U.K. GOVERNMENT TO LOOK AT RETAIL FOOD COMPETITION

JAMES FALLON

LONDON -- The U.K. government could force British food retailers to divest some stores if it finds the major companies are operating local monopolies.

The British Competition Commission is investigating the food retail sector and earlier this month found the industry was extremely competitive and there was no evidence of collusion in the setting of retail prices.

However, it last week sent letters to the U.K.'s five largest retailers -- Tesco plc, J. Sainsbury plc, Asda plc, Safeway plc and Wm. Morrison plc -- in which it said three major issues of concern remained. These are whether there is a large number of locations where one or two supermarkets have a large market share or face insufficient competition; whether price competition is focused on only a few, high-volume items, and whether retailers were fully passing on any price cuts they receive from their suppliers.

The remedies include possibly forcing companies with a local monopoly to sell a store or stores; restricting new investment by companies in areas where they already have a significant market share, or forcing retailers to maintain uniform prices throughout their operations.

It also might take measures to improve the transparency of prices by improving price information on store shelves or by forcing retailers to publish all their current prices on the Internet so consumers can more easily compare them. In terms of supplier relationships, the government might insist on a voluntary code of practice to ensure suppliers are reasonably certain of the price they will receive and aren't forced to change that price without "reasonable notice."

A spokesman stressed that the commission was only making proposals of possible remedies, which it now will discuss at public hearings during March. Only after these hearings, and further discussions with retailers, will it publish a list of recommended actions. The commission originally was to issue its report on April 7 but last week that deadline was extended to July 31.

While the shares of Tesco and Sainsbury's fell on the release of the letter to retailers, most industry executives were unfazed by the commission's announcement. David Bremner, managing director of Sainsbury's supermarket division, pointed out that the letter listed only possible remedies and that there was no point in dwelling on them until the problems are fully identified.