First, I should like to thank Deputy Lynch for his very gracious comments. I enjoyed working with him for four years as Chairman of the Oireachtas Joint Committee on Small Businesses. I should like to put on the record the work that he and our colleagues on that committee did on this and several reports that we produced. We see from month to month more and more of the recommendations being implemented but, as he has said, different points have not yet been taken up to date and we hope that they will be taken up by the Government. I thank him publicly for his kindness.
I have been very immersed in this issue since 1984. I first studied it as Chairman of the Oireachtas Joint Committee on Small Businesses, took evidence from everyone involved in it, from suppliers, retailers, both independent and multiple stores, to experts in competition law, former Examiners of Restrictive Practices, different people involved in different spheres, civil servants and so on. From that time I have been absolutely committed to the view that if you allow a totally free market, laissez-faire approach to the retail and distribution sector, that is a recipe for chaos, a recipe in the short term for oligopoly and in the long term for monopoly which is not in the consumer's interest and not in the interest of Irish employment or Irish trade. I am very strongly of the view that the delay with this legislation is extremely regrettable.
I published a Private Members' Bill not only in the lifetime of this Dáil but of the last Dáil and would commend the Minister for his initiative in bringing forward this Bill. I shall later on deal with the advantages and disadvantages of the ministerial order versus a Bill such as I have proposed. The fact that the Minister has grasped the nettle is important and he is worthy of support.
I should also like to place on record my appreciation of the efforts of the former Minister for Industry and Commerce, Deputy Noonan, who at all stages was supportive of my Bill in a personal capacity and brought the proposal before Cabinet, which resulted in the RPC inquiry into the grocery trade. There are many people who have changed their minds in regard to this issue and that needs public appreciation. I am mindful of the fact that in 1980 the RPC published a report which was strongly against a ban on below-cost selling and instead went for a ban on advertising. The official view of the Department of Industry and Commerce consistently over a period of several years was one of total opposition to this Bill and I was told so in no uncertain terms, based on the gospel of the RPC report. I am glad to see that many people have now seen the light on this issue.
The reasons such a ban on below-cost selling is necessary are very simple. Below-cost selling has to be banned, because, firstly, it puts intolerable pressures on Irish manufacturers and suppliers and because of the pressures of market share they are forced to supply goods at unsustainable terms. A second reason why a ban on below-cost selling is essential is that below-cost selling is misleading to the consumer. During 1985 and 1986 I carried out a survey of consumers to show that they were being misled by the practice of loss leading and the selling of a small range of items below cost while at the same time the supermarkets were selling many other goods at a rate higher than they needed to have been sold at. Therefore, the housewife was induced into the supermarket in order to buy a number of goods that she recognised were exceptional value only to find that the total shopping basket was in fact a lot dearer than it should have been. The third reason why below-cost selling should be banned is that the practice of below-cost selling allows for a modus operandi for the most gross distortion in any trade and that is unprecedented in this country.
Many people are asked to buy goods from wholesalers and suppliers at a price above which their competitors are selling them to the public. This morning, we heard one definition of unfair trading practice. It is totally unfair for someone to have to buy a product at a price above which someone else is already selling it. In other words, they cannot compete and that is unfair. The principle of below-cost selling is the same as that which was enshrined in the Restrictive Practices (Groceries) Order, 1981. I moved a Private Members' Bill because of the High Court decision which found that order to be defective.
Deputy Lynch also referred to the fact that the Oireachtas Joint Committee on Small Businesses carried out a very detailed study of the international scene. In 25 of the 50 states in the United States there is a ban on below-cost selling and in a number of countries in Europe such as France, Belgium, Luxembourg, Austria and Switzerland the controls which we are now seeking to introduce here are in place. In simple terms below-cost selling is anti-consumer, is detrimental to employment and prohibits a fair trading environment in the retail sector.
I would now like to deal with some of these issues in detail. Some of the comments which were made this morning were lacking in a detailed knowledge of the sector. This sector employs 35,000 people and has a turnover of £2.6 billion per annum and it seems extraordinary that the State has no policy on that sector. A White Paper on the retail and distribution sector has never been published. Recently I paid a trip to Japan and the reason why their unemployment figure stands at 3.3 per cent is that they have very heavy employment in the service sector. It is estimated that by 1990 60 per cent of all employment in Japan will be in the service sector. They think in terms of getting jobs in the service sector and they realise the limitations which having 23 per cent of the labour market employed in manufacturing puts on them.
We look to the IDA to produce jobs but the fact is they cannot produce them. Likewise, in America the millions of jobs which have been created during the recent boom have all been in the service and value-added sector. It is high time that we pursued measures which deal with competition policy, which have an overall view of where the service sector is going in Ireland and which ensure that it creates the maximum number of value-added jobs. This Government should take this very large and important sector seriously and should not see it as a source of VAT, PRSI and PAYE returns.
I would like to refer to the price awareness survey which I carried out. It showed beyond any doubt that the practice of loss leader and the practice of selling a few small items below cost is misleading to the consumer. I should point out that the resources which were available to me to carry out this survey were such that I could not hire the MRBI or one of the more expensive research companies. It was carried out on a voluntary basis. Five hundred shoppers divided between the north side and south side of Dublin were asked to identify the prices of a number of wellknown products. One of the interesting results of that survey showed that 109 shoppers could not remember any of the prices of 79 frequently purchased items such as sugar, butter, jam and corn-flakes. Therefore, over one-fifth of shoppers could not remember the price of any of the goods.
Two hundred and sixty shoppers or two-thirds of those who could remember any of the prices could only remember the prices of between one and ten items, such as biscuits, dried fruit, processed peas and so on. We must remember that in any supermarket there are somewhere between 2,000 and 4,000 different items, if we take into account the product range, the choice between brands and own brands. A simple conclusion can be drawn from this survey and that is that shoppers cannot remember the prices of all the items in their shopping basket. If they cannot remember the prices it gives a marketing tool and technique to the multiple stores. They may say that if the housewife cannot remember the price of, say, dog food they could sell the products, the prices of which she remembers, such as biscuits at a lower price and they could charge her more for the dog food because she will not know whether she is getting good value or not. Because of this lack of awareness, the marketing tool of the loss leader has been enormously successful.
Once the marketeers have established that consumers do not remember prices, and they have a lot more resources at their disposal than anyone in this House or the Examiner of Restrictive Practices, they can ingeniously increase their market share and sales. Therefore, leader pricing and loss leaders are nothing new. They are used as a psychological marketing tool and are very effective throughout the world. The Stanton report of 1985 in America went into great detail on how this marketing tool is used to win over different market shares. The consumer will be the first to benefit by a ban on below cost selling. How will the supermarkets attract new customers if there is to be a ban on below-cost selling? What they will have to do is sell at cost a wider range of items and that would mean that the net cost of the total shopping basket would be cheaper to the public, and they would have a wider choice of better-value goods and that is directly in their interest. Therefore, instead of being mesmerised on a limited number of heavily promoted and heavily marketed goods they will get better value across the whole range of 2,000 to 4,000 items.
The second area which is extremely important is jobs. We pay a lot of lip service to jobs but, when it comes to doing something about the problem, there is great reluctance. I have seen many different studies, some confidential, some public, of the effect of the current situation in the retail trade on Irish manufacturers. It has to be said that the fact of economic commercial life to most of our traders, suppliers and manufacturers, no matter how big they are, is that they have two choices when dealing with Quinnsworth, Dunnes and other large supermarkets. Their first choice arises when their contract comes up for renewal and when they can be told: I am very sorry, we will have to renegotiate your contract, extend your credit terms, reduce the price, or in some way, negatively affect your line of business.
That is one choice. One trades on their terms, the most favourable anywhere in Europe because of their inordinate buying power and dominance in the retail trade. The second choice is to be de-listed and taken off their shelves. Because there is such dependence, because there is such a strong market share in so few hands the supplier and manufacturer cannot be at the loss of that market share. Therefore, there are two choices open to one. One can either go out of business by losing market share, sales and turnover or by selling at a loss. That may sound interesting rhetoric. But when we look at the IDA Report on the Food Industry 1985 we see clearly that the type of conclusions they came to bore out that these practices were and are taking place. In Autumn 1985 the IDA published a statistical profile on the significance of different sectors of industry in Ireland. This survey was compiled by Stokes Kennedy Crowley. The imporant facts to emerge were that sales, per employee in the food industry, were 89,000, in comparison with 72,000 in electronics and 56,000 per employee, as an average in manufacturing industry. In the area of Irish services used the food sector led with 93 per cent. Therefore, it will be seen that there was more indigenous benefit to Ireland in the food sector than any other, the average in Irish industry being 77 per cent. In terms of raw materials 87 per cent were Irish compared with 17 per cent in electronics and 49 per cent in furniture.
Here we have a sector very important to our economy in terms of the money made in the Irish food industry which will remain here, will not go through any black hole out of the country. The important point of this survey was the fact that the food sector was the second last, after clothing, in profit as a percentage of sales, due in no small way to the dominance of the entire sector by multiples. Profits, as a percentage of sales in the food sector, were 1.85 per cent. That bears reflection because what does one do when one's profits are that low? One is faced with a number of choices. One tries to export but one does not have a base from which to finance those exports, and we all know the cost of market entry abroad. If we look at CPC, Rowntree Mackintosh, Cadburys, Beechams, Batchelors, Birds, Nestlé and all of those we see that what happened was that a lot of those parent companies in the United Kingdom decided there was just no point in trying to compete in terms of an Irish production unit and haggle with the purchasing managers of the large multiple stores. They decided they would retreat out of Ireland and sell from their main headquarters plants. They decided to insist that if these large multiple stores wanted to deal like big fish in a small pond they would have to get into a bigger pond and deal with equally bigger fish. Therefore, if one is dealing with the Coca-Cola Corporation or with the head office of a multinational one will not kick them round in terms of being knocked off a shelf, or laying down terms in relation to credit, discounts or whatever; one just will not get away with it. In my view that is a direct consequence of multiple store dominance. We have seen a retrenchment, a moving out of Ireland of jobs and manufacturing plants, owned by British multinationals especially, who were not prepared to put up with this predatory dominance that was taking place. Undoubtedly the biggest single reason for this measure is to ensure that the Irish food industry has some viable future in terms of domestic sales. If the present position went unchecked there would be a very slim future — as per that IDA report of 1985 — in relation to its profitability.
I should like to say a few words about the study we conducted in the Oireachtas Joint Committee on Small Businesses in this area in 1984. When one studies the retail sector here one of the most striking things one notices is the change that has already taken place because, to some extent this legislation — and even my Private Members' Bill — is closing the stable door after the horse has bolted. This horse has certainly bolted when one observes that in 1971 multiple stores accounted for 50 per cent of the total trade in Dublin and 30 per cent of the trade in the Republic of Ireland. One sees very quickly how the situation had changed three short years later when multiples were controlling not just 30 per cent but a whopping 58 per cent of the national grocery trade, when the relevant percentage in Dublin city and county had risen from 50 per cent to 81. In three short years that can happen. Yet it took another three years for this measure to be introduced.
Someone earlier this morning questioned the validity of any statistics in relation to sales. Here I am quoting from Attwood Research of Ireland Ltd. on sales ending the week of 23 March 1984. I predict confidently that we will continue to see, within the Irish retail trade, a growth in the strength of the position of Dunnes Stores and Quinnsworth. We have already seen Tesco and H. Williams go under. I believe more will go under for the simple reason that effectively they will be unable to compete.
One of the most galling things as far as I am concerned is that when one hears one's friendly supermarketeer interviewed on the radio, his response to a ban on below cost selling is to turn around and say that this will be awful for the consumer, that they will be criminalised for selling below cost. What they are endeavouring to do is bring about a situation in which H. Williams will go bust, one in which their market share will increase to a point at which they can do a little cartel arrangement with the one other big multiple that matters. Having obtained terms that nobody else can get from their suppliers they will say: now that we have taken the heat out of the situation, now that we have turned the hose on our competitors and got rid of them it is time to make some serious money out of this business. As sure as night follows day that is what will happen. Therefore not only does the consumer have a short-term interest of being misled into a concept of value but there is also the long-term factor that they have adopted a long-term strategic plan, which is to wipe out major opposition, knowing that the only people with whom they will be competing will be small storekeepers around the corner who can only buy in goods at a more expensive price than that at which they are retailing. Effectively that moves a monoploy of five into a monopoly of two or one who will operate as a cartel. No other country in Europe or the States has allowed such a practice to take place because they have realised the importance of the Legislature playing a role in competition. If we think, in a small consumer market of 3.5 million people, that we can adopt a totally free market approach to this area we are codding and deluding ourselves because there will not be the essence of free market, there will be a controlled market by very few.
We looked at the breakdown figures from Neilsen on the grocery market scene, No. 6, 1982. If one looks at those and the updated figures one will see, within the multiples, the changes that have taken place and the type of cartel that is shaping up.
People tend to throw their arms in the air about the food import figures, blaming farmers and others. I do not wish to apportion blame but I have direct experience, for example, of the National Potato Co-Operative where there was a genuine effort made to try to deal with their food import bill and it collapsed. I have seen other people launching small consumer products on the Irish market; they so desperately needed some shelf space. I have seen them go to the IGC and others to try to get in. The fact of the matter is that the market dominance of so few people renders this very difficult. I believe that the graph we have seen, in terms of growth of multiple domination in the retail trade, is mirrored exactly by the growth in food imports in these countries for the reason I have said, that multinationals would rather — if this practice continues — deal with their head offices than screw some local production plant out of existence.
Food imports which have shot up in areas where we cannot substitute the products directly have a great deal to do with the purchasing patterns of the Irish retail trade. International comparisons indicate the share of multiple stores and the figures are very revealing. One notable exception is the UK who have a laissez-faire free market approach but the essential difference there is that they have 50 million consumers and with their cheap food policy this can work for them. However, in Belgium the share of the multiples is 23 per cent; in Germany, a very strong free market power, it is 8 per cent; in the Netherlands it is 28 per cent; in Switzerland 11 per cent and in Italy 24 per cent. They all have a complexity of local and national regulations relating to planning, objection rights by appellants — existing local business — to controls on the trade, turnover and market share. We have not had control in this country prior to this legislation. I do not need to list all the individual pieces of legislation; it is all there in the appendix to the small business report. In America the Robinson-Patman Act works and there is effective control of the free market.
I wish to draw the House's attention to something which has a profound effect on the APC members in drawing up their report. This related to the OECD report on buying power in June 1980 and outlined in ideological and practical terms the consequences of lack of a competition policy. From reading the report anyone would be convinced that the arguments used by representatives of the food industry and independent grocers are the same as those used in many countries and are worthy of support, given sanction by the OECD. Therefore, it is not just an Irish problem or one of Irish individuals having this predatory attitude. It is a worldwide problem and is part of global trade. That report was very significant.
Comment was made this morning that competition policy regulations have never worked. There is an argument that price control regulations have never worked in the long term. They have worked for a while in rising inflation. However, I have an open mind about re-establishing the NPC. There is no doubt that competition policy legislation both at EC and national levels has worked and will work in future.
I turn now to the order itself. It is regrettable that the Department did not proceed with the legislation along the lines I proposed rather than by order. While an order is more flexible, legislation is a stronger indication to all those out there who are affected by this that the Government mean business and will take whatever steps are necessary to ensure that this will be properly enforced. Already there are extensive plans by way of collusion between suppliers, manufacturers and members of the retail trade to get around this legislation and there is no limit to their ingenuity. However, Irish manufacturers are going to have to make a stand. In many areas — for example, the wholesalers and bottlers in the drink industry taking on Guinness — if they do not stand together will be wiped out. We have seen in that area of competition policy how the acquisition of C & C, Savage Smith and Dwans effectively pins down the whole drinks trade. In the retail trade there is a need to ensure that the competition policy is effective to curb this predatory power.
The collusion I have referred to is not of willingness by both parties to enter into it; it is an obligatory collusion for the party who is the supplier or the manufacturer. They are told they will lose market share otherwise. The food, drink and tobacco section of the CII have a unique role to take a stand and to make it clear they will not be able, in areas of surplus capacity such as in the bakery business, to manipulate the situation, to play one off against the other. This is the most difficult aspect for manufacturers. When they are supplying one component to the retail trade as against another, how are they to decide to whom they should give preferential terms?
In relation to the collusion the Minister said in his speech that the situation would be reviewed in relation to supplementary terms within 12 months of commencement of the Act. I hope that a loud and clear message will go out to all concerned that whatever loopholes are found will be suitably plugged and that a clear message will go out that this matter will be rigorously pursued. The fines and penalties of £10,000 or six months in jail are an excellent deterrent in this regard.
It has been suggested that the advertising ban would be adequate. We know that this has been kicked out by Mr. Justice Lardner. The definition that is required of a net invoice price plus any taxes, VAT or whatever as defined in the ruling of Mr. Justice Keane in the High Court on 20 December 1979 will be satisfactory, but maybe at an early date Mr. Jim Murray will have to take a case to make an example of some people. I hope the media will take the right attitude in portraying them for what they really are, people who are doing a major PR exercise to delude the public that something is in the consumers' interest when it is not in their interest.
Net invoice price is essential, but the point in relation to collusion and enforcement is that manufacturers will have to stand up and be counted. They will have to be self-policing in relation to that. They will have to furnish unambiguous data to the powers that be in order to ensure this is properly curbed. If they take an attitude similar to rats and mice and try to hide behind this they will not get what they want. They must take a very tough stand indeed.
I should like the Minister to clarify whether the consumer will benefit from discounts at the end of the year in the case of long-term agreements. There is a strong case for the consumers to enjoy these benefits. I should like the Minister to confirm that those LTA concessionary discounts will be passed on to the consumer and will not be confined by the provisions of this order to the retailer.
As far back as the general election of 1981 my party promised to introduce this legislation. While there have been varying views of different kinds it has been significant for those in the retail trade who have been decimated that Fine Gael have taken a consistent stance. It is a matter on which there should have been all-party consensus at an early stage.
I do not wish to delay the House unduly since I will be speaking again on Committee Stage. I hope this measure will have the early effect of safeguarding jobs in the food industry and will allow that industry to have a real basis from which to expand its exports. We must remember that 80 per cent of indigenous small firms do not export at all, even if one includes Northern Ireland as an export market. Instead of jigging around with the edges of the retail trade and introducing totally vague Bord Pleanála style guidelines which can be interpreted differently by two different planners, we should set out a legal framework for the retail trade creating an environment in which all segments of the trade can compete fairly and competitively. If the consumer wants the benefits of the supermarkets such as a high standard of cleanliness and hygiene, a wide range of goods and good parking facilities, I am fully supportive of them.
I have said time and again to representatives of small traders that no legislature can prop up inefficient or badly run businesses and that the extent of resources and time they commit to training is too low. I have suggested that perhaps their organisations could do more to compete with the multiples by arranging joint insurance, joint book-keeping and accountancy facilities and many other services. Much lies within their own hands and legislation on its own will not protect them.
We are setting out to create an environment conducive to trade. From international experience I am strongly of the view that this will allow all segments of the trade to prosper and grow freely, so that there is the opportunity to set up new businesses and for people to buy at similar prices to those offered by the multiples, even taking into account economies of scale, but not disproportionate to that.
If this legislation had been introduced earlier it might have been enough but it may be the case that the horse has bolted and that we need to look at statutory controls in terms of market share. The report of the Oireachtas Joint Committee on Small Businesses recommended a 25 per cent limitation on any one retail chain. That has since been exceeded by at least one group and, depending on how the H. Williams division takes place, it could be exceeded by more. The question then is whether any two multiples should control more than a given percentage. The Restrictive Practices Commission should consider the most suitable market share desirable between independents and ranges of multiples with a view to getting the optimum value for consumers, lowest prices and best quality of service.
Some people have tried to depict a measure like this as anti-consumer. That is facile and simplistic and a total distortion of the truth. I am working on a consumers charter covering a wide range of issues such as particular professions who cannot display their prices, the ripoffs in door to door selling, lack of proper labelling and product identification in relation to certain alcoholic drinks, meats and other goods. In some cases the consumer is being flagrantly misled. My credentials in the consumer area are such that I would not have supported this measure were it not for the benefit of consumers. I hope it will be passed unanimously by this House. I realise there are major complexities in the Bill but to ignore the problem further, or to rely on an advertising ban that was made a mockery of, will simply result in 80 per cent or more of the grocery trade being held by perhaps two multiples. Individual traders will be able to survive only in very isolated rural areas which do not have the density of population to justify one of the large multiples setting up.
I commend this Bill to the House and assure the House of my full support.