John Healey, the new Chancellor, said last week that he will be ”watching closely” for any suggestion customers are being taken for a ride at the (supermarket) till.
Why might the government be focusing attention on our industry in this way? Because grocery pricing is one of the most visible elements of inflation to the public. People shop for groceries every week, so price rises are quickly noticed. And while the impact of each rise may be small, there can be a cumulative effect on perception. This week it’s butter, next week it’s chocolate and so on. If money is tight, it can feel relentless.
Some commentators then question whether our industry is competitive enough. The term “price gouging” has even been alluded to. Is there anything to this?
There are three places critics could look: whether retailers themselves compete hard enough, whether there’s hidden margin in fresh and own label, and whether branded goods are priced too high. None of them hold up.
Let’s start on the retailer side. Most towns have several supermarkets, especially now there are so many new Aldi and Lidl sites. Online delivery from many operators is widely available. So there are few captive markets.
Within the retailers, the competitive tension is palpable. I’ve never had any impression of a cosy “we can all win” mentality. Competitor retailers are feared, disdained, occasionally even admired, but rarely co-operated with (outside a few industry issues).
If retailers get anywhere near being comfortable, they pay. I saw this at Sainsbury’s in the late 90s, as Tesco and Asda relentlessly took custom away. We’ve seen it more recently as the discounters piled on share and Amazon took huge chunks out of non-food categories.
So grocery retailing is fiercely competitive. How about on the supply side? Is there more “fat” there? Don’t try asking that to fresh or own-label businesses. Life for them feels tough, with retailers often perceived to be powerful and scary. There is no hint that things are cosy.
How about in branded companies? Margins are often higher. This is driven by – guess what – the power of the brands. Branding is a legitimate business tactic: consumers think Heinz Baked Beanz are worth a lot more than own-label baked beans. So they are.
There is a reason companies invest in brands. Brand building takes money, skill and discipline, but it’s a legitimate strategy. Retailer negotiations are just as fierce even when the margin is higher.
It’s important for government to keep a sharp eye on big business and check they are not taking advantage of consumers. For many of us, it is hard to compare to other sectors we haven’t really experienced, but it does seem harsh for our industry to be singled out.
Our world is competitive. Winning in the market, and making decent returns, takes hard work. It certainly doesn’t feel like we’re having it easy.
Jeremy Garlick is a partner at Insight Traction
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