The Big Fight: Large Supermarket’s vs. High Street Stores

As a champion of SME’s, the report by the Competition Commission about the Grocery Market in the UK initially enraged me.

Their findings suggest that the large supermarkets are delivering a good deal for consumers and that they do not have an unfair competitive position. However it has observed that in some areas there aren’t enough large Supermarkets and even more are needed to create a competitive market.

I had expected a different conclusion!

Having read the report and become more reflective, there is no doubt that we all gain by the lower prices available at large supermarkets. This contributes daily and weekly to our perceived standard of living so why would we want to change this? Indeed, in a free market economy it would be difficult and dangerous for governments to try and manipulate the market.

But there are consequences and the public need to make a decision on how they see future society.

Nearly 20 years ago I worked at a major food manufacturer where 5,000 people were employed. As large supermarkets have aggressively searched for efficiencies in the supply chain with a view to lowering consumer pricing, so the costs of operation have come under pressure. Today, this factory is closed with production transferred to Spain where employment costs are lower. (The negative change in carbon foot print is astounding).

Distortionate supermarket purchasing power has exactly the same effect on small and medium sized businesses who supply them. Faced with being “beaten up” about providing lower prices or funding innovation, where do these suppliers go if other outlets no longer exist?

Change is very difficult to see in the short term as each shift does not directly touch the wider British public. My concern is that the basis of our society is changing as we move from manufacturing base to a service lead economy. Whilst the Government enjoys the benefits of low food prices helping maintain low inflation it is unlikely to want to do anything to disturb this position.

So the Competition Commission has fulfilled its remit by examining if there is unfair play between large supermarkets (although the investigation by The Office of Fair Trading into various retail pricing initiatives involving Robert Wiseman Dairies and Dairy Crest does not feature in these conclusions).

What is not addressed is the balance that society wants between low prices and the value of supporting smaller businesses and maintaining our High Streets. SME’s cannot leverage suppliers in the same way as the large supermarkets (nor can they spread costs geographically which does distort local competition), so their costs will inevitably be higher. My general advice would always be to try and sell added value as a way of supporting higher prices, but will the consumer pay?

So it all boils down to a philosophical argument about gaining the benefits of a super efficient supermarket or maintaining the convenience of local service from our high street shops.

Time will tell which choice we each make!