Whatever Minister for the Environment John Gormley might say, the planning process limits competition between grocers and this means less choice and fewer bargains for shoppers, writes Bill Prasifka
IRELAND'S PLANNING system and guidelines effectively make it difficult for new retailers to enter the grocery sector. It makes it very difficult for existing grocers to expand their operations. The planning system also discriminates against "discount" grocery retailers.
It is the finding of the Competition Authority that this situation is, in practice, anti-competitive - in that more competition would make sure consumers get as much choice as possible, as well as the best possible value for money.
Our latest report* was presented to the Minister for Enterprise, Trade and Employment on Wednesday. In it, we explain the background to our research and make seven recommendations for action to address the existing situation.This report is the third in a series under the Grocery Monitor Project, an ongoing assessment of the sector sparked by legislative changes made in 2006 - the removal of the Groceries Order and a number of provisions in the Competition Act that affect the sector. The two previous reports** dealt with the retail and wholesale levels, and analysed aggregate price trends.
This week's report acknowledges that Government, local authorities and planners have a difficult equation to balance, dealing with social, economic and environmental factors that are not always easy to reconcile. We believe however that the planning system as currently applied simply does not give enough weight to the competition factor - the element that would ensure consumers get the best value for money.
Our message to the Minister and to consumers is that the retail planning system limits competition between grocers. Competition is being frustrated by the planning system because applicants wishing to expand or open a new store are required to demonstrate they will not take too much business away from existing retailers. This is at odds with the very essence of competition.
There are limits on the size of grocery outlets, for instance. In the Greater Dublin Area (GDA), stores cannot be bigger than 3,500sq m in floor size; outside the GDA, the limit is 3,000sq m. Furthermore, a discounter may not open a store which is greater than 1,500sq m anywhere in the State. We are not saying that there should not be any limits. What we are saying is that limits should be considered on a case-by-case basis by the local authorities having regard to the needs and interests of the local community.
In addition, there are limits on where grocers can open. The system discourages out-of-town development, and this often forces retailers to open stores in smaller and more expensive central locations.
Typically, it takes seven months to gain planning permission, if no planning appeals are made. If third party appeals are made, it typically takes more than 13 months. The third-party appeals are often made by existing retailers, and the system is set up to allow in situ retailers to frustrate competitors. And that's anti-competitive. As well as all that, there's a restriction under the Retail Planning Guidelines of 5,000sq m on "hypermarkets", and an upper limit of 1,500sq m on discount stores such as Lidl and Aldi.
Let's look at the discounters. If Aldi or Lidl, for example, or some new discounter for that matter, wanted to open an outlet in an ordinary Irish town, the discounting incomer would be restricted to 1,500sq m maximum - half the size of other grocery retail stores. That's anti-competitive, especially if there is already a supermarket of 3,000sq m in the town.
Then there's the fact that new stores must show that their outlet will not adversely affect existing retailers. Suppose Tesco wants to open a new shop in a town the size of Enniscorthy. To calculate how much trade it might win from other grocers, it must make assumptions about the floor space of existing grocers and about potential consumer spend. Existing retailers can object and claim that Tesco's figures are inaccurate. In addition, planners and local authorities are often working off outdated or unreliable projections made some time in the past. And then there's the appeals system. If Superquinn, say, wanted to open in a city like Galway, its planners are first going to look at the history of appeals in that area, and check if a strong lobby of competitors has successfully blocked planning in the past. Appeals typically double the time needed to gain planning permission; and they are often mounted by existing retailers.
The Competition Authority's recommendations are straightforward:
• Remove the cap on the size of grocery stores - allow local authorities to decide what is appropriate;
• End discrimination against discounters;
• Reduce emphasis on unreliable floorspace projections;
• Introduce competition as a factor in local development planning;
• Recognise that competition between grocers benefits consumers;
• Make local authorities survey consumer preferences;
• Look at ways of restricting planning appeals by competitors.
It's my view that by removing the caps on floorsize, and changing the ethos of the planning process, a greater variety of supermarkets will open for business in Ireland.
That will mean more choice for consumers; higher quality of service; more innovation in the marketplace - and this will also put pressure on retailers to lower grocery prices for consumers.
The Minister for the Environment, Heritage and Local Government, John Gormley TD, has announced he intends to initiate a review of the retail planning guidelines in 2009. The Competition Authority looks forward to working with the Minister and representing the interests of consumers during that process.
* The Retail Planning System as Applied to the Grocery Sector: 2001 to 2007/Grocery Monitor: Report No. 3
** A Description of the Structure and Operation of Grocery Retailing and Wholesaling in Ireland: 2001 to 2006/Grocery monitor: Report No.1. Price Trends in the Irish Retail Grocery Sector: A Description of the Evolution of Retail Grocery Prices between 2001 and 2007/Grocery Monitor: Report No. 2
• Bill Prasifka is chairman of the Competition Authority