FCCA recommends a swift review of regulation of store locations in order to improve competition

A report “Regulation of store locations – Perspective of entry and competition” published today by the Finnish Competition and Consumer Authority finds that, if the regulation of store locations or municipal plotting policy do not make way for retail competition, other social efforts to increase competition may prove in part fruitless. The report shows that swift steps should be taken to review the way in which store locations and the sale of plots is regulated.

According to the report, the present regulation system, which is complicated, detailed and open to interpretation, strengthens the position of the field’s leading companies. For example, in spite of being an essential part of modern retail competition, due to their efficiency and current consumer behaviour, special regulation of plots and locations has made it nearly impossible to establish new large retail units.

As the result of this report the Finnish Competition and Consumer Authority has published the following recommendations:

  • The objective to advocacy and competition assesment should be added to the Land Use and Building Act (132/1999)
  • The requirement that large retail units be located in urban centres should be eliminated, in cases where this would ensure competitiveness.
  • The practice of regulating locations should be expanded by reviewing the size limitations and maximum permitted gross floor space.
  • The role of the Ministry of the Environment in regulating the location of retail trade should be clarified, by, for example, no longer requiring the validation of regional plans
  • Openness and transparency should be increased in all stages of land use planning and in plot policy.
  • The use of tendering should be increased in the sale of plots, and all companies should be given an equal opportunity to make plot reservations.
  • A conscious effort should be made to create a plot reserve and mobility in planning, and to openly inform different companies of new available plots well in advance.

Regulation creates an artificial shortage

The latest revision of the Land Use and Building Act in 2011 has seen to it that, due to strict interpretations by authorities, large retail units cannot be situated outside of urban centres. However, urban centres have often already been built so full that there are no suitable plots for new large retail units. If there are plots, they are often already owned by the incumbents and are, in any case, more expensive to establish and maintain than already existing large retail units.

Therefore the competitive advantage enjoyed by already existing large retail units is strengthened by the strict maximum gross floor space limitations that may already be filled by existing units or those in the works. The strict maximum floor space and square metre limitations can easily lead to excess planning, in which case solutions are not based on consumer needs and choices.

For example, the population and buying power in Uusimaa are estimated to grow significantly in coming years. For this reason the need for establishing new retail units is apparent. According to a location analysis by the Finnish Competition and Consumer Authority, Uusimaa also has potential plots for large retail units, but these are predominantly located outside of urban centres and the local plan does not allow for their construction.

Municipal practices for plot sales favour the incumbents

The majority of municipality-owned business plots are sold by discretion or through negotiations. Only approximately one in ten plots is sold after an invitation to tender. In addition to this, the few available store locations are often sold directly to well-networked incumbents.

Often, planning a plot reserve is not possible either, due to maximum floor space restrictions. However, the biggest problem is the mind-set that the presence of two competing business enterprises is enough to secure sufficient competition.

Especially reserved plots in large retail projects in the Helsinki metropolitan area are an example of a non-competitive practice in the sale of business plots. Reserved plots are land areas owned by a municipality, which the municipality reserves for a private company before planning even begins.

Reserved plots and discretionary practices in general are thought to usually favour large retail enterprises. This impression in itself raises the threshold for entering the field, and this is problematic with regard to competition. If, on top of this impression of impartialness, incumbents are seen participating in payment of different planning or infrastructure projects, the threshold for entering the field rises even higher. Today, municipalities are more and more keen to transfer these costs to external actors in the industry.

The lack of transparency related to the practices used in the plot sales process serves the interests of those incumbents that are most familiar with regulation. Increasing transparency is a key development target in municipal decision making concerning land use.

The newly published report is one of the measures that the Finnish Competition and Consumer Authority has undertaken to promote competition in Finnish retail trade. The report was compiled on the basis of interviews with a large number of the industry’s experts, a survey that was sent to Finland’s 40 largest municipalities and two separate inquiries, which focused on potential locations for large retail units in Uusimaa and the points that need to be developed in land use and building regulations to promote competition.

Read the report (in Finnish): Kaupan sijainnin sääntely – Alalle pääsyn ja kilpailun näkökulma (pdf)

Further information:

Research Officer Teemu Karttunen, tel. 029 505 3315
Email adresses: firstname.lastname@kkv.fi