Restricting promotions of food and drink high in fat, sugar or salt: business and regulatory impact assessment - partial

7. Competition Assessment

In addition to looking at the impact on individual firms consideration is given to the impact that a measure^[58] may have on competition between firms. The overall aim of the competition assessment is to find a policy approach which encourages competition within the market subject to achieving the wider policy objectives.

In terms of business exemptions we propose to align with the approach taken by the UK Government and that proposed by the Welsh Government.

In 2022, there were an estimated 5,670 retailers potentially within the scope of the regulations. Of these 5,560, or 98%, were micro or small enterprises with fewer than 50 employees^[59]. It is a similar picture for the distribution of OOH businesses, with 13,120 businesses potentially within the scope of the regulations and 12,730 of these, or 97%, having fewer than 50 employees in 2022.

The vast majority of sales occurs in medium and large businesses, reflecting the dominance of supermarkets in the grocery sector. Of a total turnover of around £15.9 billion in the food and drink retail sector potentially within scope in 2022, almost £13.3 billion, or 85% was in businesses with 50 employees or more^[60].

OoH sales are also concentrated in larger businesses, but not to the same extent. Revenues in 2022 for OOH businesses potentially in scope totalled around £5.3 billion, with almost £2.3 billion of that, of 54%, in businesses with 50 employees or more.

To assess the impact the policy may have on competition between firms the following questions are considered as detailed below:

Competition checklist

Policy Measure: Price restrictions including TPR and meal deals

No. The proposal places no direct limit on the number of retailers which can operate in the market.

Policy Measure: Location restrictions

No. The proposal places no direct limit on the number of retailers which can operate in the market.

Competition checklist

Will the measure indirectly limit the number or range of suppliers?

Policy Measure: Price restrictions including TPR and meal deals

Manufacturers of targeted food and drink products will be impacted through reduced sales as the policy seeks to restrict the promotion of new and existing HFSS product lines.

The measure does not seek to limit the number or range of suppliers in the market. Instead it may encourage manufacturer reformulation to non-HFSS products in order to access promotion types that aren’t restricted.

Suppliers producing HFSS food and drink will still be able to compete on absolute price level, quality and taste which will limit the impact on competition.

There are potential non-intended incentives for retailer and OoH businesses at the margin of the size exemption rules (i.e. around 50 employees or a premises around 2000 square feet) to either lower the size of their business, in terms of employment and/or physical store size, or alternatively for those currently within the exemption limits not increase the size of their business in order to remain exempted. However, it is unlikely this would represent a large share of businesses, and meeting the HFSS requirements would only be one of many factors which determine a business’ growth strategy and/or store sizing.

Policy Measure: Location restrictions

Business exemptions are proposed from location restrictions for micro or small business (businesses with under 50 employees) and or for premises smaller than 2000 square feet.

As per modelling we assume business premises reconfigure costs are likely to be minimal and non-prohibitive for business in scope.

There are potential non-intended incentives for retailer and OoH businesses at the margin of the size exemption rules (i.e. around 50 employees or a premises around 2000 square feet) to either lower the size of their business, in terms of employment and/or physical store size, or alternatively for those currently within the exemption limits not increase the size of their business in order to remain exempted. However, it is unlikely this would represent a large share of businesses, and meeting the HFSS requirements would only be one of many factors which determine a business’ growth strategy and/or store sizing.

Competition checklist

Will the measure limit the ability of suppliers to compete?

Policy Measure: Price restrictions including TPR and meal deals

The proposal does not limit businesses ability to compete on grounds of quality, geographic location, absolute price, advertisement and many other aspects on which businesses frequently compete.

Price promotions are a method of competition, which will be restricted under this proposal.

In engagement with businesses, there were suggestions that the proposals may impact negatively on the ability of retailers to compete with OoH providers due to only pre-packed foods being targeted, and on the ability of manufacturers of HFSS branded products to compete with supermarket own HFSS brand offerings and the impact this may have on new brands entering the market.

This method of competition will be restricted for HFSS products only. It is likely that firms will adapt to compete on absolute price level instead.

Some businesses may use price discounts to a greater extent than others and therefore the policy may have a disproportionate impact on these businesses. For example, TPRs were strongly opposed by business, particularly small to medium stores. Scottish independent retailers consider TPRs to be an essential tool to differentiate themselves from competitors. The proposed business exemptions would help mitigate this issue because Scottish independent retailers are generally small or micro businesses.

Policy Measure: Location restrictions

The proposal does not limit businesses ability to compete on grounds of quality, geographic location, absolute price, advertisement and many other aspects on which businesses frequently compete.

Businesses will likely respond by placing alternative products in the areas of store restricted under this policy proposal.

Manufacturers bringing new HFSS products to market may traditionally use product placement to penetrate a market. This measure may disadvantage the launch of new HFSS product lines and potentially encourage manufacturers towards launching non-HFSS products.

Competition checklist

Will the measure limit suppliers’ incentives to compete vigorously?

Policy Measure: Price restrictions including TPR and meal deals

The proposal does not exempt suppliers from general competition law, introduce or amend the intellectual property regime or increase the costs to customers of switching between suppliers.

This policy does restrict businesses in their ability to offer promotional prices on targeted food and drink that is HFSS which will limit the pricing strategies available to suppliers and may impact on the potential for innovative pricing strategies on HFSS products. This would apply to all suppliers operating in the market.

This may lead to more transparent pricing in the form of everyday low pricing which allows consumers to make a fair comparison between products based on price / value instead of trying to navigate a variety of different promotional pricing strategies.

The measure would not limit suppliers incentives or ability to compete vigorously on non-targeted food and drink.

Policy Measure: Location restrictions

The proposal does not exempt suppliers from general competition law, introduce or amend the intellectual property regime or increase the costs to customers of switching between suppliers.

Competition checklist

Will the measure limit the choices and information available to consumers?

Policy Measure: Price restrictions including TPR and meal deals

This proposal would not limit the choices or information available to consumers. No food or drink is being banned. This is particularly important to note on the proposed targeting of less healthy meals deals.

The restriction of less healthy meal deals may be offset by a shift to the promotions of non-HFSS meal deals. During engagement with business the importance of retaining the ability to promote healthier options was highlighted. This measure will not impact the potential to provide consumers with non HFSS options on promotions

Proposed restrictions will not limit the range of options available to consumers. The measure will however limit how targeted HFSS products can be promoted.

Policy Measure: Location restrictions

This proposal would not limit the choices or information available to consumers, given that restrictions are on where products can be displayed rather than restrictions on the sale of items.