Four of the five potential bidders for UK supermarket chain Safeway have this week been presenting their cases to the Competition Commission. The heads of Tesco, Sainsbury, Asda and Morrisons all took at turn at highlighting why their bid should be allowed to proceed (and of course why their rivals' should not).
Morrisons, the company which sparked off the bidding war for Safeway with an initial offer for the chain - the only concrete bid on the table for the company - reiterated the company's stance that a combination of Morrisons with Safeway would create a fourth national food retailer capable of challenging Safeway's three larger national competitors (i.e. Tesco, Sainsbury and Asda).
"If Tesco, Sainsbury or Asda buys Safeway, there will be one less national supermarket chain," said chairman Sir Ken Morrison. "If Tesco were to buy Safeway, their market share in the one-stop grocery market would be 43 per cent. If Sainsbury were to buy it, their market share would be almost 35 per cent and if Asda were to buy Safeway, their market share would be almost 32 per cent."
He added : "In any of these latter circumstances, Morrisons market share would remain at only 8.7 per cent. If Morrisons buys Safeway, the merged business becomes not only a strong national player but also becomes a fourth national player, with a market share of 19.8 per cent in one-stop shopping. The combined business will have the scale, the retailing skills and resources to really challenge the existing 'big three'."
For his part, Sir Terry Leahy, chief executive of Tesco, said that an acquisition of Safeway by his company would "offer the best outcome for consumers and communities and would lead to a net creation of 5,000 new jobs".
Although Tesco is the biggest food retailer in the UK, Leahy said that the company was "totally committed to maintaining competition and rivalry in the sector" because competition drives innovation and pushes down prices.
"A Safeway customer whose store is converted to Tesco would see prices fall by some 11 per cent across a broad range of products. Consumers know that price cutting is a long term Tesco strategy, not a new tactic. Lower prices make food more accessible, particularly for the less affluent," he said.
"A customer of a Safeway store that converted to Tesco could be more confident that we would make a success of it than would our competitors. Indeed, in respect of smaller stores, some of them simply don't have our track record of running them effectively. And 25 per cent of Safeway stores are less than 15,000 sq feet. "
He concluded: "Our success has been driven by our focus on customers in a competitive and dynamic market. The current proposals affecting the future of Safeway raise serious issues as to whether a structural change, which could see the four major retailers become three, is in the consumer interest. If such a restructuring of the market were to be permitted, I strongly believe that Tesco would be best placed to lead this change."
There were similar statements from the CEO of Asda, Tony De Nunzio, who followed also argued that an Asda acquisition of Safeway would force competitors to reduce prices, and from Peter Davis, the chief executive of Sainsbury, who said the duopoly that would result from either Tesco or Asda buying Safeway would lessen competition for consumers.
The Competition Commission is due to rule in August on whether the supermarket bids can go ahead. A fifth possible bid for the chain, from businessman Philip Green, has already been given the green light from the Office of Fair Trading.
FoE reiterates call for blocking sale
Whoever acquires Safeway, the deal will not be welcomed by everybody, least of all Friends of the earth which has been the most vociferous opponent of the sale.
Also speaking at the Competition Commission's open hearing, FoE presented evidence to support its claim that none of the retail rivals should be allowed to buy Safeway.
"Allowing any of the supermarket bidders to take over Safeway would put three quarters of grocery shopping in the hands of just four companies. This is an unacceptable degree of concentration," it said.
"Farmers in the UK are already going out of business as a result of the unreasonable demands of the major supermarkets, giving them more power will make things worse […] The Competition Commission must also consider the impact on smaller and independent local shops, which find it hard to compete with the major supermarkets. Real consumer choice can only be provided by a diversity of shops, not by a range of big supermarkets."
Friends of the Earth also reminded the Competition Commission of the conclusions of its 2000 report on supermarkets. This found that the power of the biggest supermarkets allowed them to engage in practices which were anti-competitive and against the public interest. "Since that report no effective action has been taken to address these issues so it is hard to see how the government could now allow further concentration of power."