That settles that then

Nearly half of all towns have at least five supermarkets within a ten-minute drive.

We clearly have a highly competitive retail sustem.

Thus everyone can stop droning on about the overweening power of the supermarkets.

For you can\’t have both: both a competitive system and also market or pricing power.

22 thoughts on “That settles that then”

  1. “For you can’t have both: both a competitive system and also market or pricing power.”

    It’s perfectly possible to have a competitive retail situation yet with a cartel operating over suppliers.

  2. the phrasing does leave one ambiguity, though, which is whether or not the five supermarkets are different – my parents, for example, have four supermarkets close by. Two Tesco, two Sainsbury.

  3. “The ‘big four’ supermarkets – Asda, Tesco, Sainsbury’s and Morrisons – control three-quarters of the £80 billion grocery sector.”

    No, they don’t “control” it, they constitute it; they have no control. Tesco can no more prevent anyone from using the corner shop than Doris at the corner shop can prevent them from using Tesco. 75% of grocery shopping is done at those supermarkets because that’s where 75% of shoppers want to go. (Actually, the proportion is higher than 75%; supermarket prices are lower – which is why people go there – so 75% of value is more than 75% of volume.)

  4. What Kay-Tie says.

    The shopper has little to complain about (and I like supermarkets, full stop), but the farmers are getting squeezed – more to the point, to the extent that agricultural subsidies don’t accrue to landowners, they are soaked up by supermarkets because they deduct the value of the subsidies from the prices they pay farmers.

  5. And if the farmers can get a better deal elsewhere, they’re free to do so. If they cannot, they’re already being paid the market price (by definition).

  6. if there’s no cartel, informal but real…

    point is Tim, numbers don’t mean competition – that’s a separate question.

  7. Supermarkets pretty much have to charge the same as other supermarkets in the same niche, so they’re also going to pay pretty much the same to their suppliers; that does not constitute a cartel. Farmers complain that this price is too low, so surely there must be some market where they can get a higher price, otherwise what is their basis for the complaint. If the issue is just that they can’t live on what the market pays them, they should get out of the sector. This will reduce the supply and drive prices up, which is good for the remaining farmers but bad for the other 95% of the population (or whatever the figure might be).

  8. what ian bennett says

    (as I am learning to say in blogspace)

    I think we can both be right. there can be a kind of groupthink in a market that stops people – makes it difficult, slows it down – charging/paying different prices. the farmers suffers. Not a cartel, agreed, but not competition, either, so Tim’s original point is still not right.

    the theory’s there: organic local farmers will stop selling to tesco’s and go out of business (get out of the sector), so local farmers’ markets will spring up and fill the void, but i still suspect if the small number of players in the market have power to set prices, and do so with very fat margins for themselves, there is a cartel-in-fact operating.

    Tim adds: We can also go further. One of the well known problems is that both a highly efficient cartel and a highly competitive market will, in terms of prices among the players, look exactly the same.

    Same prices, moving in lockstep….what is it, cartel or competitive market?

  9. Come, come, Tim. What we have in the UK is clearly a destructive cartel/oligopoly that holds suppliers to ransom whilst creaming off the profits.

  10. Issues such as wanting to go to supermarkets are irrelevant. No one I know really ‘wants’ to shop there, but due to price pressures, busier lifestyles, lack of knowledge of alternatives, etc., they are the only places many people can go, and part of the reason for that is their destruction of the competition through their sheer size.

  11. Matthew Illsley // Mar 8, 2010 at 6:16 pm

    Issues such as wanting to go to supermarkets are irrelevant. No one I know really ‘wants’ to shop there….
    —–

    Hello Matthew, I’m Monty.
    Now you know someone who does want to shop there.
    They are open when I get home from work.
    I can park without having to pay, or panic about running out of meter time.
    They stock the things I want to buy.
    The quality is generally good.
    The prices are reasonable.
    They have toilet facilities, including disabled access, and also baby changing rooms, and all are generally very clean.
    I can buy a sea bass, a cauliflower, an electric kettle, school uniform, flat screen TV, bunch of flowers, stationery, pick up my dry-cleaning, and get my prescription filled all in the same shop.

    Years ago, the small shopkeepers would tell me I couldn’t buy fillet steak on a Tuesday because “there’s no call for it during the week”, then they would close at lunchtime every Wednesday. They would also close the shop every day just as hordes of office and factory women were pouring out of buses and trains hoping to buy some fresh produce. Without the supermarkets, that is what we would have today.

  12. to add to your list, Monty…

    Unless you lived in somewhere like Hampstead, your small shops weren’t supplying you with extra virgin olive oil, dozens of varieties of wine and ciabatta.

    A typical local shop in the 1970s gave you a choice of Trex Vegetable Oil, Blue Nun and both sorts of bread (white and brown).

    The small shops that survived were generally the most interesting ones: the butcher who can make a sausage to your recipe, the wine merchants that you can discuss the current Margaux vintages with and the music shop selling the latest rare import vinyl from Chicago.

  13. @Matthew Illsley: if no-one ‘wants’ to shop at Tesco, I assume they now employ press gangs to force customers in and part them from their money?

    Or are you just imposing your ‘right on’ values on the broad mass of people who are quite happy with the service large supermarkets provide? Such as the list Monty accurately provided?

  14. Mark Wadsworth said:

    “What Kay-Tie says.

    The shopper has little to complain about (and I like supermarkets, full stop), but the farmers are getting squeezed – more to the point, to the extent that agricultural subsidies don’t accrue to landowners, they are soaked up by supermarkets because they deduct the value of the subsidies from the prices they pay farmers.”

    Sounds like a good reason to scrap the common agricultural policy.

  15. Joseph Takagi,

    Cute screen name – if memory serves, it’s that of the Japanese-American businessman, played by James Shigata, who’s iced in his office by Alan Rickman in the first ‘Die Hard’ movie.

    I really don’t couldn’t care less about what could or could not be bought in Hampstead in the 1970’s. Why you think yourself to be of such significance and consequence that a butcher should go out of their way to make a sausage to your recipe is beyond me. Having spent two years ‘worth of Saturdays making sausages in a butcher’s shop while at university, I say this with some conviction – I’m quite sure I’d whup your in a sausage-making contest any day. If you can think you can make sausages better than a butcher, put on a white coat and come on down to the mincer. However, where I live there is now only one independent butcher and one independent fishmonger in a town of 25,000. The supermarkets now largely dictate not only what you eat, but also its quality. But your spoiled, over-indulged palate’s got what it wanted, so that’s all right- I hope you’re happy.

    ‘And when Alexander saw the extent of his domain, he wept, for there were no more worlds to conquer’ – Hans Gruber (Alan Rickman) ‘Die Hard’. How apposite to be having this discussion 22 years after the movie came out. The Japanese went bust very shortly afterwards, their business model being comprehensively defective. There’s a moral in there somewhere; such as that nothing lasts forever.

  16. Martin,

    Why you think yourself to be of such significance and consequence that a butcher should go out of their way to make a sausage to your recipe is beyond me.

    It’s called free trade. I can walk into a butcher’s shop, ask him to make me a sausage to my needs at a certain price and he can do it or not.

    Having spent two years ‘worth of Saturdays making sausages in a butcher’s shop while at university, I say this with some conviction – I’m quite sure I’d whup your in a sausage-making contest any day.

    I’m not sure I’ll cope with my inadequate sausage making skills and the lack of hot chicks who dig that.

    However, where I live there is now only one independent butcher and one independent fishmonger in a town of 25,000. The supermarkets now largely dictate not only what you eat, but also its quality. But your spoiled, over-indulged palate’s got what it wanted, so that’s all right- I hope you’re happy.

    If it wasn’t for people with spoiled, over-indulged palates (and good punctuation), you’d have even less butchers and fishmongers than now. It’s precisely because of people who will pay for something a bit more specialised that they’re in business.

  17. “If it wasn’t for people with spoiled, over-indulged palates (and good punctuation), you’d have even less butchers and fishmongers than now.”

    Oh, the irony. Fewer butchers!

    But the point is valid, of course.

  18. The Japanese went bust very shortly afterwards, their business model being comprehensively defective.

    Nope, they just had their housing (okay, land price) bubble burst a couple of decades before ours did.

  19. Martin – ‘However, where I live there is now only one independent butcher and one independent fishmonger in a town of 25,000.’

    So 25000 people have a choice. They choose independent shop, and get whatever it provides (possibly higher quality at higher prices, but not necessarily) or they choose Big Retail and get what they provide.

    If all 25000 went to the independent shops what would happen? They would grow, get bigger. Open more shops. Possibly expand to the next town. Eventually who knows? Nationwide even. Before you know it a new chain of stores, all on the back of customer choice.

    Never underestimate the power of the consumer – ask the vacuum cleaner manufacturers – Dyson came from nowhere to a large market share, all on the back of an innovative product, good marketing and word of mouth.

    The fact is that there are only enough people in your town of 25000 who want more expensive meat and fish to support one of each shop. If you think there is such pent up demand, why don’t you open such an emporium and see how you get on?

  20. ‘Never underestimate the power of the consumer – ask the vacuum cleaner manufacturers – Dyson came from nowhere to a large market share, all on the back of an innovative product, good marketing and word of mouth.’ –

    Having also sold the Kirby for a living, I’m not sure I agree. I’ll be back tomorrow bright and early.

  21. The link to this page was broken yesterday.

    Takagi,

    “It’s called free trade. I can walk into a butcher’s shop, ask him to make me a sausage to my needs at a certain price and he can do it or not.”

    You might call it free trade. Many butchers I know would call it being a cheeky prick.

    “I’m not sure I’ll cope with my inadequate sausage making skills and the lack of hot chicks who dig that.”

    Never had any complaints about my sausages on that score, Takagi-san; although the need to introduce dating into a discussion on sausage-making indicates either that you equate sausages with sex, which would make you a pervert in my book, or else that you’re a sarcastic bastard unaccustomed to speaking to people you either can’t dominate or who don’t agree with everything you say. Get over it. It’s called democracy.

    “If it wasn’t for people with spoiled, over-indulged palates (and good punctuation), you’d have even less butchers and fishmongers than now. It’s precisely because of people who will pay for something a bit more specialised that they’re in business.”

    No, it’s because they need to eat. Then the supermarket comes along and puts them out of business, and gets their children hooked on the fodder known as chicken nuggets.

    Surreptitious Evil,

    Carp. Their economic model was stickier than a Toyota’s accelerator. What they did was a bunch of drongs cheerleading them in the Western press.

    Sobers,

    “If you think there is such pent up demand, why don’t you open such an emporium and see how you get on?”

    Because I would have to provide myself with a means of restricting my own hours under the Disability Discrimination Act. The theory’s good, Grasshopper, but just doesn’t work out in practice.

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