So Director General of Fair Trading John Bridgeman reckons there might be a case for believing that the superstore chains abuse their buying power with suppliers to inflate their margins at the expense of their customers.
To which the only proper reply from anyone who has ever shopped at a superstore and/ or opened its annual report at the P&L page should be: “Well I never, get away, you could have knocked me down with a feather.”
Sorry, but there are po-faced, bureaucratic declarations from regulatory officialdom that cry out for sarcasm and this must be one of them – like being told that the United Nations is concerned that there may have been civil rights abuses in the former Yugoslavia or that many homosexual tendencies start at public school.
To be fair, Bridgeman did last week observe that “concern about the power of the main players is something of a recurrent theme”, as if to suggest that this was a matter that the OFT regularly reviewed. Perhaps it does. But the Inland Revenue regularly reviews my tax affairs – the dif- ference is that its inspectors do something about them if I haven’t. This is not necessarily the case with OFT reviews, which can be overruled by Government ministers or, more likely, put aside and ignored.
Getting on for five years ago, I was phoned by the OFT, which was interested in an allegation I had written here that a certain kind of supplier was being royally stitched up by the major grocers – discounts insisted upon by the retailer and not passed on to consumers and that kind of thing. The OFT said it would dearly like to look into the situation, if I could pass on the name and company of my informant.
As is the nature of informants, mine had kittens at the prospect of his cover being blown, so much so that, even given the assurances of confidentiality from the OFT, I was persuaded not to mention the market sector my friend worked in for fear that his company might be identified and reprisals inflicted by the omnipotent superstores. I said I was sorry to the OFT, but that I was not at liberty to reveal my source and this was accepted with the grace of someone who had heard the same story many times before.
Such commercial intimidation has clearly worked over the years because the grocery majors have continued to screw their suppliers, if only half the stories you hear are only half true. It is a mystery the OFT has never come up with a means of protecting grasses in the wholesale industries. It appears that what can be achieved in the security forces’ mortal combat against terrorism can’t be applied in the relatively benign world of food and allied products manufacturing.
Moreover, the superstores are able to demonstrate that market-share statistics aren’t as simple as they appear. While market researchers at AGB may “prove” that Tesco has an overall market share of 25 per cent, with Sainsbury at 20 per cent, Asda at 14.2 per cent and Safeway at 11.6 per cent – a total retail stranglehold of more than 70 per cent – sector by sector the superstores have considerably more fragmented market shares. In the CTN market, for example, the Big Four combined have less than 50 per cent of the market.
Quite separately, there is a good deal of confusion about the way that consumer statistics are compiled. The Office of Nat-ional Statistics (ONS) last year failed to publish its retail sector annual report, because of concerns over the way in which high street sales volumes were used to calculate the retail prices index, the widely used barometer of inflation.
Furthermore, these days the superstores can counter the charge that their operating margins – at five to six per cent, compared with Continental operators’ three to four per cent – prove that they are ripping off suppliers at the expense of customers. Credit lines in France are comparatively long in terms of repayment periods, meaning that retailers there have less capital tied up in the business. Put another way, British retailers have to charge higher margins to enjoy the same return on capital as their Continental cousins.
Lastly, while fears of a fragile consumer boom last year sent interest rates northwards, nearly all the indications from manufacturing industry in fact demonstrate a lack of confidence and impending recession. Whatever the retail situation in the high street, official bodies (including the OFT) aren’t in much of a position to know what is really going on.
Add to this the fact that however much superstores may manipulate prices, consumers continue to vote with their accelerator-feet for the out-of-town superstore and one fears for the OFT’s ability to call the grocers to account. I’d add that the proposed amalgamation of Whitbread’s Thresher and Allied Domecq’s Victoria Wine is a long-awaited signal that the high street is fighting back in one of the higher-margin heartlands of the superstores.
All in all, the OFT is probably coming at this issue about five years too late.