'New law no contest for supermarkets' power'

759Store owner fears Competition Ordinance will have little effect on possible pricing tactics

PUBLISHED : Friday, 13 June, 2014, 4:48am
UPDATED : Friday, 13 June, 2014, 4:48am

A retailer has voiced fears about whether the Competition Ordinance will be able to tackle concerns over how much power the city's supermarkets wield over the prices Hongkongers pay for their groceries when it takes effect next year.

A battle against alleged pricing tactics made headlines three years ago when a drinks distributor refused to supply Coils Lam Wai-chun's 759Store retail chain, saying his prices were too low.

Under the new law, which bans price-fixing between traders and abuse of market power by dominant players, Lam could demand an investigation to see if the distributor had acted under pressure from customers.

Lam, however, has little confidence in the effectiveness of the law, which was passed in 2012. "The law will not be able to break the oligarchy," said the businessman, whose chain expanded to 200 outlets in less than four years.

He claimed supermarkets and suppliers were in a complex relationship and had various ways to influence the market. Distributors recommend a retail price for all retailers, but the legality of this arrangement under the competition law remains unclear. Even if the system of recommended retail prices was banned, suppliers would still be able to control market prices indirectly, Lam said.

Suppliers could simply sell to supermarkets at lower prices and allow them higher profit margins. Then they would sell the same products at higher prices to small stores, which would then find it harder to undercut the supermarkets, he suggested.

"Smaller shops simply cannot compete because they have no bargaining power," Lam said.

More than 95 per cent of the products sold at his stores are imported directly, bypassing local distributors.

The Competition Commission, which is to enforce the law, expects informers to offer tip-offs about illegal pricing tactics. But Lam said local suppliers would be unlikely to report customers in the event of any wrongdoing.

"Allowing supermarkets to do business well guarantees the suppliers' profits too, as a big part of their business comes from supermarkets," Lam said.

Landlords impose restrictions on what kinds of products a retailer can sell to share business opportunities among tenants, Lam noted. To make it easier for the 759Store chain to rent outlets, Lam has to reassure landlords it is not trying to be a supermarket. "We will definitely not sell vegetables, fresh fish and defrosted pork," he said.

Thomas Cheng, a member of the Competition Commission and associate law professor at the University of Hong Kong, said it was acceptable for suppliers to recommend a retail price. However, if retailers were refused supply if they did not comply, it would be problematic under the law.

Local suppliers are unlikely to be found breaking the law due to their limited market power, he added.

Landlords would be given a free hand to add clauses in leases as long as they were unilateral.

"It would be a problem only if 759Store reached an agreement with convenience stores on which types of products they would sell," Cheng said.

A spokesman for one of the city's two biggest supermarket chains, ParknShop, said the company believed in a level playing field for the retail sector. "ParknShop is just only one of the many channels in Hong Kong for consumers to shop for fresh food, groceries and general merchandise. We respect and act according to the contractual agreement with our suppliers. We build and maintain professional and ethical relationships with them.

"As a policy, we do not apply pressure to suppliers to not supply other retailers. We believe a fair and level playing field environment is vital for the retail market in Hong Kong."

A spokesman for Wellcome could not be reached.