Consumers

(Updating article first published March 2 after the Office of Fair Trading says supermarkets are likely to face a full Competition Commission probe)

The British are well known for siding with the underdog, but that will be little consolation to the hugely successful supermarket chain Tesco as it faces up to a rising consumer backlash. Environmental groups, farmers’ organisations and even the Womens Institute have joined in opposition to the firm’s growing size and influence, while a spate of unfavourable headlines reflect growing unease among the public.

On March 9, the Office of Fair Trading said supermarkets are likely to face a full inquiry by the Competition Commission into their dominance of the grocery market. The inquiry will be triggered by the OFT after a further one month's consultation. In its draft ruling, the OFT said the planning regime as well as the supermarkets' land banks acquired in advance for future development served as potential barriers to entry.

The news came after a cross-party group of MPs on February 15 published a 91-page report slamming top supermarkets for using predatory pricing against local shops, treating small suppliers aggressively, and exercising strong-arm tactics to get their way with local planning authorities.

Supermarkets have grown by giving customers what they want: good food at cheap prices. But can the mantra ‘the customer is king’ suffice as their main justification today? Pointing the way ahead, a surprise move by US retail giant Wal-Mart, owner of Asda in Britain, suggests a change in tactics for big retailers.

Case for the prosecution

The report by the All Party Parliamentary Group on Small Shops, High Street 2015, makes grim reading for supermarkets. Although the group of MPs has no direct law-making capacity, it has great agenda-setting power, so its recommendations will be taken seriously.

The report finds little good to say about the impact of supermarkets on Britain’s society and economy. It makes three major claims, which include accusations of outright foul play.

First, the report claims that supermarkets sometimes resort to predatory pricing where they face strong competition. By slashing prices in a local area, they drive other firms out of business before raising prices again when they have established a local monopoly. Sometimes prices are cut across the board, or sometimes on specific products such as petrol. Loss-making prices are subsidised through profits elsewhere in the business.The Competition Commission found evidence of predatory pricing in a major investigation in 2000. At the time, it said that no action should be taken as the side effects of regulation would be more costly than the abuses it might prevent.

Second, the report claims that supermarkets impose costly and unpredictable terms on their suppliers. To hold onto vital contracts, suppliers are asked to shoulder the cost of in-store promotions or advertise in in-store magazines. And contracts can be cancelled with hardly any notice. Where a few firms dominate the routes to market, their power can be disproportionate.

Although a Supermarkets Code of Practice was introduced in 2000 to deal with this, the report claims that by failing to guarantee suppliers that their complaints would be dealt with in anonymity, the measure failed to have an impact.

Third, it suggests that the big firms use their money and influence to bully local authorities into giving planning permission. The system of ‘planning gain’, whereby councils approve a development so long as extra amenities or infrastructure is built for the local area, is allegedly open to abuse, while the cost of fighting planning appeals means that local authorities often cave in.

Small is beautiful

Shops are much more than just outlets for goods, the MPs’ report argues. As a place where neighbours meet, they help tie the bonds the make towns and villages into communities. The social aspect of small shops is seen as particularly important for old people. According to the Office of the Deputy Prime Minister, 30% of people over 65 don’t see any friends at least once a week. So the trip to see a friendly, familiar shopkeeper can be a lifeline.

Supermarkets, car ownership and out-of-town shopping have helped send small shops into a downward spiral. Between 1991 and 1997, 4,000 village shops closed. 6,500 post offices shut their door for the last time between 1981 and 2005. When a post office closes, a small shop next door is 15% more likely to close as well. And supermarkets have a stranglehold over food sales in some cities: Tesco’s market share is 51% in Inverness and 50% in Milton Keynes according to the report.

Influential campaign groups agree that there are good reasons to preserve small shops. According to the New Economics Foundation, a think tank, a greater proportion of money spent at local shops stays within the local economy. And environmental group Friends of the Earth says that small shops are more compatible with a low carbon economy. It also reports that grassroots support on the issue is impressive.

"There is an extremely strong feeling on this issue both among our supporters and in the country at large", says FoE campaigner Robin Webster. "We've been campaigning on food issues for a long time, but it's only recently that there's come to be a real concentration of concern on the supermarkets. People know that the crux of the problem is the power their have over our communities and the food chain".

Problems to solve

For Tesco and the other ‘big four’ supermarkets - J Sainsbury, Asda, and Wm Morrison - the sharks are definitely circling. A civil society coalition called ‘Tescopoly’, which uses the slogan ‘Every Little Hurts’ ( a play on Tesco's slogan 'Every Little Helps'), is only the more vociferous end of the spectrum of opinion ranged against the big stores.

From a business perspective, relations with communities, civil society and public opinion have become a crunch issue that threaten to slam the breaks on an impressive record of growth.

And yet there is an important case still to be made. On many of the issues where politicians and the middle classes feel strongest, supermarkets are ideally positioned to act as a force for good.

When the Blair government came into power in 1997, the newly established Social Exclusion Unit published influential research showing that many low-income people live in ‘food deserts’, areas where access to cheap and nutritious food is difficult. The SEU also coined a much-used policy slogan, saying that very often ‘the poor pay more’ for essential goods.

Supermarkets are accused of exacerbating these problems. But their fastest growing segment, convenience stores such as Tesco Express and Sainsbury’s Local, is making cheap food and fresh produce more accessible in inner city areas and to people who go shopping by foot.

As the meteoric growth of fair-trade goods shows, the conscience of middle class Britain is now stretching out through the purchasing choices people make. But on issues like the sustainability of fish stocks, piecemeal changes can only go so far before systemic changes are needed. The actions of individual consumers, as they go around supermarkets aisles, can make a limited impact. Far greater returns could be achieved by supermarkets themselves getting involved energetically in solving these problems.

The lead has been taken on a global basis by Wal-Mart – the world’s largest company and possibly its most disliked. In a little-reported move, on February 3 Wal-Mart set a target to source all its wild-caught fish from fisheries certified by the Marine Stewardship Council as being sustainable and well-managed.

The small number of sources currently certified by the MSC means that the move will take three to five years. But it will give a massive boost to the scheme, encouraging more fisheries to go for certification and more consumers to engage in the issue.

If the customer is still king, then he or she no longer likes to think that way. Price is now secondary to social issues when people reflect on where they shop. Today this fuels a wave of public hostility. But tomorrow it means a chance to gain favour by helping solve problems that small shops cannot address.