Tuesday, 30 March 2010

Supermarket Myths

In reality we have only two supermarket businesses, the Co-op and what used to be Le Riches but that's changed its ownership and/or name so frequently that I've lost track. If Mr Olsen is in any doubt about how very many local people feel about the prices they pay here for basic commodities then perhaps he should take a trip down to the Elizabeth Harbour and look at the Jersey-registered vehicles coming off the St Malo car ferry. He's bound to recognise someone he knows and if he asks he'll probably find out they've done one heck of a lot of shopping across the water. I know of just one instance where twice a year a couple of young women with families take what's called a people carrier across to St Malo. They remove the back seats before they go and not only do they come back laden with the basic foodstuffs and commodities to which I referred earlier, but they've also bought clothes and footwear for their families as well as Christmas and birthday presents. Just looking at the figures suggests that they've not only saved enough for a nice day out with lunch in St Malo but there's a considerable amount more in the kitty. (1)

There is a myth circulating that a new supermarket would cut prices significantly in Jersey, and now I read Helier Clement, in the above extract, has bought into it. Perhaps the consumption of calvados has befuddled his aging memory, because I can very clearly remember when we did have a new supermarket.

This was called Safeway, and unlike the supermarket that now bears that name, it was part of the large U.K. chain. Did it mean increased competition and reduced prices? Only on some of its own brand foods, which - as with the Co-Op - were sometimes cheaper than other brands. There were a few different loss leaders, items whose price is positioned deliberately lower to draw people in. But in general, most of the prices were much the same as the other supermarkets, then Le Riches and the Co-Op.

But in the middle of the 1980s, there was a short period of competition. With "bread wars", the supermarkets competed to lower the prices of bread below that of their competitors. The net result was that a private and small bakery firm, De Guelles Bakery, could not manage on those margins, and went into voluntary liquidation. Then the competition ended, and bread prices rose again, much on a par between all the supermarkets.

No supermarket is going to enter a vicious spiral of competition for the long term. Sooner or later, they will tend to gravitate to the same kind of profit margins as their competitors, because they know that as long as they have some cheaper items to act as a draw, they can make the same kind of profits. The bottom line is the shareholder, not the customer, and the corporate shareholder would not like a bloody prolonged war, which resulted in lower profits on the way, and smaller dividends.

Supermarkets are not alone in this. In the boom years of tourism, when perfumery shops were plentiful along the main precinct, as well as the larger businesses like Boots and Voisins selling perfumes, the prices were pitched below the U.K., but there was an unofficial cartel to maintain similar prices. No one wanted to cut their own throat.

But also in the late 1980s, Condor and British Channel Island Ferries waged a war of attrition. There were cheaper prices for a while on the ferries. Once British Channel Island Ferries had been forced from the market, and there was only one operator, prices rose once more. That is another lesson of competition: instead of the two supermarkets currently operating, we could end up with a different two if one goes under.

So the next time a red-nosed Helier Clement spouts some nonsense about another supermarket driving prices down, tell him to get out his history book, and refresh his memory. Evidently years of soaking his brain in calvados have not helped.

(1) http://www.thisisjersey.com/2010/03/29/if-you-have-any-doubt-about-the-high-cost-of-goods-here-take-a-drive-to-the-harbour/


Nick Palmer said...

So the next time a red-nosed Helier Clement spouts some nonsense about

Crikey Tony, that's getting perilously close to agression!

TonyTheProf said...

How can one really be aggressive towards a character who is a made-up fiction? I don't for one minute believe there is a real person with a shed, sipping calvados, with that bulbous nose (surely red from slurping wine) as per the illustration! I regard him as fair game for fictitious fun!

Nick Palmer said...

I once wrote a letter to the JEP about some garbage that HC had uttered. I had fun writing:

"slumped in his shed, bereft of brain cells, having consumed one finger too many of Normandy apple juice, Helier Clement..."

TonyTheProf said...

It's fun when one can be as rude as you like because he isn't a real person, only what the Greeks would call a "persona".

He's not bad value in the JEP for comic relief, although I prefer Fly on the Wall with those oddball comments on the States.

One day I may lampoon him, and I'll nick your description of him as well!