New book on supermarket competition

Victor

While I dobt this will be a new "No Logo", I think it might make an interesting read. Call me biased (having once been at the end of their dealings stalling a contract for 6 months), but I have very little sympathy for the supermarkets and their abandonment of contract law.

http://www.sbpost.ie/web/DocumentView/did-392800514-pageUrl--2FThe-Newspaper-2FSundays-Paper.asp

Strongarm supermarkets 'put suppliers in fear'
02/05/04 00:00
By Kathleen Barrington

A terrifying picture of the power Tesco and other British supermarkets wield over their suppliers is painted in a book to be published in Britain later this month.

The book is likely to be of interest to Irish readers given that Tesco is now the largest grocery chain in Ireland. It has a 25 per cent share of the supermarket sector accounting for sales of about €1.76 billion in the financial year ended February 2004.

The book accuses Tesco of paying its suppliers the lowest prices of any supermarket in Britain. And it accuses Tesco, Asda, Sainsbury's and Safeway of bullying actions against suppliers and farmers that go "way beyond efficient business practices".

The enormous buying power of the top four supermarkets - which are forecast to have 90 per cent of British supermarket sales by 2006 - means that suppliers and farmers "have little alternative but to put up with the arsenal of price-cutting practices the supermarkets throw at them."

"The supermarkets have transferred all the risk of making a loss or becoming bankrupt onto suppliers and farmers, who live in fear of complaining or fighting back."

Author Dr WilliamYoung claims that full written agreements between supermarkets and their suppliers are unusual, leaving suppliers reliant on verbal agreements.

Supermarkets impose unfair terms such as requiring suppliers to make payments to gain access to supermarket shelf space; limiting trade with other retailers and imposing retrospective changes to contractual terms including passing on the cost of promotions such as "buy one, get one free".

Supermarkets often require grocery suppliers to use specified third party suppliers, such as packaging companies, even when the suppliers already have contractual obligations with other operators.

And in some cases, suppliers are asked to foot the bill for contributions to charities nominated by the supermarket or even to provide hospitality to the supermarkets' employees.

Young noted that in submissions to the British Competition Commission in 2000 and 2003, many suppliers outlined their grievances, but were not prepared to give their names for fear of being delisted by the supermarkets. For instance, one supplier told the Competition

Commission that over a period of several months it had been asked by one supermarket to make three separate cash contributions; the third was for a sum in excess of stg£100,000 for "a contribution towards profits". Suppliers also allege that supermarkets used branded manufacturers, both large and small, as a source of innovation for new products which they then copied and sold at cheaper prices resulting in the delisting of the original product.

The book notes the damage that below cost selling can wreak on suppliers. It quotes one supplier who told the Competition Commission that "the retailers can absorb the losses because of sales mix, manufacturers cannot".

In the late nineties, manufac-turer Nestle closed its Crosse & Blackwell bean canning operations in Britain following a baked beans price war when prices fell to as low as 3p per can compared with an earlier price of 19p.

Nestle told the Competition Commission that "we literally could not can fresh air for the price they wanted to retail it at the cans were costing us more than [that]."

British consumers have enjoyed the benefits of far cheaper food and goods than their Irish counterparts due in part at least to the economies of scale afforded by big superstores.

But the arrival of German discounters Lidl and Aldi in recent years has set the stage for a period of tough competition which Tesco has met head on. The result has been good news for consumers, but is likely to signal tougher times for suppliers (see Aldi panel [below]).

Young, who lectures in environment and business at the University of Leeds, argues that "cheap food has social costs."

For instance, he says that a community can expect to see a net loss of 276 jobs on average when a supermarket moves into its area leaving the poorest households in "food deserts" without adequate local food shops. He notes that the food system now accounts for between a third and 40 per cent of all British road freight.

Young also says that some food items, especially fruit and vegetables, are about 30 per cent dearer in supermarkets than in traditional fruit and veg shops.

Asked what the impact he would predict if Ireland lifted the ban on below cost selling and altered the retail planning guidelines to allow bigger stores, he said: "Don't be surprised when you lose all the local shops and transport infrastructure becomes congested."

Young said he was not surprised that Tesco's Irish profit margins were reportedly up to 11 per cent higher than in Britain saying that in countries where it is the market leader "it will get the most out of consumers."

* Sold Out: The True Cost of Supermarket Shopping by William Young is published on May 6 by Vision Paperbacks. Price stg»10.99. Further details are available at http://www.visionpaperbacks.co.uk

Panel

Superstores 'ran 35,000 shops out of business' in Germany

German discounter Aldi and other hard discounters have been blamed by rival German retailers for running 35,000 small shops out of business last year. US magazine Business Week said last week the figures were contained in a report published by the main association of German retailers in March.

It noted that on the same day in March Bavarian dairy farmers picketed Aldi, which they blame for a 15 per cent fall in milk prices over the last three years. The magazine said that Aldi needed to take care that such criticism did not tarnish its reputation with German consumers who have long admired the store.

However, it noted that so far the Aldi brand had not been damaged by allegations of its destructive influence on suppliers and rival retailers. In fact, sales at the German retailer have been growing at the rate of 8 per cent a year since 1998. Aldi emerged as the third most respected brand in Germany after electronic giant Siemens and car maker BMW in a survey carried out by Nurem- berg market researcher GfK. GfK also found that 89 per cent of German households shopped at least once at Aldi last year.

The scale of the Aldi phenomenon in Germany can be judged by the fact that a cookery book devoted to recipes using Aldi ingredients sold a million copies last year, and there is a connoisseurs' guide to Aldi's low-price wines.

Aldi and Lidl have expanded their operations in the Irish market in recent years fuelling intense price competition in the supermarket sector and resulting in additional pressure on suppliers, especially farmers producing milk, fruit and vegetables. The German discounters between them now have an estimated 5 per cent of the Irish grocery market.

b20uvkft6m5xwg

I read this last week and thought how different the avg persons perception of Aldi in Ireland is than obviously in Germany- being the third most respected brand.

I havent been in Ireland the last year but I presume most people woulndt hold it in as high regard as BMW for example.

Another Interesting thing that struck me was how Ireland is becoming like US in the way that stores get bigger and more dispersed meaning longer commute times/distances to get simple staple foods. Meaning we are more likely to see the continuing decline of local grocers and the tendancy to drive to out of town food warehouses!

Victor

Originally posted by 80project
Another Interesting thing that struck me was how Ireland is becoming like US in the way that stores get bigger and more dispersed meaning longer commute times/distances to get simple staple foods. Meaning we are more likely to see the continuing decline of local grocers and the tendancy to drive to out of town food warehouses!

What you are saying is that there is a substantial hidden transport cost in having to travel further, yes?

b20uvkft6m5xwg

Well I suppose you could deduce that there are now hidden costs with larger supermarkets, but mainly the inconvenience. If you live in suburbia, you may have to travel further to get a gallon of milk than you may had to in the past becuase the local grocer has been driven out of business.

sceptre

Supermarkets impose unfair terms such as requiring suppliers to make payments to gain access to supermarket shelf space

Hello money is illegal here, innit?

I'm sure all the other criticisms of the UK situation are valid here though.

On the subject of the below cost beans, where he mentions the price dropping to thruppence, they actually dropped to a penny (one per customer per day) in 1996, at least in Sainsbury in Edinburgh.

Originally posted by 80project
I read this last week and thought how different the avg persons perception of Aldi in Ireland is than obviously in Germany- being the third most respected brand.

I havent been in Ireland the last year but I presume most people woulndt hold it in as high regard as BMW for example.

It isn't held in anywhere near the same regard but its stock has been steadily climbing as far as I can see. As far as I remember Lidl is up to over 40 stores and Tesco seem to be running scared with the price comparisons in thw windows.

Another Interesting thing that struck me was how Ireland is becoming like US in the way that stores get bigger and more dispersed meaning longer commute times/distances to get simple staple foods. Meaning we are more likely to see the continuing decline of local grocers and the tendancy to drive to out of town food warehouses!

This is definitely the case. I've never even visited the US so my "experience" of the US shopping experience is limited to people like Bill Bryson decrying the inability of people to walk anywhere (or even to be able to walk anywhere due to the way shopping centres are laid out) but the newer shopping developments in Dublin like Blanchardstown and Liffey Valley have been taking people from shopping in the city centre for some time. And clogging up the M50 by turning it into a local run but that's a whinge for someone it actually affects.

It's less exteme down the country but the new retail parks even in Galway and Limerick are pushing towards the city boundaries, mostly as extensions of existing developments up to now. Cork is the same, although there's typically a larger local population near the developments. Chances are that we'll follow Dublin though. There was a time (I've been in Limerick just over ten years so I'll probably get away with that) when the town centre down here was more of the focus of a Saturday shopping session than it is now. In the last few years the car parks have overflowed consistently in Limerick's main two out-of-town developments all day Saturday and Sunday. We're not quite at the super-suburbia warehouse level yet (and the restrictions on retail space are probably making it les cost-effective) but we're getting there. I suppose it'll slot into place as soon as we've a reasonable network of motorways - quite a few people I know in Mallow (not, having been gone for quite a long time, that I know all that many people there these days) happily go the twenty miles to Cork to do their weekly shopping. I tend to regard that as nuts, but to each their own.

Victor

Originally posted by sceptre
Hello money is illegal here, innit?

So is speeding. That doesn't mean it doesn't happen. Superquinn were charging people marketing money through a separate company. There are ways and means for the supermarkets to bypass the law.

b20uvkft6m5xwg

I think its not prosecuted if its borderline vis-a-vis the potential benefits to the consumer, which in most cases Tesco can always argue. So if Coke give Tesco some lolly to put their Products on aisle ends but they're offering it with discounts then it tends to be overlooked.

In terms of everthing getter bigger, but not necessarily better I saw a new documentary on Sunday night by Morgan Spurlock called "SuperSize Me". Its mainly about the fastfood industry and his quest to see the effects of eating McDOnalds 3 meals a day for a month has on the human body. Very Interesting and struck me as coming from the same school of thought as this book.

BTW, it has a website... http://www.supersizeme.com - Should come out in Ireland later in year. Believe me, you'll never eat another Chicken Nugget again!