Supermarket Acquisitions (Tyne and Wear)

David Anderson Excerpts

Monday 7th February 2011 Commons Chamber

[Mr David Anderson (Blaydon) (Lab)]

The title of this debate says that it is about supermarkets, but it is really about people. It is about the town of Birtley, where I live, which is in the south-east of my constituency. The town has a long history of being resilient and has dealt with hard knocks. Its situation is post-industrial, like many other towns in northern England, and it has gone through tough times with the loss of its brickworks and the running down of its chemical factory, and it is also a former coal mining area and there was a lot of engineering in the town. Birtley has kept strong and has developed. The town has a lot of high-tech engineering; a big car sales place; three separate bodies selling caravans and motor homes; an aluminium processing factory; and a cable factory. The key to the town is the shopping area, which is on what was the old great north road—the old A1.

That shopping area has developed over many years since there was a huge Co-operative store there. After that store ceased operating long ago, its role was taken over by two supermarkets—a medium-sized one and a smaller one—the ownership of which changed over the years. Until two years ago, the medium-sized one was operated by Somerfield and the smaller one was operated by a company called Netto, which has a number of supermarkets across the north of England and has about 1% of the supermarket share in this country. Between them they helped to support a huge array of small retail businesses—one-man, two-man and three-man businesses such as hairdressers, greengrocers, butchers, bakers, newsagents, pharmacies, opticians, a shop selling cards and pictures, a post office, a number of banks, a launderette, a huge array of fast-food outlets, coffee shops, travel agents, estate agents, florists, a pet shop, a carpet store, a general dealer and public houses. If I have missed any of the businesses there, I apologise to the good people of Birtley. The key point is that all those operations were quite small and that what really drew people to Birtley was the supermarkets, particularly the one run by Somerfield.

Two years ago, we got the news that Somerfield was going to be taken over by Co-op and we thought that that was good news, but then we heard, sadly, that our store was not going to be taken over by Co-op. In these situations, the Office of Fair Trading usually has a role to play in ensuring that a huge takeover by a big group does not allow the creation of a monopoly. The Somerfield store in Birtley was not identified by the OFT as being one that Co-op had to get rid of. However, Co-op did have to get rid of 25 stores and it decided, in its wisdom, to divest itself of 38 stores. I found this hard to believe, but it put them up for sale as a package, telling potential buyers that they must buy all 38 or none.

When we in Birtley heard that Morrisons was buying the 38 stores, we were quite pleased because it has a good reputation in the north-east as a successful operator with good-quality stores that have a lot of fresh food and a good deal of business. So we thought it would be really good for the area—until 27 April, two years ago, when Morrisons took over. On that same day, it announced that the Birtley store was not going to open and the staff in the store were moved to other stores in the Morrisons network. It did that because—I found this hard to grasp—it had bought the store as part of the package of 38 without actually seeing it. However, it had run the store 20 years previously. Further down the line, I met the manager who made the final decision and he told me that he had been the manager of that same store 20 years before and that hardly any money had been spent on its infrastructure, so it was little wonder that it needed major refurbishment.

The people of Birtley went from being very happy that a good-quality supermarket was coming in, which could only be good for the town centre, to the current situation in which that building has stood empty for two years, deteriorating and sticking out like a sore thumb on the middle of our main street. The really sad part of what has happened is the impact on local businesses. Many people have had to stop doing all their shopping in Birtley because the town cannot support that kind of shopping any more. People used to go to Somerfield for 70-80% of what they wanted and then use the hairdressers, post office and other stores. Everybody was making a living then, but Somerfield’s closure had a negative impact on the town. Many businesses closed, many people moved out of town, and those who stayed have been hit hard. Netto upped its game. I give credit to the people working there—they have done really well in filling the gap, but the Netto offer is not what Somerfield was or what, sadly, Morrisons could have been.

About 12 months ago we had some good news. Asda, which is one of the biggest stores in the country, was going to buy the Netto chain. We thought that was tremendous because, even though we still had the Somerfield store standing empty, we believed that Asda could come into Birtley, give us a real lift and recreate some of the business that had gone when Somerfield went. That would lift the town up again, business would come back, and more people would come and shop in Birtley. We saw Asda as a premier league team. I mean no disrespect to Netto, but if Netto was a football team, it certainly would not be in the premier league, despite the great work that it has done.

We found out late last month that the Office of Fair Trading, in its wisdom, had decided yet again that Asda would not be allowed to take over the number of stores that it wanted to take over, in the same way as the OFT had decided previously that the Co-op would not be allowed to do that. The issue for me, and the reason that I am holding the debate tonight, is that that decision was made public on 29 September last year. It was announced in an internal press release, which was only brought to my notice through the local council some three weeks ago.

There are many people who could have been informed. I will discuss with the Minister later how we can improve this so that people learn from the mistakes that were made. We have a very positive community partnership in Birtley, which is run by some great people, such as Dean and Jean Cox and Peter Cowie. We have committed local councillors and an enormous number of businesses looking every day at what is going to happen in the town. We have a strong economic development team in Gateshead council, who have worked night and day to try to make sure that Birtley can survive and improve. The team did tremendous work with Morrisons to try to improve the offer on a site that had not yet been developed. The chief executives of the council had a hands-on approach to what was going on in Birtley.

I would have been massively interested if, four months ago, I had been made aware of what was going on. If any of the people who have collared me in the past three weeks had known about that four months ago, they would have come and said to me, “David, what’s happening?” and none more so than my wife. She shops in Birtley all the time. She does not drive so she has to get a bus 3 miles to another town, then come back and wait for the groceries to be delivered. That is not an effective way of doing business. People like her need shops on the doorstep that work for the community.

As I said, we got a copy of the press release last week and contacted the OFT. I have read the press release and the information that has been sent since. It seems to me that the OFT runs a system based on those in the know telling other people in the know about the business that they know. They decide on closures by projecting the cost of a box of cornflakes in two shops a few miles apart. If a store 2 miles away is going to sell 1,000 boxes of cornflakes a week at 10p less than the store where we live, the nearer one will have to close.

The OFT and the businesses concerned fail to connect the dots between the real life of people on the ground, who are directly affected by such decisions—older people, people without transport, people who are less able to travel, those with disabilities, those who like the security of their own place. I have a good old friend who was severely affected when the supermarket that she went to every day of her life was, in effect, taken away. She became seriously unwell and disoriented by what was going on. She was not eating properly and went through some real problems, which thankfully have now been resolved.

When I found out about the OFT decision, around 28 January, my office made contact with the OFT, which sent me a number of documents about the process. I shall refer to them now and try to speak a little more slowly, for the sake of Hansard. In a letter dated 20 January, Timothy Geer, who was the officer in charge at the OFT, wrote:

“In September 2010 the Office for Fair Trading (OFT) announced that it was minded to refer the acquisition by ASDA stores Limited… to the Competition Commission… unless Asda gave suitable undertakings to address our competition concerns. While the OFT concluded that the acquisition would not give rise to competition concerns at a national level, we were concerned that competition could be substantially reduced in around one in four of the local areas where there are overlapping stores.”

To me, that means that the OFT realised back in September that there was a problem, not at a national level, but in certain areas. It should have flagged up that situation so that it could be addressed.

The OFT’s letter goes on to explain the methodology used to reach that decision. I will read the paragraph about what it did before deciding whether to go ahead with the transfer:

“The local areas in which the OFT found cause for concern were identified following the application of two tests. First, we applied a fascia counting test. If the merger reduced the number of relevant supermarket operators (by fascia) to three or fewer in the local area, the area moved to the next stage of testing. This next stage comprised Asda hiring a professional market research firm to undertake consumer surveys at the relevant Netto and Asda stores in order to gauge how close local rivalry was between them.”

I have spoken with many people at the Netto store in Birtley and no one, not the manager or the staff, are aware of any survey being done at that store, which is what the OFT’s letter mentions. It continues:

“The OFT then coupled this information with profit margin data and used an analytical method called the ‘illustrative price rise’ to identify those areas in which a realistic prospect of a substantial lessening of competition arose. More information on these methods can be found in Annexe A of our report.”

I read Annexe A, and I only wish that our good colleague Sir Patrick Cormack, the former Member for South Staffordshire, were here today, because he would have a wonderful time with the paragraphs that I am going to read out. The OFT has what it calls a stage 1 filter for deciding whether the process should go ahead. Paragraph A.4 of annexe A states:

“To identify overlaps, the filter used a ‘maximum reach’ isochrone”—

I do not have a dictionary to find out what an isochrone is, but perhaps the Minister knows.

“The ‘maximum reach’ isochrones, centred on the Netto stores, were based on that used in CGL/Somerfield ”.

Therefore, in the process that happened two years earlier in Birtley, the OFT had used the same process, so again I make the point that it ought to have been aware of the impact on us. The annexe states that those isochrones

“offered a conservative approach to capturing overlaps between the parties (and bearing in mind the asymmetric constraints imposed of each other by the merger parties)… A local area was deemed to be unlikely to present competition concerns if at least three other (non-merging) fascia were present in the primary isochrone. What is more, an asymmetric constraints approach was adopted.”

I hope that the Minister is keeping up with this. Paragraph A.9 states:

“In addition to the primary isochrone filtering (centred on the Netto stores), the stage one filtering exercise also replicated the primary isochrone filtering but re-centred on census output areas where Asda measured whether 10 per cent or more of the local population would see a reduction in fascias as a result of the proposed merger. Census output areas allow for the stage 1 analysis to be carried out at as fine a level of detail as practicable.”

I think that that is a pretty fine example I have given. I could go on, but I will not, because there is just more and more gobbledegook.

As I read that, I was reminded of another thing related to Birtley. One of the things the town takes great pride in is being a centre for English folk music. There is a folk club in the town that was pulled together back in the late ’50s and early ’60s by a man called Jack Elliot, and anyone who knows anything about English folk music will have heard of the Elliots of Birtley. That tradition continues today, personified by his daughter, Doreen Henderson, who every Wednesday night in the Birtley Catholic club still hosts the folk club, where everyone is welcome. You would be more than welcome, Mr Speaker—I know that you can do a song or two—and the Minister would be welcome too. One of the people who came through that same culture was a gentleman called Alex Glasgow, who sang a song in the 1970s called “Standing at the Door”. These are the words that came to my mind when I read those paragraphs that I have just related: “Nowadays we have a craze, to follow clever Keynesian ways, while computers measure economic growth, we’ve got experts running round, writing theories on the pound, caring little whether we can buy a loaf.” That says it all: people at a high level are discussing issues about computer modelling and facts and figures without any real cognisance of what is happening on the ground. That would be bad enough if we had not been hit two years ago with something that really tore the heart out of our town, and we are determined not to let that be repeated over the next few months.

The OFT made a decision last September, but it should have been much more up-front and proactive with people on the ground. We believe that the conclusion was flawed, because the relationship between the ASDA store, which would have been in Birtley, and the one that the OFT compared it with, which is about 3 miles away in Washington, bears no resemblance to fact. The one in Washington is a huge superstore; the one in Birtley would have been very small—effectively like a Tesco Extra, which Members might be aware of.

The OFT has not given any consideration to the viability of Birtley as a community, particularly given the underlying problems of Morrisons’ decision two years ago not to acquire and open a store on the Somerfield site. The procedure that was supposed to protect the public and consumer interest has done exactly the opposite.

I have a number of requests that I hope the Minister can respond to positively. I know that there might be limits to what he is allowed to do with the OFT, but will he, if at all possible, ask it to review the decision and go and do a real survey on the ground? I am more than happy to make myself available, and I am sure that local people, business people, the community partnership, the council leadership, the office of the council and local councillors will be there to help the OFT see the error of its ways, but it is massively important to confirm that, whatever happens, that store on the Netto site will remain open. Perhaps it will not do so under ASDA or Netto ownership, but if the store is allowed to close, it will really put those other businesses, which are struggling now, in real jeopardy.

Going forward, can I suggest that the Minister sits down with his colleagues in the OFT and asks them to re-evaluate how they do their work? This is a real-life situation where, if there had been a dialogue, we might have come to a different conclusion. If nothing else, they should have spoken to people much earlier, because, if we had not been made aware of the consultation in time, we would not have been able to respond to it. The consultation closed on 2 February; we did not find out about the decision until around about 18 or 19 January. If we had been able to get involved earlier, we might have had a different situation, and many people, who had many sleepless nights, might have been much more reassured.

I am particularly proud to have this debate this week, because a year ago this week a very close friend of mine, Ian Caddy, was given the MBE by the Queen. Ian was the man who drove the community partnership in Birtley, and on 12 February last year I was proud to be with him at Buckingham palace, when he was awarded that medal. He walked up to Her Majesty and stood there, ramrod straight like the serviceman he was, and she gave him that medal. He actually invited her to Birtley to see the community partnership; we did not invite her to the folk club, but she is more than welcome as well.

I say this, because three weeks later Ian Caddy died of cancer. He knew he was dying, and he was there that day not as Ian Caddy MBE, but as Ian Caddy the people’s representative at the court of Queen Elizabeth. In his memory, I hope we can resolve the matter tonight and help the people of Birtley to get on with their lives.

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

Let me begin by congratulating the hon. Member for Blaydon (Mr Anderson) on securing the debate. I am replying on behalf of the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), who sadly is unable to attend.

The hon. Gentleman rightly set out his concerns about the way in which competition policy set at a national level can have a genuine impact on local high streets and their communities. His concerns and those of his constituents have been heightened by the fact that not just one store but two are involved in this problem. Birtley had already lost its local Somerfield store, which closed back in the spring of 2009 following, as he said, the acquisition by Morrisons. I gather that recently there have been more positive discussions about that site, and I will turn to that in a moment. Nevertheless, I entirely understand that local people and local small businesses will have felt that their town is suffering. He described that very well and put across his constituents’ concerns accurately and vigorously.

Open competition is good for the economy and for consumers. At the same time, however, arms of government, at whatever level, have a responsibility to take careful note of the effects of their policies, and how they consult, on local communities. It is not just a question of a simple national identity. The hon. Gentleman accurately parodied some of the nonsense that occurs in some official documents, which does not relate to most people’s real-world existence. I certainly understand that the loss of a local supermarket greatly affects a local town and community. Clearly, it will mean that that community attracts fewer customers, and that is bad for the small shops and for the other traders. It can also be a problem, as the hon. Gentleman accurately described, for older people who do not have their own form of transport. For them it means that they have to travel further just to get the basics, and the costs rise on each occasion.

To establish the facts in this instance, my officials have been in direct contact with the Office of Fair Trading. The OFT’s role is to examine and adjudicate on mergers to ensure that they do not substantially reduce competition, which would harm the ability of consumers to shop around. That is an important role. It, together with the Competition Commission, which investigates mergers that have prompted concern, is of course fully independent. I should emphasise that Ministers can play no role in this whatsoever and have no powers to make any decision where a live case is in hand. That is probably right, because otherwise there is a danger that decisions will not be based on the evidence or will not necessarily be perceived as being free from political interference.

On this particular case, Asda announced in 2010 that it had struck a deal to acquire 194 Netto stores in this country. The OFT then acted on its legal duty to investigate the proposed merger. In September 2010, as the hon. Gentleman pointed out, the OFT announced its findings—that in 47 areas, Netto was the main competition to Asda and that in those areas consumers’ interests would be harmed by the proposed merger. As a result of that, the OFT has a legal duty to refer the merger to the Competition Commission for a full six-month investigation unless a solution can be found. But in this case, Asda has offered to sell the Netto stores in those 47 areas, including the one in Birtley. It is true that Asda does not need to have found a buyer before the OFT will accept that undertaking, but—this is in direct answer to one of the points that the hon. Gentleman raised—it is legally obliged to keep the Netto store open until a purchaser is found. Any purchaser must also convince the OFT that it will operate a grocery retail shop capable of mounting local competition, and Asda must ensure that it makes real efforts to ensure that workers will keep their jobs afterwards. Those matters relate to the substance of the issue with regard to the OFT and Asda. I hope that that provides the hon. Gentleman and his constituents with some reassurance.

The hon. Gentleman rightly went on to question how the consultation process really worked. The OFT has advised me that it did indeed commission a research company to survey about 12,000 Asda and Netto shoppers throughout the UK, and it tells me that that included Birtley. However, the House will have noted, you will have noted, Mr Speaker, and I have noted that that is not the experience of the hon. Gentleman. I trust that the OFT will have noted that that is his view. When we get into some of the complex language and processes that often deter people from being able to get involved in these surveys, it is important that officials, at whatever level, understand the need to check not only that they have followed due process but that they have thought carefully about whether what they are doing has been explained carefully to the people they are affecting. I trust that that will be made clear to the officials involved.

[Mr Anderson]

I was in no way having a go at the OFT, but this matter is of serious importance in Birtley. People in Birtley may well have been surveyed, but what information were they given when that happened? Things would have been different had they been told that the store might not reopen. That is the key issue. That is why I said that perhaps we could discuss whether there is a different way of doing things that is in everybody’s interests.

[Mr Prisk]

Absolutely; that leads to the point that I was about to come to. I understand that the OFT is now talking to the hon. Gentleman, which is good. However, he is right to say that we should always be prepared to listen and learn on these issues. That is why I am pleased to tell him and the House that the Government are preparing to look carefully and consult broadly and thoroughly to improve the efficiency of the regime and the robustness of the decision making. I hope that the hon. Gentleman will ensure that his views are known, and I am sure that he will. This instance is a good one, from which all of us can listen and learn.

I will briefly record Morrisons’ acquisition of 38 stores from the Co-operative Group in 2009, which included Somerfield stores such as the one in Birtley. Based on the representations I have received from Morrisons, I understand that the company took ownership of the site in April 2009. As the hon. Gentleman pointed out, it undertook a review after the purchase of the store’s commercial potential. Three months later, Morrisons concluded that the store was not viable as a Morrisons-branded outlet. Instead, it decided to seek a purchaser or tenant for the store, and it was marketed for sale or to let in July 2009.

In August 2010, with the property still on the market, Morrisons reached an agreement with Gateshead council to market the store jointly with the council’s land to the rear of the site as a combined development opportunity. In October 2010, the joint site was advertised in the press. I believe that it is still being marketed, either for sale or to let. Encouragingly, I understand that that has recently led to a number of offers, including from other food retailers. Morrisons and Gateshead council are now considering the feasibility of those bids. The company has reasserted its commitment to work not only with the council, but with the hon. Gentleman to find a viable solution. I hope that that progresses well and that it will be felt that the town centre has a more positive future than has been the case over the past 18 months.

We all recognise that there have to be strong rules over free and fair competition. That is the role of the OFT and the Competition Commission. However, as this debate has shown, central Government agencies must have clear regard to the impact that that policy has on local high streets and local people. The hon. Gentleman has rightly raised the concerns of his constituents about the effect on Birtley. I restate that Asda is legally obliged to keep the Netto store open until a buyer is found, and that purchaser must convince the OFT that it will operate a grocery outlet capable of competing with neighbouring stores. Although I appreciate that the situation is far from perfect, I hope that those two statements from the OFT will give some comfort to the hon. Gentleman and his constituents, whom he has so ably represented this evening.

Question put and agreed to.