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When the Competition Commission began to investigate possible abuses of market position by the major supermarkets 18 months ago, it seemed that perhaps time was about to be called on decades of rapid expansion. The heritage lobby, which has long campaigned against the 鈥渃lone towns鈥� that they blamed on this 鈥淭escopoly鈥� was looking for the government to put an end to them. They are likely to be disappointed with what the commission has said.

In fact, it concluded that more stores should be built to intensify competition, and it criticised the supermarkets鈥� tactics of buying up possible development sites to deny them to rivals. So, instead of trying to curb the power of supermarkets to protect smaller retailers, the commission simply recommended that the companies be forced to sell off undeveloped land to each other. This could lead to a wave of new-build superstores 鈥� and, the campaigners say, could destabilise Britain鈥檚 town-centre renaissance, which has been 10 years in the making.

The main problem identified by the report is that areas exist where one retailer holds sway, and customers have little choice but to do their food shopping from it: places such as Inverness, which has three Tescos, another on the way, and none of its rivals. The commission says this is the result of a combination of two things: a planning system that does not release enough land, and the supermarkets鈥� habit of denying development sites to their competitors. The 鈥渂ig four鈥� supermarkets 鈥� Tesco, Sainsbury鈥檚, Asda and Morrisons 鈥� control 886 development sites, enough to increase the number of superstores in the UK by 50%. The commission also highlighted the use of 鈥渞estrictive covenants鈥� on these sites. If enforced, these could stop them ever being used by rival retailers, even if sold to another developer.

Overall, the commission identified 110 sites where land holdings were 鈥渓ikely to frustrate competitor entry鈥� to the market and launched a consultation on proposed remedies. The most eye-catching is the forced sale of potentially all 110 sites where they may be preventing competition. The commission has the power to enforce these sales by making firms sign legally binding undertakings. Or, in the words of the report: 鈥淩emedies that would require grocery retailers to divest land holdings in order to facilitate new entry.鈥�

John Francis, a partner at planning consultant DPP who has represented Tesco, rejects the implication that supermarkets are holding on to sites to frustrate competition. Rather, he says, the fact that they own undeveloped land shows the difficulty of getting what they want out of the planning system. He said: 鈥淭he primary purpose of these land holdings is not to stymie competitors but to promote development. Personally I think the commission hasn鈥檛 got a proper understanding of how difficult it is to get permission anywhere.鈥�

The proposal will hit Tesco hardest because it has by far the largest land holding. One source at Asda said it would be 鈥済reat news鈥� for it, because of the size of Tesco鈥檚 holdings. But most observers think it is unlikely that the commission will take this drastic step given the other measures it is considering.

One is the banning of 鈥渞estrictive covenants鈥�. This is also controversial, in part because there is some dispute as to how widespread their use is; Francis says he has 鈥渘ever come across a piece of land with this type of covenant on it鈥�, while an Asda spokesperson maintained that their imposition was common practice.

The commission found the 鈥渂ig four鈥� supermarkets controlled 127 of their 886 sites through these deals. For the Royal Town Planning Institute (RTPI), action in this area is the most likely solution to the competition problem. Rynd Smith, the institute鈥檚 director of policy, says: 鈥淐ovenants can be a big problem for effective planning, where a small private interest is taken above the interest of the wider community.鈥�

Changes to planning

The most controversial of the commission鈥檚 proposals relate to the planning system. It said that this 鈥渁cts to some extent as a barrier to entry and/or expansion for larger grocery stores鈥�. Its recommendations are threefold: first, for the government to abolish the needs test that prevents development where there is no proven consumer demand; second, to alter the sequential test that stops permission being granted outside town centres before sites inside them have been used up; and third, to introduce a competition test whereby planners may be forced to consider rival supermarket applications favourably in areas that have a dominant player.

If implemented, these changes would add up to a significant relaxation of the planning system. The Asda spokesperson said that if all three ideas were adopted, it might increase its development programme from 12 to 24 stores each year. Ian Anderson, director of planning at property consultant CB Richard Ellis, agreed. 鈥淚t鈥檚 pretty radical change they鈥檙e talking about. For the past 10 years retail development anywhere outside of the town centre has been constrained, and this could signal a much more laissez-faire approach.鈥�

And although the commission has no actual power to set planning policy, it is not making these recommendations in a vacuum. The communities department signalled in its summer white paper on planning that it was looking to reform retail planning policy, which is contained in PPS6, but would wait to hear the commission鈥檚 findings. The commission鈥檚 recommendations could be implemented in a revised PPS6. A spokesperson for the commission said it 鈥渆xpected the recommendations to be taken seriously鈥�.

The backlash

Planning and conservation pressure groups have expressed their horror at the proposals, which they say threaten the government鈥檚 own policy of regenerating town centres. Regeneration is only sustainable if it leads to increased economic activity, and this they say has been partly safeguarded by changes in retail planning guidance introduced in the nineties. And it鈥檚 not just the environmental and heritage lobbies that are concerned; the proposed changes may not even be universally welcomed by the supermarkets themselves. Many have spent a great deal of effort adapting their development plans and land strategies to the town-centre-first approach, and have spent years assembling sites. 鈥淭here鈥檚 no doubt in my mind that the value of town-centre sites would fall,鈥� says Anderson. 鈥淭hey can be very complex, and developers will be tempted by the quick buck out of town. This could throw the baby out with the bathwater.鈥� The RTPI鈥檚 Smith goes further, saying that without careful management there is a 鈥渄istinct possibility of a significant destabilising of the property and planning settings for town-centre property as a whole鈥�.

We will have to wait for the publication of the government鈥檚 revised PPS6, which sources suggest is due in early December, to know if the communities department will make the recommended changes to the planning system. The Planning Bill, which will be announced in the next few weeks, may also contain reforms.

The other proposed remedies, including the forced sale of land, will be contained in the commission鈥檚 final report, scheduled for May next year. Whichever way these key decisions go, it seems likely the world of retail development is in for a big shake-up.