The UK Government has relaxed competition rules in the groceries sector, waiving the usual prohibition on competing businesses coordinating their behaviour.
The Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 (the Order) applies not only to retailers, who have been the principal focus of the media coverage around the relaxation of the rules, but also to businesses up and down the groceries supply chain – welcome news for the food and drink sector.
The Order applies retrospectively to agreements entered into from 1 March onwards, and will apply until the Secretary of State considers that there is no longer a threat of significant disruption to the supply of groceries to consumers.
It covers retailers or suppliers who are active in the grocery supply chain, and ancillary businesses providing support in delivery, storage and maintenance. Groceries are defined broadly to include food, drink (including alcohol), pharmaceuticals, cleaning products, toiletries and household goods.
However, the Order does not apply to various specific products that supermarkets stock, such as clothing, electrical products, CDs, flowers, petrol, newspapers, cosmetics and tobacco.
The Order permits various types of agreements that would usually risk a competition law breach if entered into between competing businesses, allowing firms to:
- coordinate so as to limit purchases of particular groceries;
- share labour or facilities, and coordinate the deployment of labour from other industries into the groceries-chain supplier workforce;
- coordinate on the range of groceries being supplied, including simplifying supply chains and product specifications;
- share information on day-to-day stock positions and shortages of groceries within any part of the UK, and coordinate on supplying groceries to areas of the UK that are particularly vulnerable to shortages;
- share information from logistics services providers;
- coordinate temporary closures and opening hours of stores;
The Order also specifically allows for coordination designed to help critical workers and those who are the most clinically vulnerable and socially isolated.
However, the Order does not permit "the sharing between groceries-chain suppliers of any information regarding costs or pricing". This is unsurprising given the long-standing scrutiny of pricing practices of grocery retailers (and indeed the wider food & drink sector) by the Competition and Markets Authority.
The Order makes exceptions for the groceries sector that formally disapply competition law in the specified circumstances. However, the CMA previously said that, in addition to any formal relaxation of the law, it would decline to take enforcement action against temporary cooperation between businesses or in relation to the rationing of products, as long as it is necessary to protect consumers from the effects of the coronavirus outbreak.
Businesses not covered by the Order therefore still have a degree of comfort, albeit much less formal, that competition law should not be a barrier to doing things that could help consumers get through the crisis.
However, suspending competition rules obviously does not sit well with the CMA, which is eager to ensure the emergency is not abused.
Our previous update referred to the CMA's open letter to the pharmaceutical and food and drink industries, the possibility that the CMA might itself seek emergency powers to combat abuse, and the establishment of a CMA task force to monitor market developments.
For the same reason, the Order contains certain anti-abuse provisions. Agreements will only qualify if their purpose is to prevent or mitigate coronavirus-related disruption to the supply of groceries to consumers, and must not restrict competition any more than is necessary.
In addition, any agreement seeking the protection of the Order (i.e. which the parties think would, or may otherwise be, prohibited by competition law) must be notified to the Secretary of State within 14 days of it being made.
The notification must set out the parties to, and date of, the agreement, a description of its nature and the groceries to which it relates. These details will then be published in a register.
This transparency will facilitate scrutiny of agreements, including by the CMA, to ensure that only those that genuinely meet the criteria benefit from the temporary relaxation of the rules. Less scrupulous businesses are much less likely to try to take advantage of the Order if they know their agreement will have to be published.
The Order introduces a significant departure from competition rules, justified by the current emergency. However, that significance has not gone unnoticed by the Government or the CMA, and the exceptions are likely to be policed strictly to ensure competition is disrupted no more than is necessary.
Any business in the groceries supply chain that wants to take advantage of the Order should seek legal advice before entering into any agreement.