for traditional scratch cooking, and the more they move towards more restaurant-like instant meals, which present various opportunities to ‘add value’ to the basic raw ingredients by means of food processing and packaging, the better their bottom line will be.
Corner-store formats also allow supermarket chains to charge different prices for groceries. Consumers tend to assume that chains charge the same for any given line in all their stores. Asda, Morrisons, Marks & Spencer, Waitrose, Iceland, Booths, Aldi and Lidl say they operate a strict national pricing policy. But other chains don’t. This practice is called ‘price flexing’, which means that a chain sets a different retail price for a product in different geographical areas to compete with the local opposition. Price flexing cuts two ways. You can end up paying more for tea bags on the high street than you do in that edge-of-town superstore run by the same chain because there is no strong competition from rivals. Or you might be able to pick up tea bags for less on the high street because the market is particularly price sensitive there and so a supermarket chain is offering lower prices on certain lines. Somerfield, for example, told The Grocer that it runs extra promotions ‘where there is strong local competition’. The Co-op said that although it runs national pricing on key lines, ‘other prices vary by format or store size’.
When the Observer investigated the prices being charged in seven London stores in 2003, it concluded that customers were paying between 4 per cent and 7 per cent more for the privilege of shopping in supermarket ‘convenience’ stores compared with what they would pay for exactly the same products in larger-format stores in the same area. A report by the government’s Competition Commission in 2000 concluded that when carried out by big chains such as Safeway, Sainsbury’s and Tesco, this practice ‘operates against the public interest’. Both Tesco and Sainsbury’s challenged the methodology of the Commission’s analysis, and all chains operating price flexing said that the practice reflected the higher operating costs of more centrally located stores.
You might think that the regulatory authorities would be concerned about supermarkets’ tightening noose on the grocery market, but you’d be wrong. When the Competition Commission investigated them, our supermarket chains got lucky. It decided that supermarkets did not have a worrying monopoly on our grocery shopping. It divided the grocery market in two: ‘one-stop’ at supermarkets and ‘top-up’ at convenience stores. Our supermarkets had successfully fed the government and the Commission the line that these were two distinct markets without any particular bearing on one another. Any citizen with common sense could see that there is a fairly direct relationship between the decline in independent stores in the town centre and the ascendancy of out-of-centre superstores. But the Commission employed a rather narrow definition of the term ‘competition’. In its book, competition in the grocery sector meant competition between rival supermarket chains. Choice for consumer did not mean a choice of both small shops and a supermarket to shop in but a choice of supermarkets run by different chains. The logic was absurd. It implied that if you lived in a small town with a reasonable collection of small shops level pegging with one relatively small supermarket run by chain A, you were positively deprived of choice. The Commission seemed to believe that new competitor supermarkets run by chains B, C and D would give you greater choice. It ignored the fact that another supermarket would accelerate the rate of closures amongst independent shops that were just holding their own.
Given this regulatory climate, it is not surprising that the big multiples’ efforts to build their portfolio in the ‘small basket’ sector are escalating. As Richard Hyman of the market research company Verdict told The Times, ‘this was always a market that the big boys were going to get into big time’. In October 2002, the Co-op started off the big buying with its acquisition of the grocery chain Alldays. Three days later, it was no surprise to discover that Tesco had got the go-ahead from the Office of Fair Trading (OFT) to buy up the T&S chain of convenience stores, using this two-market yardstick. Tesco gained out of the deal the 450 new Express stores it created from the T&S stores, adding a cool 1 per cent to its market share, without raising a regulatory whimper. The OFT decided that the T&S acquisition gave Tesco only 5 per cent of the convenience market so that was OK. But as one industry analyst told the Daily Telegraph, with the T&S deal, ‘Tesco had done a land grab which would probably have taken them eight years to do piecemeal and probably 15 years in terms of all the planning wrangles there would have been.’ By the end of 2003, Tesco was opening Express stores at a rate of one a week.
There’s no doubt that the Competition Commission’s artificial division of the grocery market has turned out to be highly advantageous for the large supermarket chains. As Bill Grimsey, the chief executive officer of the retail and wholesale Big Food Group, put it: ‘It allows the already dominant multiples to bring their strength back into the high streets and local neighbourhoods, eventually working against the interests of shoppers, suppliers and the livelihoods of the smaller independents … They will also, in the long term, limit consumer choice and potentially lead to higher prices as competition eventually diminishes. Suppliers and consumers will be faced by a world dominated by two or three companies.’ A troubling prospect, isn’t it?
How on earth did Britain get into a situation where independent shops are an endangered species and a handful of powerful retailers are heading for total control of the nation’s food shopping – all in three decades? If consumers had been asked to vote on whether this was a desirable set of affairs, the resounding response would have been no; yet this is precisely what has happened. How did our regulatory system let us down?
When supermarkets started appearing in Britain during the 1960s, it was not instantly obvious that they were the forerunners of retail monsters. They were sufficiently few and far between not to cause undue concern. By today’s standards they were relatively small. Small shopkeepers were fearful about losing business to the new retail giants, but most people welcomed them. For most shoppers, they were something of a novelty, a new retail experience, a welcome addition to traditional shopping outlets – butchers, fishmongers, grocers and so on – adding to the all-round grocery shopping choice. Consumers saw the new supermarkets as an ‘as well as’ not an ‘instead of’ feature of the shopping scene. Local councils often viewed them positively as a whole new pot of rateable revenue.
By the late 1980s, however, supermarkets were multiplying at a steady rate. They were becoming bigger too. The nightmare scenarios articulated by independent shopkeepers were beginning to be played out on the high street. Belatedly, the penny dropped that a supermarket land grab was under way. It became obvious that some restrictions to curb the spread of supermarkets would be needed. In 1988, the Department of the Environment issued a planning policy note (PPG6) for England containing general guidance for local authorities. This said that although the planning system should not inhibit competition between retailers – perish the thought! – it should take into account whether a new supermarket would affect the vitality and viability of a nearby town centre. But this guidance proved totally inadequate to slow down the supermarkets’ inexorable push for retail space. A proliferation of large superstores followed.
The supermarket retail revolution no longer meant the odd useful store on the edge of urban areas, but a ring of similar developments creating a supermarket bracelet around towns and cities, a bracelet elastic enough to allow the insertion of ever more links. Chain B would build a new store, bigger and better than chain A’s existing store in the area. So chain A would respond with another bigger store to claw back the business the newcomer had taken away. Chain C, meanwhile, not to be outdone, would open its store to make sure it got its slice of the retail action.
People
