Seanad Éireann díospóireacht -
Wednesday, 10 Mar 1999

Vol. 158 No. 12

Restrictive Practices (Groceries) Order, 1987: Motion.

Ms Cox

I move:

That Seanad Éireann calls on the Minister for Enterprise, Trade and Employment to carry out a review of the operation of the Restrictive Practices (Groceries) Order, 1987, with particular reference to its effectiveness in eliminating the practice of below cost selling and the practice by some supermarket chains of absorbing VAT in order to gain competitive advantage.

The principle of reviewing legislation is important. The Minister for Enterprise, Trade and Employment and the Minister of State have at all times accepted that fact in legislation they have brought before the House, and they have often outlined the ways in which legislation and its implementation would be reviewed. It is important as a matter of principle that the effectiveness of legislation is reviewed to ensure it continues to perform the task for which it was enacted.

The Restrictive Practices (Groceries) Order, 1987, covers all goods with the exception of fresh fruit and vegetables, fresh and frozen meat and fish, intoxicating liquor and other household goods ordinarily sold in grocery shops. The order prohibits practices such as below cost selling and "hello" money and provides for controls on terms and conditions of supply. I will deal in detail with those later.

It was intended that the Restrictive Practices Act and its associated orders would be revoked when the Competition Act, 1991, came into effect. However, the only element of the restrictive practices legislation which was retained was the groceries order following lobbying from the retail grocery sector and the industry. The groceries order is considered controversial and there are two differing views on it. One is that it is harmful to consumers by restricting competition and that it has been set up to deal with a problem which does not exist. The opposite view is that it has protected small retailers and corner shops and has not allowed the dominance of the market by the large multiple chain stores. I can see value in both arguments.

Small retailers and corner shops are invaluable in terms of their contribution to society. The convenience and flexibility of running to a shop around the corner two or three minutes from the house to buy a pint of milk or loaf of bread or something else which has run out is invaluable. The fact that one does not have to queue at a checkout for five or ten minutes is often invaluable, especially as we get busier – we often run in for milk or bread in the morning before the children go to school or late at night to prepare lunches for the next day.

The corner shop is a valuable part of the community. It is where many people go on Sunday after Mass to pick up the newspapers and catch up on the local weekly gossip. People often go there to buy their lottery tickets. People see the local shop as a centre for the community. One of the faults found with newer housing estates is that there is no local centre where people can congregate and communicate. The corner shop is a vital part of the fabric of society. It also affords an opportunity for people to become self-employed by setting up small businesses. It is an economic necessity in terms of the employment it provides and the flexibility and service it gives to people who shop there. It is a vital component in society and also for competition in the trade. It keeps the larger retailers on their toes.

I referred earlier to the functions of the groceries order. There is a ban on below cost selling, which is the sale of groceries below the net invoice price. There is ban on "hello" money, which is the payment to a retailer by a supplier for stocking the supplier's good. Suppliers must also maintain published terms and conditions of supply and maintain a register of supplementary terms. Retailers may not receive any benefit from a supplier for advertising the supplier's goods and retailers must pay their suppliers on time in compliance with the supplier's published terms of credit. A supplier cannot discriminate for or against any retailer in the terms and conditions under which goods are supplied and a supplier cannot attempt to coerce a retailer in any way by threatening to withhold supplies or by any form of discrimination.

I wish to touch on a number of those points. I do not intend to discuss the issue of "hello" money. It is under investigation by the Director of Consumer Affairs. If the Director of Consumer Affairs or a tribunal, for example, is asked to conduct an investigation, they should be let do their work. We need to be wary of the area of net invoice price and below cost selling. Since the takeover of the Quinnsworth chain by Tesco, much of the distribution is imported directly from the UK. It is possible for large multiples with a base outside of the State to set the invoice price outside of the State. Then the organisation may import those goods for a price which would be below the price which would be put on the invoice in this country. That is something of which we need to be wary. No doubt the Department and the director will be keeping that in mind.

One other vitally important aspect of the groceries order is the fact that large purchasers must adhere to the published credit terms of small businesses and suppliers. Anybody who runs a business knows that cashflow is one of the most vital issues. One can be making a great deal of money in terms of profit but one's business will not be able to survive if the cashflow is not properly managed and if one's creditors are too large.

There have been a number of complaints under the groceries order but few have ended up in court. There have also been complaints recently about the practice of selling three for the price of two in some of the larger supermarket chains. While that may have something to do with low cost selling, it is also important to remember that the rights of the consumer are at stake. Often a consumer chooses to go to a large supermarket to get value for money. It is vitally important to maintain competition and not to take away the opportunity for consumers to buy their weekly or monthly groceries at a fair and competitive price.

The order was last reviewed in 1994 and 1995 and it has continued in existence since then. However, in 1996 the Competitions and Mergers Review Group was set up and it is currently reviewing the position of the groceries order as part of its work. Its terms of reference are to review and make recommendations on a number of areas, and it will be reporting back to the Minister later this year.

The group is also reviewing the effectiveness of the Competition Acts, 1991 and 1996, including the structures and methods of applications. The group is also reviewing the position of the Restrictive Practices (Groceries) Order, 1987, particularly the below cost aspects of the order, and it will make the appropriate recommendations for the future.

The reason for the motion is to focus attention on the importance of the review of this legislation, highlighting the importance of making sure there is not another price war in below cost selling and the practice of selling VAT free goods does not start in Ireland, particularly following the big change where many of the UK multiple stores entered the Irish market. Our purpose in tabling this motion is to ensure the protection of the jobs of the people working for suppliers and supermarkets in the industry in Ireland, to protect the rights of consumers and to ensure, where possible, that any savings which can be made through national distribution and large stores will be passed on to the consumer, but not to the extent that they will force smaller organisations and shops out of business.

Competition is vital in this business. The culture of allowing enterpreneurs and small shopkeepers to open up and maintain businesses is also vital, as is the availablity of choice to all consumers. Between these three concepts lies the answer to what is necessary to make sure that this important trade is regulated and nobody loses out. I thank the Minister of State, Deputy Treacy, for coming this evening to hear the debate and look forward to what he and the Members have to say.

Mr. Mooney

I welcome the Minister of State. I compliment my colleague, Senator Cox, on outlining the motives behind the motion and on her lucid explanation of the various aspects. The groceries order is not as simple and straightforward as it seems, especially as, over the past ten years and since the order was introduced, this country has undergone a sea change in the retail trade. We are now coming closer to the traditional shopping concepts of mainland Europe as ever larger multiples enter the Irish market cornering ever larger percentages of the retail market to such an extent that the independent retailers, especially those represented by RGDATA, have had to quickly assess their position in the marketplace. In many cases retailers have taken the most logical direction, which is to merge or become involved in large distribution outlets where they can compete effectively with manufacturers and product sellers for product lines.

However, while the motion centres on the below cost element of the retail trade, this is also an opportunity to raise other issues which the Minister might address. For example, there is a worrying indication that the initiative taken by his colleague, the Minister for the Environment and Local Government, last year to cap the size of retail outlets may be changed. In fact, the cap may be removed. That would result in a flood of international multiples, which are sitting on the sidelines waiting to see which way the Government will jump, arriving in Ireland to the detriment of the retail sector in general. I have always subscribed to the view that bigger is not always better. At the same time that particular philosophy is tinged with the reality that in the marketplace it is market conditions which invariably dictate whether anybody operating in the retail sector survives.

We are in a market environment which unfortunately has become more cutthroat. This is especially the case in the grocery market where there is fierce competition to such an extent that companies are now allegedly operating dubious standards, in some instances perhaps sidestepping the law without actually stepping outside of it to maintain or protect their market share. I am not pointing the figure in any one direction because that is a matter for the Director of Consumer of Affairs to sort out, but most of us in this House should be concerned about what protective vehicle is in place for the consumer. Are these practices inhibiting the development of fair and free trade, and will they ultimately affect the retailer?

In the context of bigger not being better, what would happen in Ireland if there were free and unfettered market conditions, if the groceries order was not in place and if there was no Government watchdog such as the Director of Consumer Affairs? Not only would avarice abound as people in the retail sector stampeded in an effort to make more money but, worryingly, under the guise of what is best for the consumer there would be a rapid diminution and an eventual elimination of competition. In such a scenario, which could be reached quickly in Ireland, one would end up with four or five major multiples controlling the grocery business. At that point we would see a cartel in operation and prices would inexorably start to rise. In addition, suppliers would find themselves being put on the wrong foot and being told that their goods would not be put on the shelves if they did not play ball.

I think the Minister would agree that there should be a healthy, vibrant independent sector. It is not in the best interests of the consumer that there would be a proliferation of multiple, super or hyper stores which would be allowed unfettered access to this market without some form of Government control. That is being said by someone whose political philosophy is that Government intervention should be at a minimum. I have always subscribed to the view that Governments should not be involved in businesses that do not concern them. In this instance, the interest of the consumer is paramount. Over the past number of years and at present, retail multiples have made commitments to protect the traditional suppliers of Irish manufactured goods. The reality is very different. One of these multiples is importing English-made sandwiches. Bread has been the staple food for generations in Ireland. Yet, sandwiches are being manufactured in the United Kingdom, imported into this country and sold in a multiple supermarket in Dublin. This beggars belief.

Are Irish consumers aware that every time they buy something that is not Irish made they threaten Irish jobs? The Government cannot say this because to do so would breach the spirit of EU treaties. However, I make no apology for saying that we should buy Irish whenever we can. I do not denigrate the manufactured goods of any other country. I merely suggest that Irish consumers should be conscious of the need to buy Irish, especially if the Irish product is as good as the imported one or superior to it.

The Government and the Director of Consumer Affairs are to be commended for ensuring that the Restrictive Practices (Groceries) Order is protected, strengthened and implemented effectively because it is not acceptable that goods which are being, and have traditionally been, manufactured in Ireland should be imported by retail multiples, reneging on guarantees given to Irish suppliers. If this is allowed to happen, the brave new world which was promised to Irish consumers will be under severe threat. I have no sympathy for such firms because they are not interested in Irish jobs, Irish consumers or the Irish market. They are interested only in profit.

I have pleasure in seconding the motion.

Mr. Coghlan

I welcome the Minister. It is timely that this subject should be debated. All parties are ad idem on the vital national need to retain the Restrictive Practices (Groceries) Order. The Opposition agrees with the thrust of the motion. However, I am slightly confused to see that the motion calls for a review of the operation of the order when, in a written reply given yesterday to Deputy Owen in Dáil Éireann, the Minister stated:

The Restrictive Practices (Groceries) Order, 1987 is enforced by the Director of Consumer Affairs. I am informed by the Director that ten cases have been investigated and a further three breaches of the Order have been taken to court since the Order's commencement. There have been over 60 complaints received by the Director of Consumer Affairs.

I have received no submissions calling for the abolition of the Groceries Order.

The Groceries Order is currently being reviewed by the competition and mergers review group whose final report I expect to receive later this year.

The groceries order is the last of the orders made under the Restrictive Practices Acts. All of the other orders and the Acts were repealed when the Competition Act, 1991 was introduced. The 1987 groceries order and the statutory mechanism to enforce it have been retained by successive Ministers for Enterprise, Trade and Employment. The order has been retained because of perceived shortcomings in the Competitions Acts, 1991 and 1996 in preventing the abuse of market power by the large food multiples. In that regard, I concur with Senator Mooney's remarks.

Approximately £5 billion is spent on groceries annually in Ireland. Expenditure on food covered by the groceries order accounts for approximately 25 per cent of average weekly income and up to 64,000 jobs are directly affected by the order. What happens in the grocery trade is of direct importance to the public. The order was introduced following the demise of H. Williams in 1986 when price wars between Dunnes Stores, Quinnsworth, Superquinn and H. Williams had exacted a heavy toll on retailers and suppliers. Suppliers, in particular, had to deal with demands for "hello" money, the abuse of credit terms and pressure for increased off-invoice discounts. Key lines were sold below cost by some of the grocery retailers but losses made on these lines were recouped from other lines in the shops.

The order was retained because of perceived shortcomings in the new Competition Act, 1991. First, it was felt unlikely that any supplier would take an action against one of its main customers under the Competition Act, 1991. Second, it was felt that the public interest element concerning the affairs of the grocery trade required some impartial and consumer-led enforcement. Third, none of the practices banned by the groceries order are prohibited by the Competition Acts without a finding of dominance on the part of the retailers concerned. At present none of the retailers operating in Ireland are dominant in terms of their market share and without the 1987 groceries order they would be free to engage in demanding "hello" money, selling below cost and abusing suppliers' credit terms.

Our colleague, Senator Quinn, recently argued that the groceries order places Irish retailers at a competitive disadvantage because it does not apply to retailers with a head office outside the State. On this basis, he has called for the abolition of the order and its replacement with the Competition Acts, 1991 and 1996.

I respectfully suggest that, as a matter of law, Senator Quinn is wrong in his assumption. The order applies to grocery goods sold in the State, regardless of where the head office of the retailer is located and contains a provision in Article 17 to facilitate the enforcement of the order in respect of goods imported into the State. Once the retailer has an operation in the State the order applies. If Senator Quinn was correct in his assumption that the absence of a head office in the State brought a retailer outside the scope of the groceries order then surely the same argument must apply in respect of the Competition Acts. Senator Quinn's position is illogical and wrong in law.

Of course, bigger foreign retailers will get better terms. This is a function of their size and not of any ability to circumvent the groceries order. It would be contrary to EU rules to prevent foreign retailers from availing of economies of scale on a European level. However, in respect of grocery goods obtained for supply to the Irish market foreign retailers must have regard to the provisions of the groceries order, 1987.

This order does not contravene the EU single market. The European Court of Justice recently ruled, in the Keck case, that measures such as the groceries order did not contravene the single market rules if they apply equally to goods from all member states.

Central Statistics Office figures since 1987 show that the goods covered by the groceries order have increased in price by well below the rate of inflation. They also show that many of the goods that are excluded from the order have increased at a rate close to, or higher than, the rate of inflation.

The order ensures, therefore, that consumers are not subjected to predatory activity, such as below cost selling, and that suppliers do not have to deal with additional costs from "hello" money and the abuse of credit terms. The order inhibits the market power of the multiples in a market where none is deemed to be dominant under competition law.

The groceries order protects fair trade. It has greatly helped to keep down food prices. Items covered by it have risen in value by 16 per cent less than those not covered. For example, tea is covered but fruit and vegetables, which are not, have risen greatly in price. The order provides for greater investment in the trade generally. It provides a certain stability for suppliers and manufacturers who know that new products can be brought to the market without getting caught up in a price war.

All the small independent grocers are providing good quality shops. There has been an investment of £500 million in the development of smaller shops over the past ten years. Their existence is providing more competition.

The Irish market is, as Senators have said, undergoing major changes due to the threat from outside multiples. Now is not the time for change. We are concerned with price, quality and consumer choice. No one wants a policy of social exclusion, which would be the result of wiping out the smaller shopkeeper.

I agree with Senator Mooney about the damage which will be done to the heart and fabric of our towns if we allow these large shopping conglomerates to exceed the cap. I believe very much in the need for the cap. The joint committee on which Senator Cox and I have the honour of serving made a unanimous recommendation to the Minister for the Environment and Local Government that the cap is too generous – we recommended a cap of 2,500 square metres rather than the existing level of 3,000 square metres.

We must be concerned about provincial Ireland and our towns and villages. In Britain, 42 per cent of villages no longer have a food shop.

Mr. Mooney

As is the case in France.

Mr. Coghlan

Yes. We do not want that to happen in Ireland. The cap has been generous and the thrust of the policy has been correct. I look forward with great interest to hearing the Minister of State. I hope he agrees with me and the Senators opposite on the necessity for the retention of the cap.

Minister of State at the Department of Enterprise, Trade and Employment (Mr. Treacy)

Tá mé lánsásta bheith anseo chun freagra a thabhairt ar an tairiscint seo. Tá mé anseo in ionad an Tánaiste, an Teachta Harney, atá an-ghnóthach le hobair Rialtais agus in ionad mo chomhghleacaí eile, an tAire Stáit, an Teachta Kitt, atá thar lear ag cruinnithe idirnáisiúnta.

The Restrictive Practices (Groceries) Order, 1987, came into operation in December of that year. In the past few weeks one could be excused for thinking that the order only deals with support money – or "Hello Money" as it is more popularly known. That aspect of the order has certainly received a good deal of publicity, following allegations that a supermarket chain was demanding support money from suppliers before goods from that supplier would be placed on its shelves. However, all I will say about that this evening is that the Director of Consumer Affairs, who reports to our Department, is investigating the allegations and will decide what action, if any, is necessary when she has assembled all the relevant facts.

In reality, the groceries order deals with many aspects of the trade in groceries. The order, of course, bans below cost selling, which is the sale of groceries at a price which is less than the net invoice price, and price fixing. The order deals with terms and conditions of supply, including credit terms. It bans discrimination by a supplier, either for or against any retailer, in the terms and conditions under which goods are supplied and it prohibits retailers from receiving benefit from a supplier for advertising that supplier's goods. Matters such as the unjustified withholding of goods, arbitrary discrimination and boycotts are also outlawed.

The groceries order has always been somewhat controversial legislation, as it essentially seems to represent interference by the State in free competition in an important market sector and to set that sector apart from all other trade sectors. As opposed to that, the grocery trade is very important for consumers and, of course, for those who participate in the trade. Those who want the order repealed argue that it restricts competition, tries to deal with a problem that does not exist and is harmful to consumers. Those in favour of the order claim that it has contributed to a reduction in the dominance of the large multiples and has helped independent retailers to compete with the multiples on a fairer basis.

Despite this controversy, I understand the Director of Consumer Affairs has not received any submissions asking for its removal. In fact, the only submissions which the director has ever received about the order have been campaigning for its retention. Similarly, our Department has not received any submissions looking for the deletion of the order from the Statute Book.

Since the order came into effect, I understand that the Director of Consumer Affairs has received over 60 complaints about alleged breaches of the order. Over half of these related to "below cost" selling, which involves the sale of groceries at a price which is below the net invoice price. The net invoice price, in turn, is defined as the price exclusive of any allowance or refund given on return to the supplier of the goods container and excluding any discounts, rebates or other deductions from the sum due to the supplier. This is one of the areas highlighted by the Senators and I can say it is one where the Director of Consumer Affairs has been particularly vigilant over the years.

The work of the director in regard to the investigation of below cost selling has resulted in three court cases against retailers where the court found in favour of the director. In several other cases the complaint was settled before matters actually came before the courts. In many instances, of course, the intervention of the director was enough to rectify the situation without the necessity of further action.

The question of supermarket chains absorbing tax in order to gain competitive advantage is also an issue that has been raised in the context of the groceries order. This practice could result in selling below cost and lead to a breach of the order. I am sure the Director of Consumer Affairs will investigate any specific cases which Members of the Oireachtas or any consumer might bring to her attention. Members can be assured that any complaint brought to the attention of our excellent Director of Consumer Affairs will be assiduously investigated and she will arrive at a conclusion.

The Restrictive Practices Act, 1972, and virtually all the ministerial orders made under that Act, with the sole exception of the groceries order, were repealed with the coming into effect of the Competition Act, 1991. Thus, the groceries order was retained as it was. It has been reviewed on two occasions: first, in 1993 and latterly in 1995, when it was continued for another two years.

The groceries order is currently being reviewed by the Competition and Mergers Review Group set up in 1996. The terms of reference of this group require it to make recommendations designed to further improve the competition regime in terms of its legislative provisions. The groceries order is also included in its remit. I understand the group is currently proceeding with its work on this and associated competition law matters. It hopes to have its work in this regard completed later this year and will report and make recommendations in these important areas, including the groceries order. In this regard, the review group has received a significant number of submissions from interested parties. I intend to include the various contributions of all Senators for consideration by the review group.

I wish to pay tribute to Senators Cox, Mooney and Coghlan for their very detailed, up to date and informed contributions. They are obviously very much in touch with the commercial environment, particularly with the choice required by the nation's consumers. The Government wants to ensure that competition exists and that opportunities exist for the small, independent retailers and multiples to co-exist and to provide consumers with a choice. We want to ensure that goods are sold to the consumer at a reasonable price without any latent or hidden illegal deductions. Our Department and the Director of Consumer Affairs will investigate any allegations brought to our attention.

Ms Cox

I welcome what the Minister of State said about his intention to bring the views of this House to the attention of the review group. That, in itself, answers the motion. As with any motion before the House, its value is often in the debate it generates, which is sometimes broader than the issue. It sets the scene and often gives Ministers and Departments food for thought and ideas to formulate legislation and reviews of legislation.

Some points were raised with regard to the size of retail outlets and there was concern that the cap would be removed. As Senator Coghlan said, we would be very concerned about that. The message from this House and from the Oireachtas Joint Committee on Enterprise and Small Business is very clear – that should be avoided if we do not want to follow trends in the UK and France. Senator Coghlan said that 42 per cent of villages in the UK have no food shops. That is not the type of country we want for many of the reasons outlines earlier.

Senator Mooney mentioned the need for consumer protection. It is very important. At all times our concern must be for the protection of the consumer. The consumer is the person who buys the goods and who supplies the goods. We are all consumers. It is a steady chain and if one link breaks it will not augur well for society as a whole. We do not want any diminution of competition in this country. It is very important to retain the current level of competition and to ensure we look after the consumer at all times. The consumer will benefit from continued competition. However, if we enter a trade war nobody will benefit in the long term. As I said, the concept of society as a chain is important, and it is important that we do not break any links.

To refer back to a point of Senator Mooney, promises are made by organisations entering this country. We must be very careful and vigilant of this – this is part of the job of the Director of Consumer Affairs. It is not good enough for companies to enter Ireland, as if on a white horse, while making all sorts of promises about goods being bought from Irish suppliers and there being few foreign inputs. If companies make promises they must keep them.

Mr. Mooney

Hear, hear.

Ms Cox

Most companies in Ireland operate properly. If companies are not operating properly or have broken promises, I would like to see them taken to task. I would like to see every non-Irish good on a supermarket shelf that can be replaced by an Irish good, so replaced. I make no apology for that. It can support Irish jobs and maintain our economic growth and our society. Irish jobs are important to Ireland and our society is important. We must look after our own. If we do not look after our own in the European market, nobody else will do so. This starts from ensuring we protect Irish jobs and consumers. Where opportunities exist to make and keep profits, we must keep them in the country. Ultimately, it is the people of Ireland who benefit.

I thank the Minister for coming here this evening, for his open and honest address and for undertaking to take on board the points raised. I commend the motion.

Question put and agreed to.

Acting Chairman (Mr. Glynn)

When is it proposed to sit again?

Ms Cox

Tomorrow morning at 10.30 a.m.