Despite criticism from Isme and the Opposition, the Minister is adamant that the decision will protect small retailers and benefit consumers, writes Marc Coleman, Economics Editor

The business and economic consequences of last Monday's announcement to abolish the Groceries Order are likely to be long-term and uncertain in nature. But in spite of the prospect of any immediate benefits, Minister for Enterprise, Trade and Employment Micheál Martin is adamant that the order has to go.

"The fundamental reason for abolishing the order is that it was keeping prices artificially high. It didn't protect small grocery stores and didn't prevent consolidation of the market.

"In essence, it was an anti-competitive piece of legislation that created a floor below which prices could not be lowered. The customer was disadvantaged as a result," said Martin.

But his decision has already prompted opposition. Business lobby Isme has criticised the decision as a bad day for the retail industry.

"The greatest benefit of the Groceries Order to date is that it has introduced an element of certainty into the marketplace, which has allowed local independent shops and suppliers to invest in their people, products and premises, providing more choice and a better product at competitive prices for the end-user. Consumers will pay for this myopic decision," said Isme chief executive, Mark Fielding. The Green party also criticised the ban.

Fielding says that the order ensures a "structured competitive market", where operators compete fairly and where the consumer is far better off than they were when the order was first introduced. The Green party claims that the rate of inflation for products covered by the order has been lower than the rate for goods not covered by the order.

But this comparison is not relevant, say the order's critics and in a comprehensive review of the order, the Minister's own department has presented possible evidence to the contrary.

In chapter eight of the review is a table showing food price inflation for the 15 pre-enlargement members of the EU benchmarked against the EU average.

Some of those countries have bans on below-cost selling and the review notes that "it is an extraordinary coincidence that all countries above the line of the EU average have bans and all countries below the line have not".

The order has kept prices high, the Minister says, by allowing suppliers to price their goods higher than would be the case without the order, but he is philosophical about behaviour in the industry to date.

"If legislation is there you can't complain about people taking opportunities arising within that legislative framework. The existing framework created opportunities in our view for a certain segment of the market to go and, in many ways, it facilitated consolidation of the market and the growth of the convenience sector, although product differentiation and changes in shopping styles may have played a role," he says.

But he said that the practice of off-invoice discounting, which arose because of its operation, had become a secretive and unfair feature of the retail sector.

A lengthy - some would say too lengthy - process of analysis and consultation has influenced the Minister's decision.

The practice of predatory pricing will remain illegal, but will be policed by the competition authority. This is a practice whereby large stores undercut small competitors and raise prices after they have been driven out of the market.

Under the new regime, the Competition Authority will also be responsible for policing the use of "hello money" and advertising allowances, practices where suppliers pay retailers for key positions on supermarket shelves or advertising displays.

Industry insiders say the practice is beneficial to the consumer and is standard practice, being only banned for new stores. They fear that if responsibility for policing this practice is transferred to the Competition Authority, then a blanket ban will result, denying retailers a source of income. Isme are scathing about powers being transferred to the Competition Authority and Labour TD Brendan Howlin has said the new regime lacks clarity.

"The notion that the Competition Authority will protect the small grocer and small supplier against the predatory practices is a fanciful and glib argument, full of good intent but ultimately a sham," says Fielding.

Howlin says that the order's abolition could deprive small towns and communities of retail outlets. In spite of this opposition, the Minister is confident that he has public opinion at his back.

"If you look at the Consumer Strategy Group report, it contained a survey of people's awareness of the Groceries Order and it was quite low last year. The Rip-Off Republic TV series substantially changed that," he says.

But he maintains that the Government's final decision was dictated by analysis and not public opinion.

"The fact is that we had a consultation process that lasted a number of months where people argued the toss and in the Dáil the Oireachtas Committee had a significant debate on it bringing in various groups. I met with various groups and I met with members of the Cabinet and with TDs to sound out their concerns."

The Minister is hopeful that this consensus-building approach along with the extension of powers to the Competition Authority will minimise grievance with the decision, and politics being politics, he doesn't lose an opportunity to criticise the Opposition's position.

"I couldn't get a clear position from Fine Gael on the Groceries Order, to be frank. I got mixed messages from their different spokespeople."

The Minister is cautious about raising expectations of sudden falls in consumer goods prices.

"We have never gone into the business of predicting price decreases as a result of the order, but we've made it very clear that the existence of the order maintained an upward pressure on prices, creating a floor below which prices wouldn't go.

"We've removed that and we would argue that there's now a downward pressure being created," he says.

The change is unlikely to be immediate and retailers appear likely to have one last Christmas before the changes kick in. But the Minister has indicated that the abolition of the Groceries Order will be done and dusted by February at the very latest.

He holds out the prospect of a new dynamic being created within the market place, but this is probably precisely what many small retailers fear. There are already signs that competition between retailers could become more aggressive.

Retail group Gala has announced an investment of €48 million in new stores, and with retailers now under pressure to pass on supplier discounts to the consumer, the Minister is predicting that the relationship between retailers and suppliers may also change.

Of course, the Eddie Hobbs phenomenon means the abolition has symbolic, as well as technical, implications and evokes the memory of Seán Lemass' stance against vested interest groups almost 50 years ago.

"I was interested and intrigued in reading the introductory chapters to this report about the very clear thinking that Seán Lemass brought to this question in the late 1950s, particularly his very clear position in opposing resale price maintenance, and there were calls at the time for the legislation of resale price maintenance. He was very strongly against it and there's a good quotation from him in the report," the Minister said.

So does the order mean the Government is going to get tougher on vested interests? The final word goes to the Minister: "I do think in the last year we have moved in that direction and will continue to."