• Overview: Supermarkets sweep up
• The Cheap Food 'Mantra' - Stack it high! Sell it low!
• Encouraging industrial agriculture and destroying small farms world-wide.
• A spoonful of organo-phosphates - Dangerous chemical usage in food & farming
• Bye-bye High Street - The destruction of communities and jobs
• Apples from Africa and pears from Peru - Food miles and climate change
• Oiling the trolley wheels - Undue influence on government
• Redefining 'safe' - The manipulation of health and safety requirements
• The plastic smile - Shop and farm workers rights
• 'Rip-Off Britain' - The Competition Commission enquiry
• 'Mummy, mummy, can we buy the Barbie spaghetti shapes?' - promoting unhealthy processed food.
• Choice? Convenience? Value?
• And for dessert…What can you do about it?
• Credits
• References
   

Overview:  Supermarkets sweep up

The supermarkets we know today started in Britain with the Co-operative Movement in the 19th century. This was a group of independent local retailers controlled by its consumer members, who sold unadulterated foods at prices working people could afford. It was in post-war Britain that the foundations were laid for the supermarket revolution; the 1948 Agriculture Act initiating the 'cheap food' policy that is still with us today. With government subsidies to farmers and new machinery and new chemicals arriving on farms, food production rocketed.

The golden age of supermarkets began in 1964, with the abolition of Retail Price Maintenance - the mechanism that had allowed manufacturers and suppliers to dictate their prices. With market liberalisation, the supermarkets began to dictate prices back to the suppliers, meanwhile offering bargains and 'loss leaders' to entice customers. The falling cost of global transportation has helped supermarkets source abroad more cheaply. Getting bigger ensured economies of scale, and going self-service cut wage bills. The 'weekly shop', made necessary due to changing work patterns and made possible through a massive increase in car ownership, has also increased the popularity of the supermarket.

During the last three decades, the United Kingdom has been transformed from what Napoleon described as a 'nation of shop-keepers', with innumerable small businesses, to a supermarket culture dominated by a handful of large retailers. Their formula for success is simple - they operate efficiently, they provide a one-stop shop and they enjoy consumer confidence. Today they wield immense influence over the way we grow, buy and eat our food. They are shaping our landscape, our health and the way we interact socially, and these changes are going unchallenged because of our fast food lifestyles; consumers want quick access to a wide choice of goods at low prices. But, as this briefing will illustrate, such 'choice' has come at a price…

The UK grocery market is controlled by the supermarket multiples, virtually all of which are household names. The top five are Tesco, Sainsbury's, Morrisons (after its acquisition of Safeway), Asda and Somerfield. In addition there are 'upmarket' supermarkets such as Waitrose (owned by the John Lewis Partnership) and Marks and Spencer, and smaller or regional operations such as Iceland and Booths.  At the cheap end are the German bulk discounters, Aldi and Lidl and the Danish chain, Netto that stock smaller ranges of mainly imported goods. The Co-op is unique as it is made up of 38 regional food retailing consumer co-operatives or 'societies' around the UK. Anyone can become a member of the Co-op and become involved in the running of their regional society.

Convenience stores are not classified as 'supermarkets' as they are smaller in floor space and are aimed at 'top up' rather than 'one trip' shoppers. These range from independently-owned cornershops to 'symbol' groups such as Spar and Londis: groups of independent stores sharing purchasing, distribution and marketing. The 'convenience' sector is rapidly blurring with the supermarket sector, as the 'Big Four'  acquire existing chains and build alliances.

Consolidation in the food retailing industry

In 2002, food sales through supermarkets and superstores reached £83.68bn - a growth of 5.1% on the previous year, and a growth of 30% since 1995.2  Industry analysts, Keynote, estimate that the value of retail sales of food through supermarkets will grow by 16% by 2007. The Institute of Grocery Retailing (IGD), on the other hand, predicts a considerable slowdown in growth over the next few years.3

According to the IGD in 2001, the major supermarket multiples make up 60% of the market share, convenience retailers make up 20%, the smaller multiples, independents and specialists make up 13%, Co-operatives make up 5% and hard discounters 2%.4 Market analysts, Taylor Nelson Sofres, who calculate market share by measuring shopping habits in 15,000 households, would put the figure for the big five supermarket multiples in the UK much higher at around 75%.

The trend towards consolidation looks set to continue. In late 2000, analysts suggested that there was not really room in the sector for all of the large retailers. Verdict Research predicted that 'Within the next five years, the five major UK grocery players are likely to be down to three, possibly two'. In 2004, this prediction is rapidly coming true.

The supermarkets are involved in fierce battles for market share, sales growth and ultimately an increase in Total Shareholder Return (TSR).

Tesco, with the highest market share, has been considered invincible by some analysts. Datamonitor ascribes its sucess to 'growing a strong UK core and then rapidly developing international stores, building good non-food sales, expanding into retailing services and exploiting eCommerce successfully".5

Sainsbury and Asda have been vying for second and third position. For a time it was a close call, but internal problems and strategic errors have left Sainsbury struggling. Sainsbury believed it could abandon the classic focus on 'price' in favour of refurbishing stores fascias and supply chain improvements. Its loss of market share against Asda illustrates that price is still the key for consumers.

With planning regulation difficulties making the opening of new stores less appealing, the major supermarkets are finding that gobbling their rivals is the most effective way to increase market share. In January 2003, Morrisons announced its intention to acquire Safeway making a £3 billion offer. This caught the other supermarkets on the hop as they too had been eyeing the ailing Safeway and led to further bids by Tesco, Asda-Wal-Mart, Sainsbury, KKR (US venture capitalists) and the Philip Green consortium (who also own BHS and Top Shop amongst other high street names). In February 2003, the bids were referred to the competition authorities to judge which bids would be disallowed on the grounds that they would take that supermarket's market share over the 25% mark which classically constitutes a monopoly.

Many analysts saw Tesco's bid as a 'stalling' tactic on the acquisition's progress, as the authorities were very unlikely to have permitted a Tesco takeover. In Setptember 2003, the OFT ruled that Morrisons was the only grocery retailer it would permit to make a bid, but it was March 2004 before the £3bn deal finally went through. This immediately sparked a ferocious price war as the other supermarkets sized up the new opposition.

Analysts cannot underestimate the significance of this development. According to Julian Hunt, editor of the Grocer, UK grocery is on the verge of 'seismic change'.6

The supermarkets have also moved into the convenience sector, valued at £21bn. This is a growth area as 'cash-rich, time-poor' consumers are on the rise. The Competition Commission report on Supermarkets helpfully made a clear distinction between the two sectors giving the green light to potential takeovers. Tesco has acquired hundreds of stores through its acquisitions of TNS stores (Nite and Day and One Stop) and Administore (Europa, Harts and Cullens). A variety of groups are now calling for a moratorium on more convenience-store acquisitions by supermarkets to try and halt the 'Tescoisation' of Britain. What is certain about these recent acquisitions is that the writing is on the wall for the traditional independent cornershop who simply cannot compete on price and range.

Tesco and Marks & Spencer have sought new markets overseas following the other major European and US retailers.This was mainly prompted by Wal-Mart's arrival in Europe. The mega-merger of French grocery corporations, Carrefour and Promodes in 1999 created a clear second place to Wal-Mart, in Carrefour. Carrefour now has a presence on 32 countries, compared to German Metro with a presence in 27 countries and Dutch Ahold in 23 countries. 7 Ahold  today generates 82% of its turnover outside its home country.8 Tesco, the fifth largest international grocery retailer9, has stores in Ireland, but is mainly focusing on expanding into Central and Eastern Europe. Tesco is the market leader in Hungary and has 144 stores in the Czech Republic, Hungary, Poland and Slovakia. Tesco has also expanded into the Far East, with the Tesco Lotus brand name. It has stores in Thailand, Singapore, South Korea, and is moving into Mainland China through its recent acquisition of a hypermarket chain.

Wal-Mart, with global sales of $244.5billion in 2002, is the retail equivalent to a superpower. According to Fortune magazine, in 2002, its profits exceeded Exxon Mobil, to become the biggest company in the world.10

The only obstacle to global consolidation will be institutional constraints such as governmental regulation of retail and service activity and restrictions on land use and ownershop. This has led to major supermarket chains pushing their governments towards global deregulation. All eyes are now on the General Agreement on Trade and Services (GATS) agreement, a WTO agreement that is intended to realise further liberalisation in the retail sector.11

For in-depth profiles on major UK supermarkets, see Corporate Watch's web-site: www.corporatewatch.org.uk/profiles.

In-store strategies to woo customers

Since 1995, the strategies of the major chains to increase footfall into their stores have varied from intense price competition to loyalty schemes, as well as constant in-store innovation on products.

However, Wal-Mart's entry into the UK through its acquisition of Asda in 1999 dictated new strategies. The Wal-Mart formula is based on low prices, 'retailtainment' [sic!] and selling non-food products.

Wal-Mart's profits are five times higher in non-food sales than food sales.12  Retail analysts, Verdict say that a massive £14.5bn was spent on non-food items in supermarkets in 2000 and that it is a potential growth area, especially for Asda and Tesco.13

Parallel or 'grey' imports are another growth area, with supermarkets importing designer goods direct from factories outside the EU, rather than through authorised wholesalers; thus undercutting authorised retailers. In a recent court case Levi Strauss successfully preventing Tesco selling Levi jeans at cut price.14

The increase in the number of people 'eating out' is a challenge to the supermarkets. They have responded by increasing prepared foods, especially luxury own-brand ready meals. Some supermarkets are developing in-store juice and sushi bars. Sainsbury now has Starbucks coffee outlets in some stores.

The effect on specialist retailers and restaurants will be dramatic, as the supermarkets will be able to out-price them. Pharmacies, dry cleaners and post offices are beginning to appear in superstores, further shrinking the role of the high street. Supermarkets have also entered service areas such as insurance, banking, internet service provision and soon even divorce finalising and will-writing.15

An increasing amount of processed organic food and fairtrade products are finding their way onto the shelves. These products give the impression of a caring, sharing compnay and are a major growth area. Supermarkets see them as an expensive niche market and evidence shows that they have exploited customer goodwill by overcharging for fairtrade products.16

Organic enthusiasts question whether the corporate appropriation of the organic sector, including importing cheaper products frommonocultures in the global South and bankrupting small-scale UK farmers, is true to the original social and environmental aims of the movement.

In September 2001, tesco.com announced it was on the verge of profitability. At the start of 2004, Tesco became the bigest online grocer worldwide, with sales of £500m worldwide.17 Many shoppers, however, are still unconvinced by internet shopping.

To challenge the potential threat from home shopping, the major retailers are improving the 'instore' experience, promoting shopping as an enjoyable leisure activity. From Asda's in-store chaplains and MP's surgeries, to nail-polishing and pizza spinning, retailtainment is fast becoming part of the supermarket shopping experience.

During Summer 2001, Asda hired trained actors to work as store greeters,18 in a bizarre full circle which has seen shopping move away from the genuinely personal service of many small stores, through the impersonal experience of superstores, and back to a cheesy fake version of personal service again.  This time, however, the experience is carefully orchestrated by 'customer relationship management' to make the customers feel like more than the sum of their intimate shopping records, collected from loyalty cards and stored in data warehouses.

In November 2001, Sainsbury's released a story about lovers found kissing beside a chiller cabinet.19 In other supermarkets, there are reputed to be 'singles nights'. As Marketing online reveals, this is a concerted PR strategy to make supermarkets sexy, and combat the alienation that shoppers undoubtedly feel beneath the strip lights and endless aisles, overwhelmed by strangers, and shelves stacked high with products.20

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