Member Article

Introduction

On 2 October the UK's Competition Commission re-iterated its recommendation to the Government and the devolved administrations that they should take the necessary steps to introduce a competition test in planning decisions involving large grocery developments. Under the competition test the OFT (the UK's competition watchdog) will provide advice to local planning authorities on whether a particular grocery retailer would pass/fail a competition test based, in broad terms, on concentration concerns in a local market. This is the second time that the CC has made the recommendation- Tesco successfully challenged the CC's initial recommendation (substantially similar in terms) on the basis that the CC had not, in broad terms, carried out a sufficiently robust cost-benefit analysis.

The practical application of competition law to the planning regime is novel. Indeed in the wider context, competition legislation expressly provides that its central prohibition- that against anti-competitive agreements- is not to be applied to planning obligations under the Town and Country Planning Act 1990; nor section 75 or section 246 agreements under the Scottish 1997 Act.  This reflects a larger exclusion that insulates a great deal of land agreements from competition law scrutiny.

The CC's recommendation does not result in competition law now occupying a central place in planning decisions across the board. Its application is limited to seeking to address perceived competition concerns in the groceries' sector.  However, for grocery retailers of all sizes, property developers, and industry pressure groups (such as the ACS) the possible introduction of a competition test offers challenges and opportunities to influence the growth and identity of grocery retailers in a particular area, as well as increased complexity and cost to the planning regime.

 

The Proposed Test in Detail

When will the competition test apply?

The CC recommends that the test should be applied to all grocery retail planning applications (extensions and new stores) that would result in stores with a net sales area of over 1000m². In this case the OFT will be made a statutory consultee to the LPA and advise the LPA whether a planning application has passed or failed the competition test.

What will the OFT do?

The OFT will assess concentration across an area based on a 10-minute drive-time around the store that is to be developed. This will involve counting the number of fascias (including that of the retailer that might operate the developed store) of operating stores with a net sales area of over 1000m². Where the number of fascias is three or less the OFT will calculate the share of groceries sales area within the 10 minute drive-time that the grocery retailer operating the developed store would have after the developments had been implemented.

Passing the test 

A retailer will pass the test if: (i) it is a new entrant to the local area; (ii) the total number of fascias is 4 or more; or (iii) the total number of fascias is three or fewer but the grocery retailer operating the development would have less than 60% of groceries sales area in the local area.

 

Failing the test

A retailer will fail the test if: (i) it is not a new entrant; (ii) the total number of fascias in the local area is 3 or less; and (iii) the retailer would have 60% or more of groceries sales area (including the new development) in the local area.

The impact of the OFT's advice

The CC recommends that government should ensure that LPAs take account of the OFT's advice and should only approve applications that failed the test in exceptional circumstances: (i) the benefits to the local area outweigh the detriment caused by high concentration levels; or (ii) the development would not take place without the involvement of a large grocery retailer that had failed the test. 

This is to be read in conjunction with the CC's recommendation that steps are taken to ensure (if necessary by changes to planning policy) that when an LPA gives open A1 planning permission (which would allow any type of retail development), it should limit the grocery sales area in the development to less than 1000m².

Limited exemption for store extensions

The proposed test would allow all retailers to make small groceries extensions to stores- one extension per store of up to 300m² of groceries sales area- provided that the store in question has not been extended in the previous five years.

 

The Wider Context

In addition to its recommendations on the planning regime, the CC has mandated a number of measures it considers necessary to alleviate competition concerns in areas of high concentration. These include requirements that restrict the ability of large supermarkets to introduce/impose/enforce restrictive covenants or exclusive arrangements that may restrict grocery retailing as well as a requirement on large supermarkets to notify to the OFT all acquisitions of existing stores of more than 1000m² net sales area. The involvement of competition lawyers in advising on property developments is becoming a more and more common occurrence.

Next Steps

Press reports indicate that the earliest date that government may be able to implement the competition test is 1 October 2010. However, adoption of the recommendation (in whole or in part) is not a foregone conclusion. Tesco remains vocal in its criticism of any such introduction arguing that it would act as a brake on growth in the industry with a resultant impact on jobs; other supermarkets, most notably Sainsbury's, while supporting the test for new stores continue to question the suitability of the test applying to extensions. Heavy lobbying by all interested parties can be expected….