COVID-19: The groceries sector - temporary competition law exemption comes into force

In light of "exceptional and compelling reasons of public policy" arising from the Covid-19 pandemic, the Secretary of State (the "SoS") has announced temporary competition law arrangements in the groceries sector.

As previously reported, The SoS announced his intention to exclude temporarily certain arrangements in the groceries sector from the application of the Chapter I prohibition of the Competition Act 1998 (which prohibits agreements, decisions and concerted practices which may affect trade within the UK and which have as their object or effect the prevention, restriction or distortion of competition within the UK).

Along with two other Chapter I exemptions for health services and Solent ferries respectively, the Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 (the "Order") has now come into force.

Exemption Duration:

The Order applies throughout the "groceries supply disruption period" which is designated to have commenced on 1 March 2020 and will continue until such time as the SoS concludes that there is no longer (a risk of) significant disruption to the supply of groceries to consumers and has given at least twenty-eight days' notice of the period ending. Thus, the Order has a retrospective effect and exempts relevant groceries arrangements which have already been entered into earlier in March.

General Scope of the Exemption:

In order to benefit from the exemption, the purpose of any relevant agreement must be "to prevent or mitigate disruption to the supply of groceries to consumers in any part of the UK caused by reason relating to coronavirus". Its potential impact on competition must be limited specifically to 'qualifying activities' (as specified in the Order) in a market for the provision of groceries to consumers in the UK affected by coronavirus-related disruption.

The Order sets out very clearly a list of products which constitute 'groceries' for these purposes, namely: food (not sold for in-store consumption); pharmaceuticals (excluding prescription-only medicines); pet food; drinks (alcoholic and non-alcoholic, but not sold for in-store consumption); cleaning products; toiletries; and household goods. It also provides a much lengthier and more wide-ranging list of goods and services which are not covered.

The exemption only applies to certain agreements relating to 'qualifying activities' made between: (i) 'groceries-chain suppliers', which include both retailers supplying groceries to consumers in the UK and also suppliers supplying groceries to retailers for resale in the UK; and (ii) 'logistics services suppliers', which provide a delivery, storage or maintenance service to a groceries chain supplier. Thus, it potentially covers a wide range of groceries retailers and not just the supermarkets.

Relevant agreements must be notified in writing to the SoS within fourteen days (of the Order for those already in place and of the agreement being made for future ones). The SoS is required to keep and publish a register of notified agreements.

Th exemption does not apply to any sharing between competitors of information relating to costs or pricing.

'Qualifying' or "Permitted Activities":

For groceries-chain suppliers, they may:

• co-ordinate on limiting consumer purchases of particular groceries;
• share labour or facilities or co-ordinate the deployment of labour from other industries;
• co-ordinate on the range of groceries to be/being supplied by suppliers or retailers;
• share information on day-to-day stock position and shortages of groceries within any part of the UK;
• share information on logistic service providers' services;
• co-ordinate assistance for particular consumer groups, such as critical (i.e. key) workers, and the most clinically vulnerable and socially isolated groups (for example, as has already been implemented and publicised, agreeing the opening of stores at specific times for these consumer groups and prioritising deliveries to them);
• co-ordinate the temporary closure of stores or their opening hours; and
• co-ordinate grocery supplies to consumers in areas of the UK which are particularly vulnerable to shortages.

For logistics service providers, they may:

• share information on labour availability;
• share labour or facilities or co-ordinate the deployment of labour;
• share information on groceries storage capacity (including ambient, chilled and frozen warehouse capacity);
• share information on storage and warehouse services intended or available for groceries; and
• share information on delivery vehicle capacity and the size, type or destination of delivery vehicles.

In summary:

Many in the groceries sector, particularly the supermarkets, had been seeking adequate comfort from the Government that they could co-operate with competitors in these exceptional times in order to ensure that, in relation to essential products, the shelves are stocked and deliveries are made to consumers without fear of competition law enforcement action being taken against them. The Order sets out clearly the parameters for this collaboration in terms of both the products and permitted areas of co-operation. It makes clear that sharing of pricing or costs information is not permitted.

For those who do not benefit from this exemption (or one of the other specific exemptions), the CMA has provided further guidance on the potential scope of co-operation between competitors during the current crisis that will not result in the CMA taking enforcement action.