This Bill has been introduced in response to what its promoters would describe as a crisis situation in the retail distribution of grocery goods, or more particularly in the retailing of grocery goods by the non-multiple sector. The Bill proposes far-reaching measures of a type which demand that the need therefor should be justified beyond a shadow of doubt and that, assuming there is evidence that a need for corrective action exists, the remedy is in the interests of the common good.
The Bill's promoters would justify their proposal with reference to the number of closures of retail grocery outlets over the past number of years, to the expansion of the multiple sector and the implications of such expansion for the independent outlets, to the involvement of externally based enterprises in the multiple sector and the implications that this has for Irish industry.
It is not denied that there have been significant reductions in the number of retail outlets. Unofficial statistics for the years 1966 to 1977 show a decline in that period in what could be described as ‘all grocery outlets' from 17,500 to 11,600 approximately. The fall off in one category included in these figures — grocery with public house — could be substantially explained by conversions of these establishments solely into public houses, either in situ or through the sale of the liquor licence for a new outlet.
There is no reason to assume that the decline in numbers has since been halted, but it should be noted that this trend is by no means confined to this country. With one exception, in all EEC countries there has been a steady expansion of market share by multiple chains accompanied by a fall in the number of outlets. While statistics are not always comparable, the decline in some other countries in somewhat comparable periods is recorded at percentages as high as 38.
While I accept, therefore, that there has been a reduction in the number of outlets, I do not accept that the reasons for such decline arise solely, or mainly, from the practices of multiple outlets.
The changes in the grocery trade over the last two or three decades, sweeping enough indeed to justify being described as a revolution, are the result of a variety of influences, technological, social and organisational. The most basic change, on which the others to some extent depended, was the rapid growth of prepackaging to the point where nearly all the items in a grocery store are prepackaged. This facilitated the development of self-service. By transferring the tasks of cutting, measuring, weighing and wrapping to the factory, and of selecting and collecting goods to the customer, these twin developments took away from the shop assistant a considerable part of his or her former duties.
Other developments, such as the introduction of weighing machines which indicated the price of odd amounts not prepackaged, further reduced the assistant's work. Such changes brought a substantial reduction in the amount of work to be done in grocery shops which resulted in time in a decline in the workforce.
That this decline in the numbers engaged was reflected in time in a reduction in the number of shops was ensured by certain other developments. The spread of car ownership meant that many shoppers who had been accustomed to shop on foot locally now found it more convenient to commence one-stop shopping, and transferred their custom from a small local shop to a larger shopping centre where they could satisfy more of their needs in one visit. This led to, and in turn was stimulated by, the development of grocery supermarkets, whether multiple or individually owned, any one of which could handle the trade which had formerly sustained a number of smaller, traditional shops. Much modern shop equipment and lay-out which facilitated goods handling and customer movement could be accommodated only in larger establishments and gave these a further advantage in efficiency. With rising standards of income, a number of small neighbourhood groceries which had afforded a subsistence to their owners came to be no longer regarded as providing an acceptable living and gradually went out of business, often on their owners' retirement.
Shifts in population naturally also had an effect on the distribution pattern. The overall increase in population did not lead to an increase in shop numbers because it was greatly outweighed by the factors just mentioned, but it must be assumed that without it the decline in shop numbers would have been even steeper.
The fall in the numbers of shops in some rural areas where the effect of supermarket competition is very limited is no doubt attributable in part to the decline of the rural population. The areas where population has grown fastest, newly urbanised areas on the perimeters of cities and large towns, are precisely those which have been most attractive to the supermarket multiples, and for planning or other reasons the extent to which these new areas have been serviced by newly opened independent grocery shops is notably limited. Smaller shops, run by the proprietor with little or no help, are today largely confined to rural areas and to the central areas of cities and towns.
While these developments had the effect of bringing about a substantial reduction in the number of shops, it is generally agreed that they have been to the considerable benefit of consumers, bringing in their train the advantages of wider choice, one-stop shopping and, on the whole, lower prices. It will be seen therefore that the decline in retail outlets was due more to normal forces of change, which entailed the development of the multiple chains, rather than to any specific abusive practices by multiples.
The effects of these normal forces of change were not confined to the area of grocery distribution alone. Many areas have been affected and, indeed, many have disappeared, not because of any practices engaged in by competitors but because demand for services provided had changed or disappeared. At an early stage in this revolutionary process it was recognised that there was a need for a policy framework within which the various economic sectors would develop in accordance with the interests of the common good. One reflection of this policy was the enactment in 1953 of the Restrictive Trade Practices Act which facilitated the tackling of various undesirable practices which existed.
Under the Restrictive Trade Practices Act, 1953, the Fair Trade Commission were established and given the powers to carry out inquiries into the supply and distribution of goods and to make recommendations to the Minister for Industry and Commerce for action to deal with any abuses identified. Shortly after their establishment, the commission noted that there was creeping paralysis of price competition in large areas of distributive trading and a tendency towards the freezing of distributive arrangements without allowance for economic change.
Among the practices which were recognised as being widespread were limitation or regulation of entry to trade, resale price maintenance by manufacturers, price fixing and margins fixing by trade associations, punitive action against traders who have not observed such fixed prices or margins and various other devices which were alleged to restrain or suppress competition unfairly or to the disadvantage of the public.
One of the first areas which received attention by the commission was the grocery sector and in view of the clear importance of this sector this was not surprising. This was the first reflection of a concern that competition in this sector should be fostered but that such competition should be fair and healthy, a concern which has been evident up to the present.
The first inquiry was held in 1955, at a time when the extent of price competition was quite limited, a number of products were still subject to price control while others had their resale price fixed by the suppliers, and the modern type of supermarket had not yet emerged. The main issue at the inquiry was whether resale price maintenance was contrary to the public interest. In their report, the Fair Trade Commission concluded, inter alia, that price competition at retail level would be beneficial to the public and they recommended that individual or collective action designed to secure the maintenance of resale prices should, therefore, be prohibited. On the other hand, they deemed it necessary to have certain safeguards against excessive price cutting; it was recommended, for example, that a supplier should be permitted to withhold goods from a retailer who was selling the goods to the public at a price lower than the wholesale price charged to retailers for the goods. The commission also examined and made recommendations in relation to terms and conditions. In essence, they sought to maintain as much flexibility as possible —and their recommendations were designed to ensure that terms and conditions of supply would be reasonable and would be applied equitably to all persons seeking supplies. The Minister for Industry and Commerce gave effect to the commission's recommendations in the Restrictive Trade Practices (Groceries) Order, 1956, which he subsequently amended in 1958.
This order established, in effect, a framework within which the grocery sector could develop to meet the changing demands of an increasingly sophisticated consumer as efficiently as possible, while, at the same time it prohibited any practices which might have unjustly or unreasonably enhanced or adversely affected the position of parties involved. In order to ensure that the objects of this legislation were achieved, it was subjected to review on a number of occasions and the primary legislation was replaced by the Restrictive Practices Act, 1972, which, among its new provisions, created the post of Examiner of Restrictive Practices, whose duties include the investigation of any aspect of the supply and distribution of goods and the monitoring of the operation of orders made under the Act. At the initiative of both the examiner and the commission the specific legislation applying to the grocery sector was reviewed on a number of occasions and the legislation amended to cater for changed conditions.
Probably the greatest area of concern in these reviews related to the operation of the provisions concerned with the terms and conditions upon and subject to which goods were supplied and the ability of persons to obtain improvements in those conditions. This reflected a recognition of the changing structure of the trade entailing expansion of the multiple sector and changes in the traditional role of the wholesaler. The object of the legislation which was enacted following those reviews was to ensure that suppliers made goods available in accordance with standard terms and conditions which they were required to maintain and that where supplementary terms were made available, their application should be in accordance with specific guidelines established.
The most recent full-scale review in this area was ten years ago, in 1971 and, while some of the legislation enacted on foot of that review has subsequently been amended in an effort to bring it into line with more modern conditions, it must be acknowledged that the basic changes that have occurred in the structure of the sector since 1971 must lead us to ask the question, "Are the conclusions reached in the context of grocery distribution in 1971 valid in the conditions prevailing to-day?" For example, there is at present a widescale campaign by certain parties representing wholesalers and retailers for the introduction of a mandatory allowance by suppliers to wholesalers to reflect the economies achieved by suppliers because of the wholesale function. This question had been considered by the commission in inquiries in 1956 and 1971. In their report of the 1971 inquiry the commission reported that while functional differences in terms existed in a substantial number of cases on paper, it emerged in the course of the inquiry that supermarket multiples were usually in receipt of best terms from the great majority of suppliers, so that in practice functional discounts did not provide a net benefit to the wholesaler compared with the multiple. It was suggested in the course of the inquiry that the wholesalers should receive an additional discount over and above those available to retailers in recognition of the services they perform for retailers. The suggestion was opposed by manufacturers, the multiples and one wholesaler. In the circumstances of the trade then pertaining, the commission outlined their conclusions generally, as follows:
they had serious reservations whether functional discounts were any longer appropriate to the structure of the trade;
a wholesale differential could help to maintain inefficient wholesalers in operation;
allowing slightly lower discounts to multiples and slightly higher discounts to wholesalers would be likely to create a highly unstable situation because different suppliers would apply the differential differently;
conceding the differential could lead to multiples establishing wholesale warehouses to qualify as wholesalers;
manufacturers could not bear the cost of granting a wholesale discount without increasing prices, possibly ultimately leading to imports;
changing distribution channels might be decided on by manufacturers, including, in particular, own delivery if the differential were to be conceded.
The commission concluded that they did not consider that a supplier who does not provide a differential for wholesalers in his terms of supply is discriminating unfairly against them, or offering terms that in their effect are contrary to the public interest. On the other hand a supplier, who believed that a differential for wholesalers would contribute to the efficient and economical distribution of his goods, should be at liberty to provide for it in his terms of supply. In effect, the commission consider that the giving or withholding of a wholesale differential is a matter for the individual supplier in his judgment of his requirements. The mandatory allowance was not, therefore, provided for in law.
It is considered now, however, that there have been developments in the meantime which could make it necessary to re-examine whether conclusions reached in 1971 remain valid in today's circumstances. Chief among those developments are:
(1) the change in the structure of the grocery trade, notably the growth of the market share held by the multiples, the change in the traditional wholesale function in that part of the wholesale trade now represented by cash and carry establishments and the disappearance in large part of direct delivery by suppliers to non-multiple retailers,
(2) the growth in buying power, a consequence of which is that, whereas at an earlier time a supplier might have decided to allow or not to allow a wholesale differential in particular cases primarily in the light of the respective costs involved, he is more likely today to be influenced by pressures from one or other group of his customers, and,
(3) the increased facility today with which Irish goods can be replaced with imports.
It will be seen, therefore, that circumstances have so changed in the trade since the last full inquiry that there appears to be, at least, a case for re-examining the considerations relating not alone to the question of the wholesale differential but to the general question of terms and conditions upon, and subject to which, goods are supplied. It is also pertinent to refer at this stage to the impact of structural change on suppliers in their application of terms and conditions. Much has been said and written about the level of concentration in the ownership of multiples and the effect this has on suppliers. In this regard it is noted that buying on behalf of the independent outlets has, for the greater part, been concentrated in the hands of one body representing independents. It will be acknowledged, accordingly, that there appears to have been a concentration in buying points to a figure of six. While not all increases in buyer concentration and buying power are undesirable, it would seem appropriate that the extent of buyer concentration should be ascertained, with a view to considering the need to prevent the accretion of unacceptable levels of buying and selling power.
It would also seem appropriate that the merits of introducing a system of preventing the abuse of buying power which might be practised by dominant firms should be considered. It is also desirable that forms of price discrimination which systematically favour powerful buyers or threaten to eliminate small firms from the market — whether suppliers or retailers — should be investigated, especially when the price differences are not based on differences in cost.
It is because of concerns in these areas in particular that it has been decided to request the Restrictive Practices Commission to hold a full-scale inquiry into the supply and distribution of grocery goods. The promoters of the Bill we are now discussing will probably ask why, if we acknowledge the existence of problems in this area, we are not pressing ahead at this stage with legislative proposals to remedy them. The answer to such a question is, yes, we acknowledge the existence of problems but it would be foolhardy to rush in with purported solutions without first examining in the greatest detail, and in the light of today's changed conditions, the extent of the problems and their causes and, in the light of the conclusions of such examinations, determine the course of action which is in the interest of the common good.
I am absolutely satisfied that such investigations should be carried out within the framework of the appropriate law, the Restrictive Practices Act. We have seen over the years the benefits of availing of the facility afforded by this Act, and its predecessors, to deal with unfair and unjust practices, and the freedom of trade enjoyed, and consequent benefits which accrued to all from the supplier to the consumer, are a fitting return for those who strove against many entrenched interests to achieve a healthy, competitive, internal market. The appropriate body under the Act to carry out such an inquiry is the Restrictive Practices Commission and I have the utmost confidence in their ability to isolate the practices which operate against the common good and to recommend courses of action which while dealing with the problems identified will best serve the common good.
Before I proceed to consider the Bill, I should like to refer briefly to a number of matters which have been suggested as justifications for introducing the Bill. Great emphasis is being laid by many persons on the influence of foreign-owned chains in the Irish market and the implications of this involvement for Irish industry. It is also being suggested that the alleged high level of imports of foodstuffs is in some way attributable to the presence of these foreign-owned companies in the Irish market.
As regards the level of imports, a pretty dismal picture is being painted by different persons of the volume of imported foodstuffs. In considering these statistics, it should be borne very much in mind that the volume of imports of products which compete directly with home produced goods is nowhere near the figure being tossed about. If one is to express concern about the level of imports, it is surely misleading to include in statistics in support of figures for imports of products such as bananas, oranges, grapes — including sultanas, raisins and so on — and other fruits and vegetables which are not and could not be grown in this country. Notwithstanding the fact that the statistics can present a picture which is misleading, it is of course acknowledged that there is a problem in relation to food imports. But the way to tackle this problem is not to proceed in the manner proposed in the Bill, that is, to impede the development of the types of outlets which are accused, in large part, of responsibility for the level of imports. In this regard, it should be noted that there is strong support in the multiple sector for Irish products and, indeed, one of the foreign-owned multiples which has been subjected to much criticism is recognised as being one of the strongest supporters of Irish goods.
As I have said, there is a problem in this area and, in order to deal with this, among others, a Working Party on Import Substitution was established in August 1980 under the chairmanship of the Minister of State at the Department of Industry, Commerce and Tourism — in fact, I am the present chairman of the working party. At that time it was acknowledged that the volume of competing imports of food products represented, by any standard, a considerable volume of goods and, prima facie, should provide considerable opportunities for the expansion of manufacture and employment in Ireland. It was considered that, for example, there were promising manufacturing opportunities in fast-food products, fruit juices and processed fish products, if backed by effective marketing. So that any opportunities could be exploited, the Irish Goods Council, in liaison with the Industrial Development Authority, have been examining the situation with a view to identifying those areas offering possibilities for substitution. Industry is also being encouraged to pay greater attention to new product development particularly more specialised products away from the “main stream” products as these offer some of the best future growth prospects for certain sectors of the Irish food processing industry. Additionally, renewed approaches are being made by the IDA to food firms to take up the attractive 50 per cent grants available towards salary, materials and consultancy costs of developing food products.
As regards the role of the food distribution sector, agreement was reached in September last at a meeting of representatives of wholesale, retail and manufacturing interests, under the chairmanship of the chief executive of the Irish Goods Council, that for an initial six month period, the wholesale and retail trade would:
—initiate no new importation of primary food lines
—enter into discussion with Irish manufacturers with a view to substitution of lines currently imported
—where imported products are sold by an Irish manufacturer, procure those products from that manufacturer rather than through external sources
—undertake special steps to ensure that the Irish-made products are highlighted on their shop shelves.
Based on the outcome of a recent survey, the following are some results of this initiative:
—with the exception of a growth in importation of chickens and eggs from Northern Ireland, there is no evidence of other primary food lines having been imported since the agreement was negotiated
—one major multiple, and two groups, have initiated discussions with a number of manufacturers with a view to substitution of Irish for imported products and with regard to new product development
—the practice of "parallel imports" has been discontinued,
—in the main an effort has been made by the multiples to highlight Irish products.
Finally, there were fears expressed in some quarters that the so called "price war" would lead to an increased volume of imported food products by the various multiples but there is no real indication that this has occurred. In fact, it has been noted that the relationship between home manufacturers and the multiples has improved.
It will be seen, therefore, that there is ample scope for action to deal with the problem of imports without resorting to the introduction of controls over the operation of types of retail outlets who are accused of being largely responsible for the high level of imports.
As regards the implications of foreign ownership of some multiples, it has been suggested that the controls proposed in the Bill are necessary to curtail development by these companies, which, it is suggested, is possible only because of the availability of external finance which allows either subsidisation of price cutting campaigns to enhance the success of developments or direct subsidisation of expansion.
In conclusion, I am opposed to the proposals contained in the Bill which I regard as constituting an interference with our long held belief in freedom to trade. Accordingly it has been decided to request the body established by law to carry out such inquiries — the Restrictive Practices Commission — to hold a full scale inquiry into all aspects of the supply and distribution of grocery goods.