Below Cost Legislation – Did it matter and would it really matter today?

This paper traces the emergence, evolution, and demise of below cost legislation in the grocery industry in Ireland. The paper explores retail buyers’ views of the Grocery Order (1987) and the effect, if any, it had on grocery buyer behaviour, competition among retailers, and vertical competition along the food chain until it was repealed in 2006. It addresses the matter of buyers’ likely response to the Order, had it remained in effect, in the current depressed market environment. Views of independent retailers are also provided on the Order. The paper finds that grocery buyer behaviour was determined by the buoyant consumer market and that the Groceries Order acted to depress competitive forces and direct supplier-buyer negotiations to off-invoice variables. Had the Order remained in place, the effect of the rapid decline in the economy, accompanied by the rapid rise of the discounters’ share of the market, the growth in cross border shopping, and the dramatic fall in the value of sterling would have ensured that buyers developed new sourcing models which would have made the legislation redundant. The paper concludes that the legislation did not work to the benefit of shoppers but assisted the imposition of a form of quasiresale price maintenance by suppliers, which suited suppliers and retailers alike in a time of economic buoyancy. The paper endorses the Government’s decision to rescind the order and remove an important constraint in both vertical and horizontal competition.