Sunday, March 19, 2006

Tescophobia

This term will not mean much to the preponderantly international readership of this blog, so some explanation is necessary. Britain has a highly concentrated grocery retail sector with some 30% of the market held by one firm, Tesco (which has some international presence in Eastern Europe, Thailand etc.) The next two biggest players in terms of market share are Sainsbury's and Asda which is owned by Wal-Mart.
Some versions of the theory of monopoly would argue that 30% comes close to being a dominant position and the UK's Competition Commission has launched yet another investigation into the retail grocery market.

Tesco used to be known as the 'pile it high and sell it cheap' store in comparison to the more up market Sainsbury's, but it has cleverly positioned itself in mid-market, overtaking the faltering (although now recovering) Sainsbury's in the process. Marks and Spencers and Waitrose (part of the John Lewis Partnership) tend to be more up market, the Co-op appeals to the ethical consumer, while Asda and Morrisons compete on price.

A number of charges are laid against Tesco and the other big supermarkets. One is that they use their market dominant position to squeeze the margins offered to processors and farmers, while continually requiring higher quality standards. However, their suppliers are understandably unwilling to come forward with evidence of demands for a range of additional payments, e.g., for store openings.

Another charge, and one that has led to the current investigation, is that by opening smaller outlets in town centres (rather than their usual edge of town locations) they are driving out of business convenience (or what Americans call 'mom and pop') stores. This has received a receptive hearing from the media and legislators, although in my experience many of these stores offer high prices and poor service. However, never let market forces get in the way of an emotive argument.

I have to confess that we do our shopping at Tesco's every week. There are those who argue that it would be cheaper if one went to a succession of small shops and that one would also get better quality produce. This may be the case, but the only specialist shop we use regularly is a fishmonger. What the critics forget is the time costs that specialist shopping entails. In today's society where many people are cash rich and time poor, that is a relevant consideration.

Government has also been very reluctant to act against the supermarkets because they bring benefits to consumers by holding down prices through competition and the use of their market position. This helps to restrain inflation and particularly benefits a key New Labour constituency, working people with families.

Tescophobia is rife among the 'chattering classes', i.e., the articulate and well educated members of the class with access to the media. But, as Tesco themselves say, what shoppers do is more important than what they say and they continue to pour through the doors of the supermarkets.

Where Tesco may be vulnerable to a competition enquiry is its possession of 'land banks' of attractive retail sites which it is alleged it hoards to keep rivals out of the market. Sometimes land is very scarce in prime locations, however. Gerrards Cross is one of the richest communities in England. The only place Tesco could find to build a store was over the railway line. They built a tunnel over it which then collapsed, fortunately with no trains going through it.

Supermarkets like Tesco are trying to expand their global reach, while France has relaxed laws designed to protect small shops, so these are not purely British issues.
Globalisation and concentration in retailing is likely to be a continuing trend.

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