Office of Rail and Road concludes railway station catering market study

On 12 June 2024 the Office of Rail and Road ("ORR") published the Final Report of its market study on the railway station catering market. The publication of the Final Report marks the conclusion of the ORR's review, which began in June 2023.

Summary

The ORR's market study follows the publication of its Interim Report in December 2023, where it decided not to refer the relevant market to the Competition and Markets Authority ("CMA") for an in-depth market investigation but found that competition was not operating as effectively as it could be.

The ORR found that there is a lack of effective competition for the occupation of railway station outlets. The main barriers to competition that it identified are limited available space at railway stations, that a minority of leases are protected tenancies under the Landlord and Tenant Act 1954 (making it difficult for station operators to terminate leases), and that station operators typically propose a lease renewal or an extension with incumbent operators, rather than conducting open competitive tenders.

The final report sets out the ORR's recommended remedies, in its role as sectoral regulator for the railway industry. The ORR has proposed the following remedies to address its concerns:

• Protected leases: Reducing the prevalence and mitigating the impact of protected tenancies for new entrants.
• Competitive tendering: Increasing transparency and frequency of the tendering process by adopting a presumption in favour of competitive tendering of outlets and making publicly available details of upcoming opportunities to let space.
• Information gathering: Asking station operators to gather more information about consumer demand and satisfaction e.g. by rolling out cost-effective national passengers surveys aimed at determining consumer satisfaction with the range and value for money of station catering products and services.
• Procedural complexity: Standardising and simplifying the tender process acting as a barrier to new entrants by offering incentives to prospective tenants to maximise the marketability of units (e.g. turnover rents, break clauses and access to shared spaces).
• Strategic direction: Ensuring funders provide direction and incentives for station outlets and station operators to embrace the recommendations.

Analysis and commentary

2023 was a busy year for market studies for sectoral regulators like the ORR as well as the CMA more generally (see our summary here) and the conclusion of this market study draws to a close another of these (following the recent conclusion of the CMA's housebuilding market study).

The ORR is now calling for relevant stakeholders to provide comments on the proposed remedies within three months of the end of the general election period. The Rail Delivery Group will be responsible for collecting responses on behalf of railway station operators. The ORR has also noted that the current government's proposed rail reforms could impact the body responsible for implementing the ORR's recommendations, moving these functions to a body other than Network Rail. The ORR will monitor implementation of its remedies and review the impact of these as part of its next periodic review of Network Rail (or equivalent implementing body).

HSF acts for a number of clients engaging with market studies by the CMA and other regulators, including advising on the impact of these. As 2023's market studies draw to a close, 2024 and beyond will continue to see regulator activity in this space – with a number of market studies ongoing (including in relation to cloud services, mobile browsers and cloud gaming, and veterinary services for household pets).