Supermarkets are charging manufacturers when shoplifters steal their goods. The extraordinary practice was disclosed by the Competition Commission in its final report on the £120billion-a-year groceries market, published yesterday.

It is the latest example of the watchdog finding that retail buyers are transferring “excessive” risk to suppliers to cover their own losses.

In future, supermarkets found guilty of passing on such costs face punishing fines by the proposed new ombudsman, dubbed Offshop, to investigate grievances by suppliers at the hands of supermarkets.

The new regulator will be able to hear and investigate complaints from farmers and any other company or traders in the grocery supply chain, including abattoirs, dairies, processors, the food service industry, wholesalers and even manufacturers of toiletries, household goods and cleaning products.

Many manufacturers at present are effectively being fined if shoplifters steal small, high-value goods such as razor blades and beauty products.

They frequently have to agree to pay out costs for shoplifting and other “shrinkage” — which also includes unsold or defective goods and any that prompt consumer complaints — as part of the contract to supply goods.

Shrinkage costs to supermarkets are almost £2.5 billion a year, though the chains attempt to offload the losses on to suppliers.

It is well documented that farmers and packing companies are forced to accept lower prices if vegetables, fruit or flowers are damaged or rotting, but the practice of a levy for store thefts is little known. A number of retailers readily owned up to the tactic when asked about it by investigators. The chains defended the practice and insisted that suppliers can be at fault for failing to use secure packaging.

The commission rejected the pleadings from the supermarkets and in future these costs for “shrinkage” are to be outlawed. Supermarkets must take responsibility for all goods after delivery, it recommends.

The watchdog suggests that if stores have problems with theft of certain items they should be stocked near checkouts or in tamper-proof displays.

The report states: “We have particular concerns regarding the transfer of risk from grocery retailers to suppliers in situations where this transfer creates ‘a moral hazard'; that is, where the retailer has the ability to affect the degree of risk incurred, but as a result of the transfer, the retailer has less incentive to minimise that risk.”

The commission raised concerns that such practices reduced incentives for suppliers to invest in new products and processes.

“If unchecked, these practices, which are essentially a side-effect of competition between grocery retailers with buyer power, will be detrimental to the interests of consumers.”

The watchdog has also raised alarm about hefty charges on suppliers after any customer complaints. “We have concerns that in the absence of an obligation to provide proof to the suppliers that the charge was properly incurred, retailers will have an incentive to over-compensate customers, at the expense of suppliers.”

John Noble, director of the British Brands Group, which represents leading manufacturers, was pleased that companies would no longer be penalised for shoplifting of goods. He said: “This is very helpful and clarifies where the responsibilities for any losses from shrinkage lie in the future.”

The National Farmers' Union, Friends of the Earth and ActionAid were also delighted that the watchdog had recognised the damaging impact of the retrospective cash demands.

Supermarkets were infuriated and said that they would have to rewrite their terms and conditions in contracts. Retailers also believe that losses from shoplifting should be a shared risk, as loss of sales affected manufacturers in equal measure. They are also angry about being asked to foot the cost of the new ombudsman, estimated to be some £2 million a year. Peter Freeman, chairman of the Competition Commission, gave warning that if supermarkets failed to agree to fund the ombudsman then the Department for Business Enterprise and Regulatory Reform was ready to intervene.

— On the busiest shopping day of the year, the last Saturday before Christmas, British retailers lose around £50,000 of stock every minute, or £26.4 million in one day

— Britain has topped the European shoplifting rankings for the past seven years, with more than £1.5billion worth of products being stolen every year

— More than 700,000 Britons shoplift every year. As a result of shoplifting, every household in Britain will have to pay an extra £150 for their goods this year

— Twenty-one per cent of shoplifters regard supermarkets as the easiest place for shoplifting, followed by DIY centres

— Razor blades are the most stolen item, followed by cosmetics, alcohol, toiletries, lingerie, CDs and DVDs

Sources: BRC, Checkpoint Systems, Times archives, BBC

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