John Blundell in The Business argues that Britain's supermarkets are a great success story
It was made possible by Sir Edward Heath, the late former prime minister. He scrapped ludicrous rules called Retail Price Maintenance, a left over from World War One re-embellished for World War Two. It stopped shops “profiteering” by allowing the supplier of chocolate biscuits, soap, sugar, baked beans or any other food line to stipulate the price on the shelves. It was “fair” so prices were identical in Aberdeen and Bristol.
Abolishing retail price maintenance created Tesco, Asda, Sainsbury, Waitrose and Morrison. By relaxing one stale regulation a great transformation became possible. Since then, supermarkets have led a cultural change that touches all of us every week and every day, and not only for groceries. The new freedom to trade allowed ventures such as Dixons, Comet and Currys to flourish too. Who now remembers most households could not afford to buy their black and white televisions? Renting was the norm.
The proportion of weekly income spent of food has tumbled from 34% in 1960 to 12% today. Even those figures miss much of the story: the diversity and choice now on offer would astonish the shopper of 40 years ago. The range of fruits and vegetables would baffle. What is an avocado? What is a passion fruit? I counted 44 different tinned soups on my last trip; in 1960, the choice was only tomato soup or chicken soup.
I am not saying everything is perfect in 2005. We still carry the monstrous burden of the Common Agricultural Policy. Food prices would fall by between a third and a half according to Which?, the consumer exponents, if we liberalised this failing policy.
It is a frustration that council planners are often hostile to new supermarkets and constrict development. The Town and Country Planning Act, a remnant of the enthusiasm for new controls of Clement Atlee’s post-war government, awaits serious critiques. Every community experiences blight by planning.
Supermarkets buy in bulk – winning chunky discounts for their volume. They then ship these purchases to their archipelago of stores. They are getting ever more adroit at displaying their wares to tempt us. They also monitor our behaviour and preferences. It would be naive to say the shopper is supreme but it is true we are free to select our preferred shop.
What intrigues me are the insights into the nature of the knowledge absorbed and processed by our giant retailers. In his seminal essay on “The Firm”, Ronald Coase, a Nobel-prize winning economist, observed that companies’ supreme purpose is to carry, conserve and deploy knowledge of market circumstances. A good firm minimises the costs of transactions within itself. In this sense a creative firm is a sort of brain.
So I might claim Tesco is a variety of superbrain and Dixons a mastermind. They are strange concentrations of expertises. The obvious one is procurement; less obvious but crucial is logistics; they are also entertainers.
Whenever I am in the US I am dazzled by the Wal-Mart phenomenon. If you think our supermarkets are impressive you’ll be dazzled by walking into a Wal-Mart. You are meeted and greeted as royalty throughout. The ranges are mind boggling. The prices are so low I always think there is a mistake. The quality is not compromised. I would even commend a trip to America to experience this suburban thrill. As Wal-Mart own Asda we might expect more such ideas to cross the Atlantic.
The retail landscape is fluid and highly competitive. We have all seen Marks and Spencer, once supreme, stumble. New retailers emerge: some prosper and others expire, as is normal in a market. I invite you to compare and contrast the retailer’s world with the slothful and expensive industry termed “education”. Schools enjoy near monopoly status. Substantive competition is not permitted. Imagine if food were left to local councils? Could those skills we cluster under the term “medicine” not be better supplied in a market? In a sense the clinicians enjoy a status not dissimilar to the one Heath removed from the grocers.
We can say of our supermarkets something more interesting than “they are hear to stay”. On-line shopping has not dented them. They adapt and absorb. I believe it is other British institutions that need the oxygen of competition: those entities we conserve hidden in the public sector immune from choice or price competition or information.
Comparative Advantage is one of the great engines of economic growth. It would be a banality to say Tesco can lead in food brands. What it really leads in is knowledge of our likes and dislikes and how to respond. Any supermarket is therefore a thousandfold more “democratic” than any comprehensive school or GP’s surgery.
John Blundell is director general of the Institute of Economic Affairs.