Sir: The supermarket business model is based on shoppers trusting what retailers put on their shelves. The horse meat scandal has undermined that trust and it has done so totally unnecessarily. Developments implicating UK premises should not detract from the fact is there is no need for the supermarkets to deal with shadowy figures on the fringes of the European food system.
A quick tutorial in the economics of UK supermarket retailing will illustrate what I mean. The cost of capital (the factories, trucks etc) is far more significant than the cost of materials (the meat). Downtime through an interruption to production is far more costly than having meat bought in at a discount. Imagine if the processing plant has to stop: all those trucks idle, all that space empty, all those refrigerated warehouses waiting.
The economics of the cold chain means that supermarkets and their suppliers have greater incentives to ensure continuous throughput than to be concerned about saving a few quid on the cost of supplies. Tesco et al have learned the hard way that they need to look for meat suppliers whose character and integrity are as important as their capability.
Professor Andrew Godley, director, Henley Centre for Entrepreneurship
Guest editor Mike Coupe responds: I agree with the conclusion but disagree with the logic! The integrity of the products we sell sits at the heart of any grocery brand and indeed the industry we serve. This is not a matter of economics, but of customer trust. A quick look at any grocer’s P&L account shows the biggest cost is the cost of goods sold. Capital depreciation and transport costs are a fraction of this. An interruption in the supply chain can be expensive in the short term, but it is nowhere near as expensive as the erosion of a brand’s trust in the medium to long term.