UK rail regulator stops short of CMA referral for station catering

The Office of Rail and Road last December found that Britain's railway station catering market was uncompetitive, stifling investment in stations and forcing passengers to at least 10% more for their sausage rolls and coffees.

An ORR investigation found that outlets can stay in the same hands for extended periods due to protected leases, adding that station operators "are not sufficiently incentivised to invite competition for outlets" in a market worth £700m a year.

However, in its final report published on Wednesday, the ORR said that despite evidence "consistent with a reasonable suspicion that the market is not functioning as effectively as it could be" there was no clear evidence of widespread harm that would "make a case for the strongest forms of intervention".

"We have found that the selection process of catering companies has recently rarely taken the form of an open competition. The most common practice is to propose a lease renewal or an extension of the lease to the incumbent catering company," the ORR said in its final report.

""It means that when opportunities to compete for outlets at stations do arise, catering companies have very little chance to either be informed of the opportunity or to compete for them. These issues are fundamental to competition in this market."

Most railway station catering space is leased to London-listed SSP Group which owns the Upper Crust, Ritazza and the Camden Food Co, while it also operates franchises for Burger King, Greggs, Starbucks and M&S Food, the ORR said in its initial findings last year.

SSP was found to own 20-30% of all outlets, bringing in 30-40% of all rents paid by station catering companies with a 40-50% share of all passenger spending.

Its share of all outlets is larger than that of the next six largest players combined. Costa Coffee and WH Smith are the next largest players, the ORR report said, with one competitor saying SSP's position was "verging on monopoly in many locations".

"This is a uniquely British problem – to [our] knowledge there is no equivalent situation, where one dominant competitor controls food and beverage in any other railway station market within Europe," the unnamed company told the ORR in its submission.

Station catering retailers earned total revenue of around £700m in 2022/23. Station operators (Network Rail and train operators combined) earned a little over £100m in rental income from leasing outlets for catering services in 2022/23.

"Even when unprotected leases come up for renewal, the most common practice is to roll over or extend the lease without an open competition. Competition for outlets is a crucial factor across the market, because nearly half of all stations (47%) with retail space have just one outlet," the ORR said.

This "natural barrier to head-to-head competition" meant that customers paid a 10% price premium at stations compared to the high street.

Reporting by Frank Prenesti for Sharecast.com