The object of this Bill is to confirm an order which was made by my predecessor, as amended in a later order made by me under the Restrictive Practices Act, 1972, on the recommendation of the Restrictive Practices Commission, relating to the supply and distribution of grocery goods.
Before dealing with the detail of the orders which I am asking you to confirm, I feel it would be useful to outline very briefly for you my policy towards the distributive sector, and in particular towards the grocery trade with which we are concerned today. By its nature the trade must take the form of a vast number of small or, at most, medium-sized units; and while these may be completely independent, or organised in groups or in fact units in a chain, there can be no possibility of that degree of concentration which is an increasing feature of manufacturing industry. This being so, the efficiency of the industry and the service which it offers to the community must to an even greater extent than in industry rely on the enterprise and efficiency of individuals.
I believe that the distributive sector, and the grocery trade in particular, have shown their ability to adapt to the changing demands of society. The last 15 or so years have shown quite a remarkable change, indeed almost a revolution, with the development of supermarkets, self-service shops, one-stop shopping, convenience foods and other features with which we have all become familiar. On the whole these developments have been desirable. The two features in particular which I am anxious to see maintained are efficiency and competition. On the one hand, I do not want to see the inefficient shopkeeper who is unwilling or unable to move with the times kept in business artificially out of a mistaken sentimental attachment to the idea of "the small man" in business. Neither, on the other hand, could I tolerate a situation where financially powerful groups or chains would edge the family shop out of business and establish monopoly or oligopoly conditions. These two aims will be advanced in substantial measure by the Bill which is before you today.
I turn then to the Bill itself, which is intended to give effect to orders made following an inquiry which the Restrictive Practices Commission undertook on their own initiative following numerous complaints of unfair trading practices in the grocery trade. Almost one hundred witnesses were examined in the course of the inquiry. They included representatives of consumer interests, of distributors, both wholesale and retail, of manufacturers, of voluntary groups and of multiple supermarkets.
The principal issues considered at the inquiry were:—
(a) the allegation that large buyers, particularly supermarket chains, were able to secure from suppliers terms which we unfairly discriminatory against independent traders;
(b) the allegation that large buyers were thus enabled not only to have an unfair advantage in competition but also to adopt unfair methods of retailing; and
(c) the contention that a consequence of this situation would be the disappearance of many more small retailers and the attainment by a few large buyers of a position of complete dominance.
The commission distinguish between "standard terms of supply" and "supplementary terms of supply". They define the former as the terms, usually in printed form, which are open, and seen to be open, to all trade customers. Supplementary terms are other terms which individual firms may negotiate, privately as a rule, with suppliers.
So far as the standard terms are concerned the commission found that many large suppliers were applying them so as to discriminate unfairly in favour of large supermarket chains and against independent retailers and wholesalers. They recommended that standard terms and conditions of supply should be published, should be strictly observed, should be open to all traders meeting the relevant conditions and should not be set at unreasonable levels so as to discriminate unfairly against any trader or to exclude new entrants.
The commission found that suppliers were also operating supplementary terms of supply in the grocery trade, related to promotions, long-term supply agreements, advertising and merchandising. Promotions are offers of a product at reduced prices for a short period, generally a fortnight, and advertising allowances are usually linked with them. Long term agreements are agreements providing for the payment of extra rebates to firms which achieve agreed increases in sales. Merchandising means, in the context of the inquiry, the activities performed by employees of suppliers in promoting goods in their customers' outlets. These supplementary terms were granted mainly because of the bargaining power of supermarket chains who were the main beneficiaries. The commission felt that these supplementary terms were of an arbitrary character, favoured unfairly large scale buyers, facilitated the application of pressure and abuse of economic power and resulted in unfair discrimination. On the other hand, the commission considered that obtaining legitimate trading advantages was desirable in order to encourage competition. They recommended therefore that suppliers should be obliged to apply these terms in a fair manner rather than that such terms be prohibited.
The commission found also that there was discrimination in the granting of credit in favour of large supermarkets and they recommended that it should be prohibited.
In the grocery trade groups of manufacturers sometimes give terms to traders which are related to the aggregate purchases from all members of the group and not to purchases from each individual manufacturer. The commission recommended that this practice should be prohibited because in their opinion it tended to restrict competition and led to uniformity of pricing
The commission considered that "loss leaders", that is the selling of certain items below purchase price, stimulated competition and should not be prohibited. However, they considered that advertising by supermarket chains of such prices in newspapers and other media created an unfavourable and misleading impression of prices in small independent outlets and increased the domination of the trade by large financial interests. They recommended therefore that such advertising should be prohibited.
On 21st February, 1973, my predecessor made an order giving effect to the commission's recommendations. The order departs from the recommendations in two respects. First, whereas the commission had recommended that advertising allowances would be related strictly to services to be performed, examination has shown that this would be unenforceable in practice. Since the practice is not generally regarded in the trade as of particular value anyway, it was decided to prohibit it completely. Secondly, following representations that there was the possibility that Irish manufacturers might lose orders from large buyers because the order would impose on them restrictions not applicable in practice to foreign suppliers, the order provides for throwing light on any developments of this kind by requiring traders who import direct from suppliers abroad to register the full terms and conditions of such purchases with the Examiner of Restrictive Practices, as our home suppliers have to do. Any attempt by traders to evade their obligations under the order in this way would be a serious matter, and I have made special arrangements to have a close eye kept on developments so that I may be able to take quick remedial action should that be necessary.
Paragraph (a) of article 3 (3) of the order was intended to implement the commission's recommendations that where a supplier adopts quantity terms for the supply of goods such terms should be set at realistic levels consistent with the encouragement of efficiency and economy in distribution. The Article as originally drafted however could be held to oblige a supplier in, say Dublin, to charge a higher price for goods supplied to a customer in a remote country area than to one in Dublin. While a supplier is free to do this, it was of course never the intention that he should be obliged to do so. To achieve the original intention it was necessary to amend the order. I made the necessary amending order on 18th October, 1973, and I availed of the opportunity to make the article in question more precise.
Representations have been made to me that the orders, by removing certain special discount advantages which are at present obtained by some distributors, could result in the general public paying more for their purchases. This should certainly not be the case. The orders specifically provide for reasonable discounts related to bulk purchases. What they seek to prohibit is discount advantages over and above the economically justifiable level which some distributors could otherwise be able to demand by reason of their purchasing power. If a particular distributor loses sizeable special advantages of this sort, he may have to increase certain of his retail prices. However it can be assumed that where a supplier gave such special discounts he met the cost, not out of his profits, but by charging more than he would otherwise do to his other distributor customers. If, then, suppliers' prices to certain distributors increase by a certain amount, their prices to others should decrease by an equivalent amount; and prices to retail customers of these distributors should respond accordingly. On this basis there is no net increase or decrease, but prices and costs are spread more equitably. In actual practice however I would expect worthwhile economies in distribution costs to be achieved, since the highly uneconomic practice of having manufacturers deliver their goods in comparatively small parcels to a multiplicity of shops would be discouraged. The economies resulting from a discontinuance of this practice should help to keep global prices down.
It has been suggested to me that suppliers may increase prices to certain of their customers as a result of these orders and that there is no guarantee that these suppliers will correspondingly reduce prices to others. I do not think there is any great danger of this in present conditions of competition from the various sources from the efficient family grocer to the supermarkets. I am very conscious of the need to safeguard the ultimate consumer against unwarranted price increases. I intend to do everything I can to ensure that this order is not used to exploit the public. I am sure that the National Prices Commission will keep a sharp eye out for any developments of this kind. I have every confidence that the vigilance of the commission will ensure that they do not occur.
The Restrictive Practices Act, 1972, provides, that orders of this kind shall not have effect unless they are confirmed by an Act of the Oireachtas. The Bill now before the Seanad is the confirming Bill which is necessary to give the force of law to the orders. With a Bill of this kind, the orders which it is proposed to confirm may not be amended by the Oireachtas but must be accepted or rejected as they stand. The matters with which the orders deal have been the subject of a lengthy and painstaking public inquiry and report by the Restrictive Practices Commission. The orders will go a long way to ensure fair play for the small shopkeeper and his customers and should put an end to the unfair practices in the grocery trade which have been so much complained of in recent years.
I regard it as very much in the spirit which I have outlined at the outset, and I have no hesitation in recommending this Bill to the Seanad.
