Seanad Éireann díospóireacht -
Wednesday, 2 Dec 1987

Vol. 117 No. 17

Restrictive Practices (Confirmation of Order) Bill, 1987: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Industry and Commerce (Mr. A. Reynolds)

The object of this Bill is to confirm the Restrictive Practices (Groceries) Order, 1987, which I made on 25 May 1987. This is a short two section Bill. One section is the Title and the other section confirms the order.

In July 1986, the Restrictive Practices Commission were requested to carry out a special review of the operation of the Restrictive Practices (Groceries) Order, 1981, in the light of developments since that order was made with particular reference to the issue of below cost selling and the general question of relationships between manufacturers — suppliers and retailers — wholesalers in the retail grocery trade. The review was carried out in the second half of 1986 and the Restrictive Practices Commission report was presented to me and published early in 1987. The report concluded that problems such as below cost selling, "hellomoney" and suppliers' terms and conditions had led to such an interference with fair trading that more radical measures than ever before were needed to rectify the situation.

The commission, therefore, recommended a number of changes to the 1981 groceries order including the introduction of a ban on below cost selling, the inclusion of intoxicating liquor and "generic" grocery goods in the terms of the order and the prohibition of the payment or receipt of what has become known as "hello-money". They also made certain suggestions in relation to the treatment of supplementary terms and conditions of supply negotiated between suppliers and retailers. Having studied the report I decided that the commission were correct in their conclusions and on 25 May 1987 I signed the Restrictive Practices (Groceries) Order, 1987.

The subject of below cost selling and its effects on the grocery trade has been a controversial topic in the trade for some time. In recommending a ban on below cost selling the commission found that there has been a rapid growth in own brand or generic products, on which below cost selling was being concentrated, and this increase had altered the power relationship between sellers and buyers. The commission found that some suppliers were actually paying allowances to the multiples on condition that their products would not be sold below cost.

The commission also expressed the view that below cost selling by the multiples distorts the consumer's concept of prices and this in turn puts pressure on independent retailers who, because they are not in a position to compete, can appear to be overcharging. I do not believe that below cost selling is beneficial to the consumer. Most shoppers do their main weekly shopping in one supermarket and, while some goods may be very cheap, this saving is offset by increases in the prices of other less publicised products.

This sort of price manipulation is not concerned in any way with the long term interest of consumers but with gaining increased market share which I believe to be detrimental to the consumer's welfare in this instance. I agree completely with the commission's findings and their conclusion that the existing constraint of a ban on below cost advertising has not been sufficient and that only a total ban on below cost selling will do away with this unfair practice.

I also accept the commission's findings that the exclusion of intoxicating liquor from the scope of the 1981 groceries order has meant that drink has been used as a loss leader by some multiples, with consequent adverse affects, particularly around Christmas, on the drinks trade generally. I have, therefore, included intoxicating liquor under the terms of the order.

In so far as "hello-money" is concerned, I believe that this practice is about gaining additional market share rather than providing additional benefits for the consumer. This practice can act as a disincentive to manufacturers particularly in the case of small firms new to the market. The fact that "hello-money" exists seems to me to provide clear evidence of abuse by large companies or retail groups, of their dominant position in the market place. I am accordingly banning both the payment and receipt of any money or allowance for the purpose of making shelf space or additional shelf space available for the sale of grocery goods.

The commission state in their report that they are satisfied that suppliers are continuing to discriminate unfairly between their customers. The 1981 groceries order requires suppliers to have published terms and conditions of supply and to sell their products on those terms. However, what has happened over the years is that discounts and allowances, which were not on the price list, were being given to major customers. While this practice is prohibited under the order, the commission feel that, before they make any further recommendations in this area, they need more information in relation to the various types of supplementary terms being offered by suppliers.

Consequently they propose to review the situation regarding supplementary terms 12 months from the commencement of the Act and in the meantime they made a recommendation, which I have included in the order, that retailers with more than five grocery outlets — and wholesalers when requested by the Examiner of Restrictive Practices — must forward to the examiner each month, details of supplementary terms negotiated with suppliers during the previous month. This will allow the examiner to detect possible breaches of the order and also provide the information for the commission's review in 12 months. Once this order has the force of law it is my intention to ensure that the provisions in relation to the publishing of terms and conditions by suppliers and the sale of their products in line with those terms, are strictly complied with.

The grocery trade has an important role in our economy. We are talking about a business where total spending is about £2.6 billion a year and which accounts for over 26 per cent of average weekly household expenditure. The intense competition which exists in this area might be expected to work for the good of the economy as a whole but we all know that this fierce competition has led to problems over the years. The balance between the multiples and the independent grocers has always been delicate and it has become apparent in recent years that the balance has swung too far in favour of the multiples. The over concentration of buying power in very few hands has obvious dangers for manufacturers, for the trade generally and at the end of the day for the ordinary consumer.

While I would not normally favour intervention in the market-place, I believe that the new provisions in this groceries order will go a long way to redressing that balance, particularly in the area of negotiations between manufacturers and multiples and in the area of competition between multiples and independent grocers.

I hope that these new provisions will bring an element of transparency into the trade and that the competition between multiples and independents will, in the future, be seen to be fairer than it is now. I am also convinced that by cutting out below cost selling, consumers will be able to get a more realistic view of the real difference in price between the two types of outlets, than they now have. I also hope that the provisions of this order, particularly the ban on below cost selling, will help to eliminate the more extreme fluctuations in price which we have witnessed in the trade in recent years.

The Bill now before the Seanad is the confirming Bill which is necessary to give force of law to the Restrictive Practices (Groceries) Order, 1987, which I signed on 25 May 1987. I can assure the Seanad that it is my intention to see that the terms of the order will be actively enforced and I also intend to review the operation of the order after it has been in operation for one year. I ask the Seanad to support this Bill to confirm the order and thus allow it to come into effect as quickly as possible especially before the grocery buying for Christmas.

Mr. G. Reynolds

I have no basic objection to the Bill but I would like to deal with two main points. I do not want to deal with the multiples and the small grocery business as the Minister has dealt with that but I do want to deal with any business in the vicinity of the Border. I come from an area which is only ten miles from the Border. Leitrim County Council, of which I am a member, spent most of last week trying to strike a rate. In Leitrim there are only 715 commercial ratepayers and most of them live within a radius of about 20 miles of the Border. During the estimates debate a lot of points were made. There has been a large increase in the rates on commercial property. In my two years as a member of the county council there has been a decrease in the number of ratepayers in the county from 815 to 715. This kind of expense on small business is having a detrimental effect. To lose 100 ratepayers from such a small number is very significant.

The number of people who go across the Border to shop, especially at this time of the year — I see them going through my town regularly — is having a detrimental effect on the retail business of the area, I am quite sure the Minister is aware of this. I understand that the Minister has sought a study into the alleged divergence in prices between the UK, Northern Ireland and the Republic and I would like to ask him to publish this report as quickly as possible. It would show a lot of people where there are divergences and it may go a long way in trying to alleviate an already quite serious problem.

We are the best country in the world for making laws and having legislation. The Restrictive Practices Bill is an example of this. I would like the Minister to try to allocate staff to the proper implementation and policing of these laws. Laws are enacted and after some time they just get caught up in legislation and due to lack of funding and everything else, some of the laws are forgotten about and not properly implemented. In this context this could have very serious consequences and I would ask the Minister to ensure that this legislation is policed properly.

Mr. Fallon

Like the previous speaker I would like to compliment the Minister on introducing this important Bill. As we all know, the reality is that there has been great concern in the industry in regard to the problem of below cost selling and the payment of "hello-money". This is dealt with exclusively in the Bill and it also touches, as the Minister has pointed out, the area of intoxicating liquor and generic grocery goods. The Bill also touches on the question of extended credit and other pressure on suppliers by the large supermarkets. As far as below cost selling is concerned I would welcome a total ban because I have seen what has happened in the past. It is necessary for the future to preserve the livelihoods of small traders. We are told there are 7,000 retail family grocers left in the country. The balance have been bombarded out of business because of below cost selling and "hellomoney" practices.

The Joint Committee on Small Businesses indicated that approximately 770 firms went out of business in the last three years. Of course this has resulted in huge job losses in the industry. I am wondering, even at this late hour, if it is too late. Hopefully, it is not, but certainly it would be my opinion that this Bill should have been introduced many years ago. The question is: do we want to give the complete Irish grocery trade to what really would be two multinationals? At the moment they have well in excess of 50 per cent of this trade. If we want to do that, then give them the "hello-money" and below cost factors but that will certainly put an end to the other smaller trades I have referred to.

The Minister referred to the question of whether the customers were not getting value. Multiples are suggesting that the housewife and the consumer are getting value, that they are saving pounds on grocery bills and so on. I agree with the Minister. This is in some way a myth. The actual position is that if below cost selling, "hello-money" and the other evils of the trade are banned the consumer will obtain more items at the proper cost rather than a few items in what is known as the loss leader situation. The housewife/consumer is not getting the value she thinks she is under the present system. She will save admittedly on the undercost items but will be hit on other items, it might be meat today, fruit tomorrow. This is the secret of the survival of the large multinationals. This is how they have helped to put so many small family grocers out of business. All over the country the small retail grocery trade got smaller year by the year. In fact, towns like Athlone and Longford have lost small family groceries because every year there is a noticeable diminution in that trade.

Unfortunately the multiples have become so powerful that they can, in fact, totally dictate their own terms of purchase. They can totally dictate their own credit facilities and they can dictate their own "hello-money" deals. Therefore, it is easy for them to sell as they do. Often they have three, four or many more months of credit. The knowledge that this credit can run into hundreds of millions of pounds and that they can have this money for their own use can prove disastrous for the unfortunate manufacturer or the unfortunate supplier. Suppliers must then, because they are committed to the companies, toe the line in whatever way is dictated to them; otherwise their products could be removed from the shelves.

I believe there has been an element of ruthless behaviour on the part of the multinationals. I have been told by manufacturers and suppliers of true cases of taking — not of their own choice — small percentages of profit of maybe 4 per cent, 5 per cent or 6 per cent and perhaps being told two months later that there is a price change and their profit margins will be reduced. The unfortunate supplier/ manufacturer having, as it were, put all his eggs into the one basket has very few options left and he must play ball with the person who is taking his goods. This, of course, has led to a great degree of insecurity on the part of manufacturers and suppliers. If they want to stay in business — and obviously they want to stay in business — they must toe the line. If they do not play ball they are told by the multinationals: "We are delisting your product".

As I have said, it is a question of credit: there is no question about it but that they are keeping prices down by using the housewife's money which they use on a daily basis. They have huge turnovers, huge credit facilities, so they use this money wisely in the investment market with success, obviously. They make large profits and give some items at reduced rates to the detriment of other retailers in the town or area.

The question of "hello-money" is obviously one of concern too. I believe it is a despicable practice. If a product is good enough to be put on a shelf there should be no need for expensive financial gimmicks on the part of the manufacturer and supplier. I know there are heavy penalties within the Bill for breaches in regard to "hello-money" and below cost selling. While I might have some doubts about these devices being implemented in another guise, I would like to think this would not happen and that the penalties will be sufficient deterrent to prevent it forever.

There was a Bill here some time ago, dealing with building societies and a question was raised by the Minister and by many speakers about the lucrative insurance commissions they were getting. It is part and parcel of the Bill that they should not be able to get involved in this area of activity but it is going on in full spate. If the building societies in that context are making lots of money they will fight all the way to keep that operation going. Similarly with the "hello-money" and the below cost selling the multinationals will be endeavouring as hard as they can to keep them in existence. The situation has to be watched and if there is any breach of the law the full rigours of the legislation should be applied.

It is certain that when you give in excess of £500 million of the national grocery cake as is the case at the moment to two of the multinationals, it can have dire consequences right across the board for the trade. The "hello-money" and below cost selling were in part responsible for the H. Williams collapse. They were a major contributor to the collapse of that company because of what I would call the despicable mid-summer madness that was carried on by the multinationals at that time.

They are still endeavouring to get huge buying power. Quinnsworth, for example, have four of the H. Williams stores and they are continuing and will continue to have increased slices of the grocery cake. Hopefully, this Bill will limit in some way that aspiration. A monopoly by the multinationals or a monopoly generally is wrong. They have the power of price. The knock-on effect has been enormous and it will continue to be disastrous if it is not banned which it will be as a result of this legislation. I am not saying that the multinationals and their operations are all wrong. I am not saying they have not got a role to play in the marketplace. Fair competition must be a key component of any trade. That certainly is not there at the moment.

Confidence, too, is gone on the part of many of the small retail and distributing sectors. We have the effects of the recession; we have high taxation rates; we have the casual traders who are part of the black economy. Many businesses have gone and more will close. Those are also reasons companies have gone out of business. The "hello-money" and below cost selling have dealt the deadliest blow of all. This monopoly that I referred to has been achieved. It cannot be of benefit to the Irish consumer and to the Irish economy generally.

There are other aspects of the Bill which will help to stabilise the retail food trade. It will help to protect the 40,000 jobs in the food and drink manufacturing industry, and in the food retailing and wholesaling area about 35,000 jobs. It will give a boost in confidence to the retail grocery trade — what is left of it. I have expressed doubt as to whether Maurice Pratt could continue to have the very confident and broad smile that he has now at key times on television advertising time, if he were asked to run a small retail outlet in any provincial town in Ireland and compete against the "hello-money" and the below cost practices of his present peers. I think there would be a change of smile somehow. From my point of view, it goes without saying that I congratulate the Minister on bringing this Bill forward. I support fully the broad principles of the Bill and I hope and feel it will be very successful.

Mr. Harte

I want to welcome the Bill, not because I have any love or hate for the multinationals or for the supermarket chains, but for the very good reason that it is a piece of good consumer protection legislation. The only thing missing — and it could not be included in this type of Bill — is the extension of consumer information about which probably a little more could be done. I get a little bit mixed up at times — I suppose a lot of people who know me would say: "Sure we know that, Jack." Sometimes you wonder whether competition is the best way to achieve efficiency, whether it actually stands up in the light of situations like this. Admittedly, the competition is not good, but it is competition and this is what society encourages. Because of the lack of controls, if you like, abuses grow up in these areas. It is nice to know a Minister can come in with this legislation. When it is introduced in the spirit of consumer protection I do not think there should be any quibbling about it.

One thing that worries me, not just about the grocery trade — one sees in the Official Dáil Report that people were talking about Easter eggs, and Hal-lowe'en, etc — is that we are inclined to overlook the fact that a lot of these supermarkets have very large clothing outlets and some are actually attached to the premises. Not only are you being attracted in on the basis of buying some so-called cheap product — in fact you are paying for it in another way — but you are also, if you are weak enough, being dragged into a situation where you finally finish up buying a pair of socks, a coat or something else. It does not begin and end there.

Another worry I have arises as a result of our membership of the EC, you wonder where you begin to bring in restrictions curbing restrictive practices and where you start thinking about the question of import control. Being a member of the EC you cannot bring in import control. You can only do that by having a very strong Buy Irish campaign; but you would not actually be saying you could not import. You can have all the protection you like in this area and it is good to have it, but on the other hand, if you have clothing coming in from Hong Kong and other areas and you have no control over that, the multinationals who have these vast outlets are getting the advantage of that also. I know this legislation is not strictly related to that but it is something that has to be thought about.

I agree with the Minister that there must be a limit to what you can say cannot happen. There was quibbling in the Dáil about whether things that happened should not have happened. You cannot stop that. There is also advertising. I do not think there is anything you can do about it in the sense that you might have the restrictive practices legislation but it will not stop the Maurice Pratts of this world finding some other way of attracting you into the shop. Nevertheless, it is good legislation. Without going too far into it, it is worthy of commendation.

Mr. Mulroy

I would like to make a brief contribution to this Bill and to say that I welcome it. Below cost selling is not a good practice. The use of loss leaders to generate increased sales is not to the advantage of the consumer. In actual fact, over a wide range of items in the food basket the consumer is paying much more for his commodities.

The Bill will also bring a degree of stabilisation to a £2.5 billion to £3 billion food industry. It will also help to protect the 40,000 jobs in the food and drink and manufacturing industries and 35,000 jobs in food retailing and wholesaling. It will mean that consumers will obtain more items at cost rather than just a few products at a loss leader level. I am sure the 7,000 independent family grocers who are trying to bring up families by running small grocery businesses will welcome this legislation and it will give them some added protection in the running of those businesses.

The Joint Committee on Small Businesses, retail and distribution, found strongly in favour of the ban on below cost selling in their report of September 1984. The OECD report Buying Power 1981 warns of the power of dominant buyers and states:

Therefore, if a law which deals with buying power by directly controlling certain forms of price discrimination is desired it should concentrate on those forms of price discrimination which systematically favour large buyers or threaten to eliminate from the market firms which would otherwise be competitive.

Generally speaking the Bill will be welcomed and it will give some protection to the 40,000 people employed in this industry. I welcome the Bill and give it my full support.

Minister for Industry and Commerce (Mr. A. Reynolds)

I thank the Senators who contributed to this debate for the welcome they gave this legislation. I refer first to the points raised by Senator Gerry Reynolds who, as we all know, comes from the Border region, as I do myself even if I am not as close to it as he is. We are all very well aware of the distortion of trade that has taken place over a number of years between North and South. To answer his query on the survey that has been carried out in relation to prices north and south of the Border, I want to tell him and the Seanad that it is with the printers at the moment and it will be published as soon as I receive it. I think it will help to focus on what the real state of play is.

Surveys have been done in the past by RTE I think on two occasions but one must always be careful when doing a survey to compare like with like. I know that one of the "Today Tonight" surveys was carried out comparing a small cash-and-carry in north-east Donegal with a large cash-and-carry in Belfast. That certainly was not comparing like with like. It was on a selected number of items. It is certainly true to say that some items were well out of line and immediately after seeing the programme I asked the Examiner of Restrictive Practices, to have the various items investigated. At least some of the prices have come back into line since. That is not to say that everything is cheaper there than it is here.

The survey we have carried out covers about 100 items which gives a fair and balanced view right across the baord. There is a differential between North and South for various overhead reasons such as that running a business down here entails higher energy costs, perhaps higher rates, insurance charge and so on. When one allows for that, major differentials that seem to exist simply do not exist. They may exist on certain items but it is like below cost selling down here. You can get it on a limited number of items. Really to take advantage of below cost selling down here the housewife would have to take the few items that are loss leaders in a particular multiple or supermarket and go on to the next one and take them there also. She would find at the end of the day that she was no better off if she counted the time, petrol and so on that she would waste in the process.

It is generally understood by the consumer that that aspect of below cost selling and loss leaders simply is not for the benefit of consumers. They may think it is on a certain number of items but, if they check that out right across the baord, they find that it does pay at the end of the day. It is all about increasing market share. As I said at the outset, it is not a pleasant duty for any Minister to have to interfere in the marketplace but when abuses such as this go on to the extent that they distort trade, when the small grocer is not given a reasonable chance to exist, consumer legislation comes into play. I will not hesitate to interfere again if the situation arises to the extent that it has arisen in this case.

In relation to the points raised by Senator Jack Harte — and I gather he welcomes the Bill as indeed all Senators have done — imports from the Far-East are a different proposition. There is a considerable amount of imports into this country that one would like to see substituted, almost £1.2 billion, on a close examination of the import list from the figures published by CSO. One can see considerable opportunities there. The Irish Goods Council, are very good at matching opportunities and products that are imported here to small suppliers and they give these suppliers the opportunity of import substituting certain items. There is a world of stuff being imported here which could be import substituted. It is my intention to bring the Irish Goods Council and the linkage programme together to try to capture some of the opportunities that exist.

I am glad all Senators have welcomed this Bill. It has been around for some time. It is a very short Bill. It is a two section Bill, one section being the Title. The other is confirmation of the Order which was signed on 25 May. It has been welcomed by RGDATA, the CII and everybody else as a bid to restore a fair balance to the trade and produce some transparency for the benefit of the consumer. It will be reviewed in 12 months time and let us hope that everybody looks at it and abides by the spirit of the legislation.

In so far as the multiple groups are concerned, I hope they will accept the changes I propose as an attempt to establish a fairer structure in the trade and will heed the warning not to abuse the unquestionably stong position which they now enjoy in the market place. In particular, I hope they will not attempt to circumvent the spirit of the new Order by seeking to develop new unfair practices which may not be specifically prohibited by the terms of this legislation. This would only force me to come again to introduce further legislation on this subject. It is hardly in anybody's interest to have a tightly controlled and regulated sector with legislative provisions governing every single transaction in the marketplace. That is not what I desire and nobody else desires it, but we have to ensure that malpractices as they develop are stamped out.

Finally, I warn manufacturers and suppliers that they must not, for their part, regard this legislation as any sort of crutch or protection against inefficient work practices or poorly developed products. It is my belief and, indeed, my experience that if a supplier's product is good enough, if the price if right, if the presentation is good and he delivers on time, he will have no difficulty in winning orders. The way forward must lie in cooperation as far as possible with the retailers rather than confrontation all around. So, at the end of the day, it is quality and reliability that matter. It is these factors, rather than any legislative and administrative measures which I could take, that will ultimately determine whether or not manufactures survive in the competitive environment of the grocery trade today.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee reported without amendment, received for final consideration and passed.