With UK market-leading supermarket chain Tesco allegedly taking one pound in every eight of all retail spending (not just groceries) and its competitors Sainsbury, Asda-Walmart, Morrisons, and to a lesser extent Somerfield and Waitrose scooping much of the rest, the superficial evidence for a complex monopoly is clear. (As an aside, it is curious that competition worries never surfaced two generations ago, when the Co-Operative movement was the dominant retailer – and it had vertical monopolies, controlling manufacture and wholesaling as well as one-third or more of retail.)
Any inquiry would doubtless be followed closely in other Western European countries, particularly Germany where the natural tendency toward concentration in the market is held at bay only by a complex set of laws and regulations.
Retail dominance does raise many issues but in the UK the venom directed at Tesco and the like is often a proxy for other, more complex market problems. After all, given the fierce price competition and relentless focus on service these vast retailers have to deploy to stay in the game, nobody can seriously suggest that the consumer is being ‘done’. But the retail oligopoly is widely blamed for other social ills from uneconomic farming through social exclusion to environmental degradation. Many of the issues have a significant supply chain component but sadly, little of the debate is being conducted in supply chain terms.
A lack of awareness
There is a gross lack of awareness – most recently evinced in a report by a group of MPs with an interest in small shops – of the contribution that sophisticated supply chain practices, only physically and economically achievable in large and stable networks, have made to bringing people fresh, high quality foods, at affordable prices year-round, nor of the innovations such as ready meals that have transformed life, particularly for women. (Admittedly there are downsides – the value added in stuffing salad leaves into a gas-filled bag is not readily apparent, foodies such as the author lament the loss of seasonal excitements such as the first English asparagus, and for those concerned with additives ready meals are a nightmare.) But the supermarkets did not create the demand to go out to work. They have facilitated an existing trend, which is what well-functioning markets should do.
The MPs’ report paints an apocalyptic picture of 2015 when small retailers are effectively extinct, a view which might surprise supply chain professionals. The MPs say: ‘Retailers will be unable to respond to consumer demand as quickly without small businesses’ micro-decision-making skills’, and your corner shop really analyses its EFT-POS data, doesn’t it? ‘The retail sector will be less innovative…’, but it is the big boys that can afford to back a hunch, create a market, subsidise product development and so on.
There are some interesting predictions in the report such as that ‘large scale consolidation will put the food supply for the entire nation at risk. Any severe problems with production process or distribution channels could have dramatic consequences, as the UK will rely on fewer alternative sources’. Again, who is best placed to cope with a catastrophe, an independent retailer or a billion dollar brand?
The MPs don’t really delve into environmental issues such as “food miles”, perhaps because actions by the competition authorities tend to exacerbate the situation. Indeed, recent decisions could have been designed to hamstring efficient supply chains. For example, Morrisons, on taking over Safeway, was required to get rid of some stores to avoid ‘local monopolies’. It sold some to Somerfield, which is now required to sell some of them on for the same reason. The local monopoly ‘problem’ is an idiocy. Outside major conurbations, planning rules ensure you are unlikely to have more than one big store within reasonable drive time. And do we really want families in 4x4s crossing half the county for price comparisons? Ensuring that a retailer’s stores are as widely spaced as possible merely builds inefficiency and duplication into the physical supply chain.
Something to ponder
Something that would be worth considering, but is almost certainly illegal at present, would be the creation of collaborative supply chains. After all, all the retailers sell much the same branded goods and many of their own brands, while they have different formulations, are made in the same factories. The small retailers stock many of the same brands and indeed are already tapping in to the majors’ supply chains, in the sense that if you operate a village store it can be more economic to restock your shelves on a visit to Tesco where the retail price on some lines is lower than your available wholesale price – and no problems about minimum order quantity. Meanwhile distribution centres, which are a major investment, often stand idle much of the day. Small retailers don’t require timed deliveries at 4am to get stuff on the shelves by 8am – they might be happy to access the supply chain expertise and even some of the contract terms of the majors- for a fee – during slack times.
It’s just a suggestion and it may never fly. But in their own interests as well as those of the environment, the rural community, the pensioners, the ethnic or foody minorities and all the other groups that are bearing down on one of Britain’s world-leading industries, it is the sort of response that should be considered.
Key points
- Grocery retailing and its attendant supply chain is one of the things the UK
does best. - Despite or because of this, it is blamed for a raft of societal failures, not
necessarily of its making. - Many of the issues have a substantial supply chain component, which is
rarely appreciated by pundits and policymakers. - If we don’t successfully convey these concepts and suggest practical
measures, the trade and its supply chain will become less efficient to the
detriment of consumers, producers and the environment.
