Supermarkets: Overpricing (Hansard, 9 November 1998)

§ Lord McIntosh of Haringey
My Lords, this Government do not want to see consumers paying high prices as a result of anti-competitive practices. The Director-General of Fair Trading has powers to investigate if prices appear to be the result of anti-competitive behaviour. He is currently investigating the profitability of the major supermarket chains in the grocery sector.

§ Lord Razzall
My Lords, I thank the Minister for that Answer, which is not entirely unexpected. However, is he aware, first, that one of the national newspapers has for some time been running a significant campaign demonstrating over-charging by the major supermarkets? Secondly, is he aware that the Office of Fair Trading has already produced a document entitled The welfare consequences of the exercise of buyer power, which deals with a number of these issues? Thirdly, is he aware that there are strong reports in the press that the Chancellor of the Exchequer has established a "supermarket hotline"—the equivalent of the cones hotline, although, it is to be hoped, more successful than that proved to be—to examine these issues?

§ Lord McIntosh of Haringey
My Lords, in accordance with the conventions of the House, I shall answer the first two questions. I assume that the first refers to the Daily Express, which has indeed been carrying out a campaign. When I last looked at the Daily 500 Express, its method of estimating differences in prices between the United Kingdom and other European countries was to send five families out to different countries and different supermarkets. As a survey researcher, I do not think much of that as methodology.
As to the noble Lord's second question, yes, I am aware of the pamphlet referred to; I have read it. It does not, of course, represent the official views of the Office of Fair Trading.

§ Baroness Trumpington
My Lords, does the noble Lord agree that to a farmer anti-competitive pricing would be like a red rag to a bull? Is he aware that there is much feeling among the hard-pressed farming community that supermarkets have not lowered their prices compared to those that farmers receive for their goods?

§ Lord McIntosh of Haringey
Yes, my Lords, I am very much aware of that. The noble Baroness may be interested to know that the Minister of Agriculture saw the heads of the most important supermarket grocery chains last week, together with the British Retail Consortium. He impressed upon them the need for a fair differential between prices at the farm gate, so to speak, and on the shelf. As a result, some changes in supermarket practices, particularly in the sale and import of pig meat, were made.

§ Lord Marsh
My Lords, will the noble Lord give the House some indication as to what are the criteria that enable a distinction to be made between legitimate competitive pricing and over-pricing?

§ Lord McIntosh of Haringey
My Lords, there is no single criterion which can be laid down. That is why the Office of Fair Trading is carrying out an investigation now and why it has carried out comparable investigations on a number of occasions in the past. One of the difficulties is that supermarkets are sometimes accused of anti-competitive pricing, in the sense of charging too much; but then they are sometimes accused of predatory pricing compared with the small shops, in which case they are accused of charging too little.

§ Lord Graham of Edmonton
My Lords, does the Minister agree that a fairer comparison of supermarket pricing policy would be to use the criterion of return on capital employed? It would show that British supermarkets have a return of 14 per cent., 7 per cent. less than food retailers on the Continent.

§ Lord McIntosh of Haringey
My Lords, I am aware that the British Retail Consortium has argued that return on capital employed is a fairer judgment than net margins. I read the report to which the noble Lord, Lord Razzall, referred. It dealt with the increase in net margins for food retailers and shows an increase in net margins. I hear what my noble friend says about return on capital employed—and I do not contest what he said—but there is here a conflict which is not easy to resolve.

§ Baroness Oppenheim-Barnes
My Lords, is the Minister aware that some of the reports in the Daily Express which compare prices here with those in the United States suggest that theirs are lower because supermarkets in the United States are much more price-driven than those in this country and the rest of Europe? However, the standards and quality are lower and there is far less service.

§ Lord McIntosh of Haringey
My Lords, that is not my personal experience. In terms of quality and presentation, some of the best shops and supermarkets I have ever been to have been in the United States.

§ Lord Dixon-Smith
My Lords, an acquaintance of mine recently took a sheep to market and sold it for £28. He then went immediately to the nearest supermarket in an attempt to buy, so to speak, the same sheep back. He found that it cost him £128. I am well aware that there are many steps between those two prices, but does the Minister feel that that kind of increase is reasonable?

§ Lord McIntosh of Haringey
My Lords, I shall not comment on the price in an individual case about which I know no more than the noble Lord, Lord Dixon-Smith, has told me. However, he will recognise that between the price at the farm gate or the market—that is the price the farmer receives—and the price the consumer ultimately pays there is a whole range of costs for distribution, marketing, preparation and so on which affect the final price. That is what the Office of Fair Trading is investigating.

§ Lord Mackie of Benshie
My Lords, is the Minister aware that the figures quoted by the noble Lord, Lord Dixon-Smith, in an individual case are borne out by much wider figures for the lamb industry generally?

§ Lord McIntosh of Haringey
My Lords, I do not deny that. I am sure that many noble Lords, particularly those in this House, could produce circumstantial evidence. I have just been guilty of giving circumstantial evidence on supermarket quality in the United States, so I cannot complain.

§ Lord Montague of Oxford
My Lords, does the Minister agree that comparisons with Europe will be made easier once we go into the euro?

§ Lord McIntosh of Haringey
My Lords, that would certainly remove one of the difficulties in making comparisons between supermarket pricing in the 11 countries which are going into the euro. We are not going into it on 1st January 1999, but my noble friend is right: some comparisons will be simpler.

§ Lord Acton
My Lords, is the Minister aware that standards and quality in my American wife's home state of Iowa are excellent?

§ Lord McIntosh of Haringey
My Lords, I am grateful that we now have two items of circumstantial evidence instead of one.