nal view on the relevant geographic market and we do see nationalshares as relevant to the assessment o buyer power.[31]

Is this the correct standard or competition? Should our competition ramework be chieyconcerned with abuse o power or should competition policy exist to prevent the concentrationo ownership and o the market power which enables abuse and denies regular people the

opportunity to join the economy as shopkeepers and retailers?

As the competition authorities in the UK enter into a period o undamental reorm, we need topause to consider:

Is the concentration o the retail market the sign o a properly unctioning approach to competition,where the most ecient business models naturally eliminate their competitors, or does the inability osmall and medium sized businesses to compete represent the opposite: an uncompetitive market?

Tis question continues to divide economists. How we choose to answer this question has

proound consequences or the kind o economy that we will have.

31. Competition Commission (2007) Groceries Market Investigation: Emerging Thinking.


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developed by 2009 Nobel-laureate Oliver Williamson gives an account o how eciencygains realised by market concentration can oset the losses to society by the resultingprice distortions.

Tis was supported by the contention that, where price distortions made monopoliesundesirable, the theoretical possibility o competitors was sucient or market sel-regulation. Undesirable monopoly in all its orms was almost always undone by theorces o competition,[35] as the establishment o the cartel, by raising prices, makes itmore protable or outsiders to enter the industry.[36]

Te Chicago School would eventually become known or maintaining that barriersto entry were essentially a myth,[37] arguing that the numerous barriers to entry thatdid exist were produced by governments and regulators in an ill-inormed eort to

protect consumers. Tis reected the view that the competitive process would protectitsel better than governmental intervention could, deending private monopoly aspreerable to public monopoly or public regulation because the rst is considered to bemore responsive to and more capable o elimination by the market and competitiveprocesses.

In essence, whereas the prevailing ramework prior to the Chicago School aimedto protect small business rom being pushed out o the market, the Chicago Schoolconsidered the eciency gains and the resultant welare gains to the consumer to be omore value.

Te ideas o the Chicago School came to be the main rame o reerence or legal rulingsin the United States and gradually came to have an inuence on antitrust policies inthe United Kingdom and elsewhere in Europe. Te simplicity o the basic price theoryramework acilitated its application to a range o problems in the area o competitionand allowed or a consistent approach.

Pro-social markets

In parallel to this, the Smithian tradition was also continued by the Ordoliberal

school o thought which promoted the idea that a competitive economic system wasnecessary not just or consumer value, but or a prosperous, ree and equitable society,and posited that the market must be imbedded in a constitutional ramework or thebenet o societys development.[38] On this account, the legitimate ocus o competition

35. A key postulate within the Chicago analysis was that the purpose o antitrust was to advance consumer welare.

36. Milton Friedman, Capitalism and Freedom (University o Chicago Press, London, 2002), p 13137. Rob Van Horn, Corporations: The Roots o Chicago Law and Economics in Edited by: Philip Mirowski and Dieter Plehwe, The Making o the Neoliberal

Thought Collective (Harvard University Press orthcoming), p 17

38. The ramework was supposedly necessary to protect the process o competition rom distortion, to assure that the benefts o the market were

equitably distributed throughout society and to minimize governmental intervention in the economy. David J. Gerber, Law and Competition in Twentieth

Century Europe: Protecting Prometheus (Oxord University Press, Oxord, 2003) p 232


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regulation goes beyond the narrow ocus o preventing abuse o power towards anaspiration to create and maintain the conditions or competition, since the only way oachieving sustained economic perormance and stability [is] through an economic orderbased on competition.[39]

Competition so dened is achieved through the elimination o monopolies, theminimising o big business and supporting an economy characterised by small andmedium-sized rms.[40] Competition on this account was conceived in relation to itsimpact on small and medium sized rms, specic communities and social groups, andmust unction in a way that all members o society perceived as air and that providedequal opportunities or participation to all.[41]

Tis account o competition which, alongside a thriving Mittlestand o SMEs, has

been an enduring eature o the German economy sees barriers to entry and equitabletreatment o participants as proper measures to be employed when evaluating a ullyunctioning market. By placing emphasis on social as well as economic concerns, this

view holds that it is possible to advance a dispersion o economic power to accompany aparallel dispersion o political power.

39. David J. Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxord University Press, Oxord, 2003) p 241

40. Rob Van Horn, Corporations: The Roots o Chicago Law and Economics in Edited by: Philip Mirowski and Dieter Plehwe, The Making o the Neoliberal

Thought Collective (Harvard University Press orthcoming), p 12

41. David J. Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxord University Press, Oxord, 2003) p 241


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Part Four: Enabling Local Ownership

Te Coalition Government has laid out a striking ambition or its time in oce: the genuineempowerment o civil society and local communities to create civic solutions to social problems.Te Prime Minister summarised this mission as building the Big Society, a call or:

a huge culture change, where people, in their everyday lives, in their homes, in theirneighbourhoods, in their workplace, dont always turn to ocials, local authorities orcentral government or answers to the problems they ace but instead eel both ree andpowerul enough to help themselves and their own communities.

Tis vision o communities that are empowered, proactive and ultimately responsible or localoutcomes is at the heart o the recommendations made in this report. Despite countless grassroots

campaigns, communities around the country have ofen elt powerless to exert control overtheir high street, which have been slowly drained o local diversity, ownership and homespunentrepreneurialism.

Drawing on input rom nearly 200 small and medium sized grocery retailers and interviews withexperts and policy makers, we have created a series o recommendations designed to build oncurrent government legislation to enable local solutions to the problems holding back growth andparticipation on the high street. Tese recommendations will be divided into three categories:

Local and civic recommendations

National recommendations Recommendations or a joined-up economy


Te three key priorities or this government are tackling the decit, economic growth

and localism. - BIS representative in evidence

Our recommendations reect both the Governments wider commitment to local and civicempowerment and the specic commitment to review the National Planning Policy Frameworkin order to make it localist in its approach, handing power back to local communities to decidewhat is right or them. Our recommendations aim to make explicit that a successul localistagenda would be one which not only gave communities and individuals the power to shape their

physical environment, but also, crucially, their local economy.


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Over the course o researching this report, a number o consultees have expressed concernsthat devolving strategic economic planning to local authorities or Local Enterprise Partnerships(LEPs) may in act undermine rather than strengthen local economies.

One example o how eorts to pursue strategies or local economic growth at a Local Authoritylevel have been unsuccessul in the past was the ailure o local authorities to voluntarily take upthe strategies or working together with partners rom the public, private and voluntary sectors to set about improving local government procurement outlined in the National ProcurementStrategy or Local Government(2003). While a nationally-set target or statutory requirement orlocal procurement levels could have driven local economic activity, leaving local authorities tomake independent procurement decisions saw relatively ew take up the available opportunities.

Other consultees have expressed concern that myriad locally-set regulations will generateincreased costs or businesses and barriers to trade. Any recommendations ocused on local

authority or LEP leadership must take into account the costs inherent in local variation, decreasedcapacity and competence at a local level and an increased vulnerability to special interests andeconomic power. Our local and civic recommendations are built to complement and leveragethe new community and local government powers outlined in the Localism Bill, which allowsubstantive civic participation while minimizing detrimental variation.

Given that context, it is worth noting that 96 per cent o small and medium sized retailerssurveyed indicated that their Local Authority should do more to support local businesses. Someo the ways that surveyed retailers elt local authorities should support local businesses includedissuing special grants or local businesses (54.8 per cent supported), changing the way transport

and parking acilities are designed to reect the needs o the local high street (47.1 per cent) ortheir having the power to vary business rates locally (47.1 per cent).

Recommendation 1 Allow Communities to Designate Retail Mix in Neighbourhood Plans

Were abolishing this ridiculous system where Whitehall tells communities what theymust build, and then dictates when and where they have to build it. Tose who make

planning decisions will no longer be able to avoid reporting back to those whose lives aredirectly aected by them.- Bob Neill MP, Parliamentary Under Secretary o State

with responsibility or Local Government and Planning

Despite the act that retailers were hesitant to see Local Authorities control the planning process,68.6 per cent elt that Local Authorities should have the power to block planning permission o anew business.


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Fig 13

Te desire or local input at a planning level was underscored by a series o other questions, whichound that 86.9 per cent o retailers agreed with the statement Local people should have more sayand inuence over the development o their high street and 91.4 per cent agreed with statementLocal businesses should have more say and inuence over the development o their high street.

As part o the provisions set out or communities in the Localism Bill, communities will be givena new right to draw up a neighbourhood development plan. According to the impact assessmentor neighbourhood plans:

A neighbourhood plan can set out clearly the nature o the development that is and is notanticipated and, where a development proposal is shown to be in general conormity withthat neighbourhood development order, planning permission is automatically grantedwithout the need or a planning application.[42]

42. Communities and Local Government (2011) Localism Bill: Local plan reorm - Impact Assessment

68.6%

12.4%

19.0%

It should be easier for Local Authorities to block planning permission

for a new business.

Agree

Disagree

Don't know


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Tis is a powerul new tool or communities to input into the uture o local environments,speciying where they would and would not like development, and what sort o developmentthey would like. Local authorities play a role in this process, conrming neighbourhood orumsand boundaries o proposed neighbourhood plans, providing expertise and holding reerenda toconrm the adoption o plans. Tere is also a duty or local planning authorities to support thedevelopment o these plans, given a certain threshold o community participation.

As part o this process, community orums should have the power to designate the desired retailmix or their neighbourhood, speciying what type o retail development they would value. Teseplans could pertain not only to the location and look o new retail developments, but to the useo existing premises. It will not be a purely negative or veto mechanism, it will give communitiesthe ability to green light desired planning permission more quickly and it will give developers theability:

o approach neighbourhood communities with an ofer o nancial support to promote aneighbourhood plan which explicitly identies a specic development proposal o the kindthat the developer would wish to take orward. In this way, where popular support or sucha proposal is demonstrated and conrmed in the reerendum, the degree o certainty isincreased.[43]

Placing communities at the heart o planning processes will rightully politicise importantdecisions about the environment in which we live in the realm o retail competition, substitutingneighbourhood engagement or remote and technocratic decisions which have lef manycommunities eeling the victims rather than the beneactors o development. Nowhere is this

more important than in regard to decisions taken about the shape o the local high street.

Recommendation 2 A Community Right to Appeal

Using the orum and reerendum mechanisms laid out above, communities (as dened by theLocalism Bill) should also be granted the right to initiate a planning appeal, where an approveddevelopment contradicts the parameters o an existing neighbourhood plan. Tis right shouldinclude the entitlement to legal support, in order to oset the perceived advantage that majoreconomic players have over local communities and their elected representatives in the planning

process by virtue o the legal resources at their disposal.

Recommendation 3 Treat Shops as Local Assets

Te Localism Bill will also introduce a requirement or:

Local authorities to maintain a list o assets o community value. Communities will have theopportunity to nominate or possible inclusion the assets that are most important to them.When listed assets come up or sale or change o ownership, community groups will have timeto develop a bid and raise the money to buy the asset when it comes on the open market. Tiswill help local communities keep much-loved sites in public use and part o local lie. [44]

43. Communities and Local Government (2011) Localism Bill: Local plan reorm - Impact Assessment

44. Communities and Local Government (2011) A plain English guide to the Localism Bill


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Crucially this community right should extend to local shops (as well as other players in the localeconomy) which local orums, constituted in the way described in the Localism Bill, decide arecritical to community lie. Subject to a xed one-year period and open to annual renewal, shopsdesignated in this manner should qualiy or exceptional support rom local authorities, including:

Recommendation 4 Business Rate Reduction for Designated Retailers

As noted above, 66.5 per cent o independent retailers surveyed listed taxation as an obstacle tothe success o their business, while 9.4 per cent listed it as the main obstacle. As the Governmentconsiders mechanisms or a new system or Business Rates and Government Grant, it shouldconsider allowing signicantly more exibility in the local distribution o business rates. Bydesignating a business as a signicant community asset through the mechanisms established inthe Localism Bill, the community would enable their Local Authority to issue a standard level o

business rate relie to the business.

Te debates in Scotland and Northern Ireland around levies on large or out-o-town retailers couldoer a model or micro-redistribution at a local level, and empowered Local Authorities should havethe exibility in rate setting to reect locally set priorities or the high street.

Recommendation 5 A Community Right to Buy

While the Department or Business, Innovation and Skills is currently considering increasing the

exibility o Use Class Orders, which govern the type o business that may be carried out in aparticular site, others (most recently the London Assembly and eleven o the London boroughs[45])have called or more restrictive Use Class orders in order to preserve essential shops and preventthem rom becoming residential properties, betting shops or estate agents.

As recommended above, communities themselves should be given the tools through theNeighbourhood Plans introduced in the Localism Bill - to decide what eatures o theirneighbourhoods are essential community assets, and as with other assets designated tohave community value, where a business deemed a community asset is seeking a major usereclassication, community groups should have a prioritised Right to Buy including time to

develop a bid and raise the money to buy the asset when it comes on the open market.It is important that a Community Right to Buy be designed and applied in such a way that itincreases the local services available to a community, and does not act as a barrier to businessownership or entrepreneurs in the community.

Recommendation 6 A Community Right to Try

Finally, as with other assets designated to have community value, i a property in question is ownedby the Local Authority or is in a state o disuse (the town centre vacancy rate at the end o 2010 wasat 14.5 per cent[46]), community groups should be extended a preliminary and priority Right to ry allowing the creation o a test cooperative venture, i a viable business plan can be produced.

45. London Assembly (2010) Cornered shops: Londons small shops and the planning system.

46. Local Data Company (2011) Terminal Illness or Gradual Decline: A review o GB shop vacancy in 2010.


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Tus, in communities where a particularly valued shop or market was designated or closure, thecommunity themselves would have the rst opportunity to take it over, opening the possibilityor enterprising community groups to sustain local retail through community-run initiatives (seeRecommendation 11).

Recommendation 7: Embed Small and Medium Owners in Local Enterprise Partnerships

Local Enterprise Partnerships (LEPs), which are set to replace Regional Development Agenciesby March 2012, are to be made up o local business people and council representatives ratherthan ull-time employees. It remains unclear what the statutory powers o LEPs will be, theirkey responsibility will be to remove barriers to local growth. According to BIS, the rameworkor LEPs has been designed to ensure that business is at the heart o decision-making in thesepartnerships. However, despite the act that a number o LEPs have already been ormed, [47] o the

retailers we surveyed, nearly 7 out o 10 had not heard o Local Enterprise Partnerships.

Fig 14

All Local Enterprise Partnerships should reect the local economy with a range o small andmedium sized businesses represented as ull members.

47. 24 Local Economic Partnerships were approved in the initial application process, with more expected to ollow.

30.5%

69.5%

Are you aware of the Coalition Government's policy to create

Local Economic Partnerships?

Yes

No


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Given that multiple retailers now account or 97 per cent o total grocery sales and over 76per cent o groceries are sold by these our biggest retailers, it is perhaps unsurprising that ourpolling indicates that there remains a strong appetite amongst independent retailers or urtherintervention into the grocery retail sector. Tere was a widespread eeling amongst those retailersconsulted that the Competition Commission had ailed to sustain a competitive grocery marketwhere small and medium sized retailers can coexist besides the large multiples.

Fig 15

Recommendation 8 A Community Interest Clause in Competition Law

One o the main recommendations produced by the Competition Commissions two yearinquiry in grocery market competition ending in 2008 was a local competitiveness test orplanning permission. Te proposed test would have required Local Planning Authorities togive consideration to the local variety o retail outlets beore granting permission to a new

development. Despite the test having the support o most major retailers (including ASDAand Marks & Spencers) as well as independent retailers, ollowing the introduction o the localcompetitiveness test esco successully appealed to the Competition Appeals ribunal on thegrounds that its impact on consumer benet was not suciently assessed.

73.4%

11.7%

14.9%

I would like Government to intervene more in the grocery market.

Agree

Disagree

Don't know


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Our rst recommendation called or the right or local communities to designate neighbourhoodretail mix. Tis would in eect entitle communities to set their own standards or localcompetitiveness, ensuring that communities could approve or prevent uture planning permissionbased on their vision or the local high street.

Tis must be supported by a change in the national competition ramework to recognise a morerobust notion o consumer interest. While root and branch reorm o the competition rameworkwill be the subject o an upcoming ResPublica publication, it is recommended that competitionregulation be amended such that the interests o a local community (where set out using theorum and reerendum mechanisms established in the Localism Bill) should take precendenceover more narrow considerations o consumer interest.

At present, there exists a power or the Secretary o State to give an intervention notice to theOce o Fair rading i he believes that it is or may be the case that one or more than one public

interest consideration is relevant to a consideration o the relevant merger situation concerned.Tese considerations o public interest are currently limited to three specied areas: nationalsecurity, media diversity and, since 2008, mergers between nancial institutions.

As Part 3 argued extensively, competition law requires a robust conception o public interest.Rather than approach this as a technocratic debate, the best place or public interest to beestablished and specied with regard to the high street is at a local level, by communities.

Fig 16

89.6%

5.8%

4.5%

I would support greater transparency of retailers' wholesale buying prices.

Agree

Disagree

Don't know


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Recommendation 9: An Annual National Report on Buying Power and Price Flexing

One o the key ways to enable local people to open up the debate around competition is to makeinormation available about the nature and extent o market distortions caused by price-exingand buying power (see Part 2 or more details). In the same way that opening the public sectorto unprecedented transparency allows citizens to understand and challenge the use o publicmoney, introducing publically available data on wholesale buying price dierentials and variationsin selling prices will allow a ull public debate on the uture o the grocery market, and inormcommunity decisions on neighbourhood plans.

Te Groceries Code Adjudicator should have a statutory responsibility or publishing anaccessible, anonymised report annually and should have corresponding statutory powers tocollect, access and distribute the relevant data.

Recommendations for a Joined-Up Retail Economy

Te reality is that, without signicant change in retail market trends, past and even current levelso popular retail ownership are unsustainable. Non-aliated independent retailers in the groceryand convenience market have been in long-term decline, ollowing in the path o specialistgrocers such as butchers and bakers towards becoming marginal, niche players in the oodeconomy. Adopting new and more mutual models o retail cooperation and ownership will becrucial to stemming this decline.

Recommendation 10 Encourage Mutual Retail Models

As noted in Part 2, one way that independent retailers have sought to survive is by increasinglyjoining together in order to leverage their combined scale or marketing, branding and buyingpower. Tis typically takes the orm o membership in a so-called symbol group such as SPAR,Londis or Costcutter, which have rapidly increased their market share to nearly one third o theconvenience market.

Tere are many lessons that small and medium sized businesses in other sectors can learn rom

the cooperative practises o small and medium sized grocery retailers. As noted in Part 2, only onein eight independent retailers surveyed saw their main competitor as another local retailer, whichmay give an indication o why an industry o competing retailers have been so willing to pursuecooperative strategies helping them to remain viable. By coming together to share knowledge,services and buying power, independent shops are better able to survive in an environment wherethe balance o power is rmly set against them.

One o the challenges or the grocery retail market, with or without reorm to the competitionramework, will be or small retailers to nd innovative ways o harnessing the advantages o scalewhile preserving retail diversity and small-scale independent ownership.

National and subnational growth strategies must not be indierent to ownership neither interms o scale or diversity - and wherever possible should oer specic incentives or nancialorganisations that lend to and support mutually owned businesses.


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Recommendation 11 Encourage Community-Run Retailers

Finally, i communities value a plural retail economy they should not only spend money at localbusinesses, they should become more directly active in sustaining retail diversity. Community-run, consumer cooperative retail models can overcome some o the disadvantages small retailersace in the market by increasing local loyalty and leveraging in other orms o in-kind support.

Case Study: Te Peoples Supermarket

Te Peoples Supermarket is a London-based Industrial & Provident Society that sells oodand ood produce. Te supermarket is staed by volunteer members who in exchange or acommitment o our hours time every month and an annual ee o 25, earn a 10 per cent

discount at the till.

Te supermarkets core ambitions are: o create a supermarket that meets the needs o its members and the local

community by oering high quality, healthy ood at reasonable prices o buy rom trusted suppliers with whom it develops mutually sustaining

relationships o buy British produce where possible, and produce local to London o provide choice and inormation to its members to help them make healthy

decisions o create a community supermarket that highlights the possibilities o consumer

power and challenges the status quo o minimise wastage, by creating prepared dishes rom ood coming up to its sell-by

date, and by composting all other waste material o provide inspirational training and lie skill opportunities to the local community o create a working environment that values every ones contribution, is welcoming,

sae and non-judgmental o be a training and development resource or the local community o buy sustainable energy and other inputs, and to promote alternative, orward

thinking ideas and solutions

Over hal o the ventures start-up costs have been covered by donations o goods andservices, by local residents as much as companies large or small. Annually the supermarketis able to raise additional capital through the small membership ee.

Alongside a small number o paid managers, the shop is staed by three kinds o people:members, volunteers who have signed up through local organizations and 18-24yearolds who have been on Job Seekers Allowance and are participating in the GovernmentsFuture Jobs Fund. Te stang model o the supermarket enables it to keep expenditure toa minimum.

Inspired in part by the Park Slope Food Coop in Brooklyn, New York, Te PeoplesSupermarket is supported by its members, the London Borough o Camden, Developmentrusts Association, Esme Fairbairn Foundation, Social Enterprise London and severallocal residents associations.


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As per Recommendation 6, community groups who are interested in establishing their own co-owned retailer or marketplace should be able to designate viable community assets or purchaseor meanwhile leasing as a means to enable trading.

And as the Department or Business, Innovation and Skills looks to establish new mentoringservices or small and medium sized businesses, it should introduce specic mentoring orcommunity-run and mutual retailers.


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About the Author

Adam Schoenborn

Adam Schoenborn is a senior researcher or ResPublica, where he has led research on a range o subjects

including savings policy, asset welare, public sector mutualism, economic localisation and political

localism. Beore joining ResPublica, Adam worked or the Progressive Conservative Project at Demos

as well as the Centre or Social Justice, where he authored A Force to be Reckoned With, a report onre-establishing traditional orms o policing by consent and local policing in England and Wales. More

recently, he served as lead researcher or ResPublicas agship report on public sector reorm, The

Ownership State.

Adam is also the editor o the Disraeli Room blog and his commentary has appeared in Guardian

Comment, Public Servant and British Politics Review. He has degrees rom McGill University in Montreal

and the London School o Economics and his primary research interest lies in localism and civic

association as a means o delivering poverty alleviation, civic engagement and public service reorm.

Lead Researcher

Jonathan West

Jonathan West is a researcher at ResPublica and a graduate o Queen Mary, University o London.

His research interests include grassroots engagement, localism, and responsible and sustainable

development.

Special Thanks

We would like to thank everyone who engaged with us in the making o this report or their many

insightul contributions, including David Barrie (The Peoples Supermarket), Duncan Bowdler (The Co-

operative Group), Anthony Browne (Lord Mayor o Londons Oce), John Noble (British Brands Group),

Andrew Cave (Federation o Small Businesses), Ed Mayo (UK Co-operatives) and Adrian Costain (Pareto

Retail), as well as the staf at ResPublica who were a constant source o support and ideas, especially

Sam Middleton, Alan Robinson, Matt Leach, Phillip Blond and Caroline MacFarland. We would also like

to thank the Retail Unit at BIS, and especially Denis Walker, who took the time to speak to the group

about the Departments priorities. Finally, we would like to thank James Lowman, Shane Brennan andEdward Woodall at ACS or their support, as well as their thoughts, comments and critiques.


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Britain today has an economic model which is indierent to ownership. At the end o a period

o economic boom and attendant high levels o individual and geographical redistribution,

only 12 per cent o British households hold any business assets.This 12 per cent includes

the extent o our private and social entrepreneurs, rom publicans and cratsmen to B & B

proprietors and as this report will explore in greater detail our grocers and ood retailers.

This report ocuses on and interrogates trends in ownership in the grocery retail market

specifcally. Has this crucial market become more concentrated? Will small retailers still

be viable in the uture? Has competition policy ailed small owners? Can markets be

reconfgured to marry ownership with growth? Or will this require new approaches to

ownership? What policy interventions, at a national or at a local level, can promote market

entry and sustain diversity? What civic action is needed to support this?

The Right to Retail - ResPublica - April 2011

ResPublica

www respublica org uk

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