Loss Leaders

The Competition Commission has given the superstores permission to destroy the rest of Britain’s food economy

By George Monbiot. Published in the Guardian 12th October 2000

In November last year, Safeway sent the farmers it bought from a letter. Titled “Good News from Safeway”, it explained that the chain’s “new promotional strategy” would “deliver a much improved level of availability for your product.” To take part in the programme we request a contribution from you per product line of £20,000. We look forward to you joining us in this campaign, and anticipating a favourable response, we will take the liberty of sending you an invoice on Friday of this week.” Far from embracing this generous offer, however, the farmers reported it to the Competition Commisson.

On Tuesday, the commission upheld their complaint and hundreds of others. Farmers, it agreed, were being bled dry by the superstores. In future, the chains will be expected to adhere to a binding code of conduct, to prevent them from exploiting their suppliers.

The code is, as far as it goes, a good thing. But it’s already out of date, for the superstores, enterprising as ever, have found new means of eliminating farmers from the market. They now employ researchers to discover precisely what the average cost of production is for a particular crop, then conduct Dutch auctions over the internet, buying only when the price has fallen to that level. The result is that everyone is wiped out except the biggest suppliers, who can, in an unregulated market, reduce their costs to below the average by offloading them onto their workforce or the environment. But weak as it is, the code should be celebrated, for it is the only progressive measure in the commission’s report.

The vast dossier it has compiled neatly flunks or fudges all the other issues raised by the superstores’ dominance. It agrees that the chains’ use of “loss leaders” (staple foods sold at below cost price to create the impression of cheapness) “operates against the public interest”. But while it acknowledges that this unfair practice damages the superstores’ smaller competitors, it suggests that the harm done to consumers is not sufficient to provoke any action. By refusing to intervene, the Competition Commission has just signed the death warrant for Britain’s remaining milkmen and independent bakers.

The commission has concluded that the superstores’ obscene policy of charging more for their goods in poor areas (where there is less competition) than in rich ones also “operates against the public interest”. Again, however, it has decided not to act. So what on earth is going on?

It seems to me that part of the problem is that the Competition Commission seeks to understand the price of everything, and the value of nothing. Buried in figures, it has lost sight of the fact that the superstores have not simply distorted Britain’s food economy. By wiping out tens of thousands of small retailers and suppliers, they have all but destroyed it.

Extraordinarily, the number crunchers appear to have got even the pricing issue wrong. They suggest that British superstores are not anti-competitive because they are no more profitable than their European counterparts. But they have not sought to determine whether or not the European superstores could also be ripping their customers off. It would surely be far easier to see what is happening by comparing the prices in Britain’s superstores with the prices of their competitors in Britain’s independent specialist shops.

Though they employ five times as many staff for the same amount of turnover as the superstores do, though the business rates they pay are typically higher and though they can’t screw their suppliers to the floor, independent butchers, fishmongers and greengrocers undercut the superstores by 30 per cent or more. Fruit and vegetables sold from market stalls tend to be some 40 or 50 per cent cheaper than the fruit and vegetables in superstores.

The commission pronounced itself “satisfied that cost reductions at the farm gate had … been passed through to retail prices”. Yet a survey last year revealed that apples in the superstores were marked up by as much as 198 per cent, and eggs by 439 per cent. In 1998, the Office of Fair Trading concluded that “retailers are increasingly able to retain the benefits from their increased bargaining power rather than passing them to consumers.”

The commissioners’ report took 16 months and £3 million to compile. They employed an army of statisticians and economists to collate staggering tables of figures. But I can’t help feeling that they would have obtained a rather more accurate view of what is happening on Britain’s high streets if they had taken a trip to the shops.