Even if it\’s true, so what?

The Prime Minister claimed that “a family with a reasonable drinking habit” was “actually subsidising the binge drinker” because supermarkets were increasing the price of food to fund cuts in the cost of wine, beer and cider.

The comments, to a group of factory workers in north Wales, provoked astonishment from supermarkets last night.

The British Retail Consortium said the remarks were “nonsense” and demanded to know what the evidence was for the claims, while a spokesman for Sainsburt said the Prime Minister was \”plain wrong\”..

But Downing Street stuck to its guns, citing an article from a medical journal in 2009 by a leading liver specialist which suggested supermarkets were overcharging for food to pay for cheap drink.

So let us assume that the supermarkets really do use cheap booze as a loss leader.

Get them into the store with cheap something or other and then rook \’em on the other stuff they buy on the way around.

Actually, we\’re pretty sure that they do do this on some products. The ones that we pretty much know the price on. Milk, bread, the basics. Might be booze in that class as well.

But, here\’s the thing. Well, a couple of things actually. The first being that it\’s not normally the supermarket that takes the hit on a special offer. It\’s the supplier. BOGOF and all that, it ain\’t Tesco that eats the cost of that second frozen pizza. It\’s Dr. Oertikkers or whoever.

The second is rather more important. Loss leading doesn\’t work if you\’re making a loss on one customer and then making it up on hte second.

It only works if you\’re makingt a loss on one part of a sale to a customer and then making it up on the other part of the sale.

For example, of what value is a band of chavs coming in for three cases of lager each upon which the supermarket loses £1 a case? If that\’s all they buy?

That\’s \”a band\” x 3 £s that the supermarket has just lost. And they\’ll not attract upper middle class families like the Camreons to their stores to spend more on food as a result of having subsidised the chavs, will they?

The connection is not between rooking the Camerons on food and subsidising the chavs. It\’s between subsidising the same shoppers on one part of their shopping bill in order to rook the same shoppers on another part of their bill.

Entirely drinkable Oz wine at two for a fiver might get someone through the door who then happily pays £7 for a filet steak to go with it. Or £25 for the entire meal being washed down.

And the whole scheme only actually works if this is what happens. If the chavs don\’t leave a decent profit on the white bread and beans they\’re going to dine on, the wine drinkers on their tidbits, then there\’s absolutely no point at all in subsidising the booze in the first place.

That\’s what\’s wrong with Cameron\’s assertion: he\’s got the logic wrong.It\’s not cross subsidy across shoppers. It\’s cross subsidy across the things that shoppers buy.

Well, of course, there\’s the other thing that Cameron\’s got wrong which is that the government defining what price two private players must conclude a contract at is a ludicrous infringement of freedom and liberty. But then we all knew he was an authoritarian fucker anyway.

And stupid to boot as it\’s all illegal.

15 comments on “Even if it\’s true, so what?

  1. Pingback: Important question – If this is such a problem for Cameron, why isn’t this a problem too? « Autonomous Mind

  2. That’s the doctor who thinks that “Alcohol consumption in the UK has been rising dramatically.” in 2009, despite the fact that the statistics all show a downward decline since 2002.

    Might have been a good idea to fact check what some doctor with an obsession farted out.

  3. Is “Sainsburt” their new no-frills division? Market entry being secured to Gritley and Clackthorpe with discount Diamond White and vodkatinis?

  4. That well known accountant and economist Newcastle University liver specialist Dr Chris Record.

    Liver = cooking = home economics = economics.

    Wow.

  5. Couldn’t Cameron be right insofar that supermarkets may increase the price of food to allow alcohol to become a loss leader, the result being that those who just buy food are being hit with higher food prices.

    If alcohol was more expensive and food cheaper, those that buy both still end up paying the same (the cost is just divided differently), but those who just buy food will see prices reduced – they no longer have to cover the reduced alcohol.

  6. Thomas, that only works if the shops are behaving anti-competitively because if a shopper who only buys food sees that Tesco has raised the price of food to lower the price of booze he will go to Asda instead where the food is cheaper (or whichever).

  7. Blue Eyes,

    Are you saying treating alcohol as a loss leader is anti-competitive or that my solution/recommendation is a anti-competitive?

    I don’t really see either a being anti-competitive.

    Raising the cost of food to reduce the cost of alcohol (if true) is unfair, but I don’t view it as anti-competitive. It’s just a pricing strategy.

    Equally, I dont see why or how a supermarket taking a stand and stopping that practice would be anti-competitive. How would that be different from basic price competition: energy companies reducing prices, or the reduction of petrol prices, both of which usually initiate similar action in that industry.

    If it is true that supermarkets treat alcohol as a loss leader (resulting in higher food prices) then we need one of them buck the trend and do what I said. Sure, they will probably see an initial financial and PR advantage (just like with energy/petrol), but it would likely cause other supermarkets to follow in kind.

  8. Even if alcohol is being sold as a loss leader, this doesn’t mean that food will necessarily be more expensive. It may mean that because there is a heavier footfall because of the cheap booze, then margins on all products can be cut, and still achieve the required return on capital. Has Wal-mart succeeded by raising its prices on everything but booze…..?

  9. Pingback: Cameron Off With The Fairies Again | The Libertarian Alliance: BLOG

  10. Thomas, the point is that subsidising the price of alcohol by raising the price of food will not work because everyone will buy alcohol from your store but not food. That they will get from somewhere else where it is cheaper. It only works as a rational pricing strategy if the same shoppers end up spending roughly the same or more than they did before.

  11. Given the sin taxes levied on booze, I find the idea that non drinkers subsidise drinkers to be somewhat fantastic.

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