THE SUNDAY TIMES: Are you being singled out? Does it feel from your
point of view that this has become an inquiry into Tesco rather than the
grocery sector?
SIR TERRY LEAHY: It is beginning to look like that, I have to say. They
[the Competition Commission] were at pains at the outset to say it’s not
that, but if you look at the papers they have published, it is a long list
of people with clear vested interests making unsubstantiated claims about
Tesco on almost every imaginable front. Often they are completely
contradictory, and even contradict evidence given by the same company in the
past. Tesco is required to provide evidence to defend itself throughout.
Has the Competition Commission found any evidence that you are mistreating
suppliers? I don’t think they have. The true sign of a truly competitive
market is that it is noisy. With millions of people and thousands of
suppliers and billions of transactions, of course there are going to be some
problems somewhere – but you must put it into context to see whether truly
it is a feature of behaviour or an insignificant and isolated example. But
this “smoking gun” phrase [that some people are using] implies that all they
need to do is find one incident of someone doing something wrong and it
actually represents a feature of the market. I think that is
misunderstanding the nature of a large competitive market.
Do you feel you are being punished for your success? I think there’s a
danger that people buy the stories of a few sectors of society and end up
punishing success – and that would be very damaging for Britain. Around the
world they would find it extraordinary because in India and China and Korea
right this minute they are trying to be like Tesco.
Why do you think some people really hate Tesco? They don’t hate Tesco.
Tesco is the most loved organisation in Britain.
Some people do . . . Well let’s start with the 90% of people that don’t .
. . Come on. There is a sentiment among more than a small minority that
is getting headlines which are antisupermarket and specifically antiTesco. I
don’t know why. In a truly competitive society you have winners and losers
and there are some people, a few, who have lost while many have gained and
you can understand those people being concerned about that.
But there are other people who have just chosen to dislike supermarkets. I am
at a loss to know why that is – you should talk to them. Maybe there are
some people who are programmed that if the majority like something, they
have to dislike it – that is how they define themselves.
Is antisupermarket sentiment growing? It is an interesting feature of
the discussion around supermarkets that a small strand of society – less
than 10% – possibly as small as 5% – feels there are problems with
supermarkets in society, but 90% or 95% are perfectly happy with
supermarkets and like them. There is a problem in that the 5% or 10% view is
dominating the airwaves.
Do you think people use Tesco as a proxy for everything they dislike in
society? For too long we have been hearing about this small minority and
I would prefer to concentrate on the vast majority who do like Tesco, who
like to shop there, like to work there, like what it does.
It is a democratising force in society. It is one of the places in life where
it doesn’t matter what your background is – you are going to get treated
well. Maybe some people don’t like that. Maybe what they don’t like about
Tesco is the fact that it is the same for everybody and they don’t get
special treatment. It is tempting to look around at what forces are driving
change and blame them but you have got to move beyond that.
Businesses such as Tesco are where you look to solve the problem: they are not
the cause of problems. And if we are the cause of problems, come and talk to
us about it and we will put our hands up and we will change.
Are you fed up with having to defend a company that has become one of the
most successful in Britain? It is perfectly proper that a big business
like Tesco should spend time explaining how it is successful because people
might be concerned about that success and ask if it has come at too high a
price. But I don’t think it should come to the point where Tesco is on trial
for its success. The danger there is, how do we have a successful society
that we all want, if you demonise success and if you are inherently
suspicious of success. You have got to be comfortable with success.
Was it necessary to have yet another competition inquiry into the grocery
sector? I’m very reluctant to answer that because I support a strong
competition policy and a strong competition framework in this country so I
can’t be the person who turns round and says, ‘I don’t think it is right to
have an inquiry’.
What I would say is that three inquiries, seven years of inquiry, with the
same issues coming up in an industry which any casual observer would say is
the most competitive industry in Britain seems to be overdoing it a bit.
There must be a moment when you put the issue back in the hands of consumers
and let them decide, because everyone knows that they are the best judges of
winners and losers. The entry of Tesco and Sainsbury into convenience
retailing caused concern among the incumbent convenience retailers and they
felt there needed to be an inquiry into the effects of that.
The rest of it was the same old series of vested-interest comments that was
inquired into ad nauseam in the 2000 inquiry and subsequent inquiries.
The Competition Commission has asked you to hand over millions of e-mails
exchanged with your suppliers this summer. Why have they singled you out in
this way? Have they discovered a “smoking gun”? It is
puzzling. We had a meeting with the Competition Commission in June – 12 or
15 months into evidence gathering – and at that point they put nothing
specific to us on suppliers.
Well, it’s very odd then, after the natural time for these things has passed,
to ask for, in our case, 250m e-mails – 25m from buyers, which was then
reduced to 60,000, which have been sent off to them. Given that nothing has
actually been put to us, to then read in the press the comments about
smoking guns and so on seems to me to be very disappointing in terms of how
these inquiries are best conducted.
To be honest we have been happy to open up and share all of our experiences
with suppliers. Two or three years ago we had the Office of Fair Trading in
for more than a year and they crawled over all the records of contacts with
125 suppliers that they chose and they failed to find a single piece of
evidence about any breach of conduct.
Given that we have opened up in that way, it is disappointing to have these
unattributed claims for which no evidence is ever provided and it seems to
me, candidly, that it breaches natural justice. You don’t mind someone
accusing you, but at some point they have to bring forward some evidence.
Supermarkets have helped to drive down food prices and tackle inflation,
but has price reduction gone too far if it means farmers and other suppliers
are being forced out of business? I don’t think the balance has gone too
far. You have to remember which suppliers we are talking about. Are we
talking about the small farmer, who we tend not to deal with directly, or
are you talking about Nestlé and Procter & Gamble, companies that
are larger than Tesco? Ordinary families need a retailer to negotiate on
their behalf with these companies that have huge market shares around the
world.
My view is that it is about balance. The vast majority of suppliers say that
dealing with Tesco makes them a better business. The vast majority of
[critical] stories you hear . . . are from companies that are not even supplying
Tesco. They are increasingly urban myths from people who have never supplied
Tesco.
You recently raised the price you pay your milk suppliers. Was that a
cynical move to appease critics of the way you treat suppliers? People
are falling over themselves – after its 70 years of existence – to supply
Tesco in the UK and all over the world. The reason they do that is basically
because they know Tesco is long term and tough but fair and professional.
From time to time industries run into problems – at the moment it is the
dairy industry and Tesco has responded to that.
At the beginning of the year we gave dairy farmers a £25m increase which we
didn’t pass on to consumers. When we saw feed costs getting out of hand
recently we gave another big increase to farmers, again without passing it
on. That isn’t a cynical move – that is what we have always done with
industries that have problems.
Independent retailers have complained about your “predatory pricing” –
particularly aggressive discount-voucher campaigns – when you open new
stores that damage their trade. How would you respond to those accusations? It’s
just evidence by anecdote. We have proper evidence based on a whole market
and how it actually behaves. This is a national market. If you go to a Tesco
store in Bridlington you get the same service as you do in a Tesco store in
Truro. If you look at the accusations against Tesco on the Competition
Commission website, you find they comprise a series of isolated anecdotes.
The other thing you find there are hypothetical papers by the commission
based on no evidence at all which construct the possibility of harm, and
about profitability of stores, about drive-times, about local competition.
Set against that – all our evidence has been based on the reality of operating
in the market. All we ask is that the evidence is properly weighed.
What do you think of the New Economic Foundation’s idea of an independent
regulator for the grocery sector? This is the last place on earth you
need an independent regulator. It is a market that is clearly competitive.
The customers have a choice, they exercise that choice, they pass judgment
every day. We get elected every day, we get regulated every day. Customers
vote every day.
Losing 1% or 2% of your customers can halve the value of your business. You
jump when a customer moves, I can tell you. Regulators don’t understand the
lives that people lead and they cannot make judgments on their behalf.
People do not need to be told where to shop.
Some of your rivals have put forward the idea of a test that could be
applied to increase the choice of supermarkets in towns and cities. This
would mean that if there were too many stores run by a single company in an
area, town planners could make sure the next site went to a rival. What is
your view? It is just mischief making. It makes no sense at all: 94% of
the population already have an ample choice. There is already in place a
natural mechanism if you want more stores – give planning permission for
another store. The difference is, why should a local authority be forced to
choose which store? They are not going to get it right. What it is going to
do is punish the successful. What you will get is more Coops getting
planning permission. How popular will that be with customers?
Some of your rivals put the brakes on their store-opening programme for
several years, which allowed you to overtake them. Are they now just trying
to play catch-up? [Quoting Justin King, chief executive of Sainsbury:]
“We spent three to five years not building a pipeline so our opportunities
for new stores will be limited.” You just have to see what companies have
said themselves about the industry to know in the end they are just trying
to gain the regulatory process for commercial advantage. People have got to
be very wary about that.
This is a serious inquiry into an important industry and I suppose you could
say “don’t blame people for trying”. But it is important for the commission
that it considers very carefully the basis on which it makes decisions.
Early on in the inquiry there was a lot of focus on your land holdings and
whether you were buying land to prevent competitors expanding. Have you ever
done that? No, and if you were running supermarkets you wouldn’t do it
either because great businesses are not built by negative actions and
behaviour. Winners don’t win that way. You might cling on but you don’t win
that way. You win by creating things in a positive way. A piece of land is a
very expensive thing and all you want to do is to get that developed and get
your money back.
What is the worst-case scenario for you after this inquiry? You can’t
run a business like Tesco in fear of the future. You always go into the
future with confidence. You know there will be lots of challenges but you
are absolutely confident you will find a way forward. You have to set the
problems of the commission in context against a military coup in Thailand,
an earthquake in Turkey or a new government coming in Poland which wants to
shut stores on Sunday.
All these are problems, but the business moves forward. I remain confident
that the commission will come to the right conclusions. I think the evidence
points them to the fact that it’s a highly competitive market. If there is a
risk, it is less to Tesco and more to society.
RULING DUE IN SPRING
THE latest regulatory probe into the £101 billion grocery sector began 15
months ago when the Office of Fair Trading referred the supermarkets to the
Competition Commission for “preventing, restricting or distorting”
competition.
The inquiry was the third in seven years – the first came in 2000 and a second
in 2003 after Wm Morrison launched a takeover bid for Safeway. There was
also a smaller inquiry in 2005 when Somerfield bought a store portfolio from
Wm Morrison.
The latest inquiry focuses on whether the grocery market is working
effectively for shoppers in regard to competition between shops in local
areas.
It will also examine the planning system and the relationship between
supermarkets and their suppliers.
The commission will release its preliminary findings next month and will
consider possible solutions or recommendations this winter.
The grocers and other interested parties will have the opportunity to respond
and a final report will be released, probably in March next year.
In the most extreme scenario, the commission could force supermarkets to sell
off stores or land. It could also recommend a change in the way they deal
with suppliers if it believes they are abusing the relationship.
The Competition Commission is an independent public body chaired by Peter
Freeman, an expert on competition law.
I think Leahy oversimplifies: 95% may not care, but may also not be aware of many issues. Tesco may be successful, but expanding into foreign markets under unfair international trade rules is not necessarily good for the foreign country (even if it is good for Tesco, and even Britain). Too big a topic to go into here, with the 1000 character comment limit :)
Krishan, London,
There is no doubt that supermarkets are a convenient way to shop, with everything under one roof. But there has been a price to pay for that convenience and at least in my opinion one of the most important issues is that we have seen a gradual deteriation in the quality and the choice of fresh food avaialble. Take strawberries for example, today you get a crunchy variety which has only a very mild taste of what strawberries can taste like. Why do supermarkets go for this variety, because they have a longer shelf life. Meat is often bland and tough, why because it is not hung long enough. Supermarkets are delivering a generation that has very little understanding of food, such things as season and taste. I was in a supermarket the other day looking at the tomatoes. The person next to me did not want to buy any because they were a little soft. What they wanted were the hard tasteless types because that is what they have become used to throughout the rest of the year.
Ian, Cobham,