A Tesco on Every Street?

Sex and drugs could soon be the only item you can’t buy at Tesco, in its UK home market or the increasing number of other countries (China is the latest) to which the supermarket chain now extends.

Tesco accounted for half of the new retail space opened in the UK in 2006 and has tripled its store numbers in the past six years, raising its grocery market share to 31%. (Asda and Sainsbury’s vie for second place with around 16%). Almost 60% of the land bank held by UK supermarket chains for future development also belongs to Tesco, which could raise its market share to 40% if all those sites were turned into new stores.

These figures come from the Competition Commission, which this month presented interim findings of its latest enquiry into UK supermarket retailing (Coverage: AOL News). This is the third since 2000, when it probed the multiples market shares, pricing and supply-chain management. It looked again when Morrisons won the bid battle for Safeway in 2003. As before, the Commission expresses concerns over the way Tesco and its main rivals extract low prices from suppliers, and put competitive pressure on specialist retailers, whose numbers have stagnated since 2000 while supermarkets grew by almost 25%. But the report finds few competition grounds on which to challenge the chains, because of their tendency to charge lower prices than the shops they displace, and to raise them less fast than the general inflation index.

Tesco and Sainsbury’s have answered earlier criticism of hollowing-out the high street by returning to city centres, their strategy of complementing out-of-town with scaled down high street formats now being replicated by others, and forcing convenience stores to upgrade their distribution and own-brands. Accused of treating small suppliers as expendable, the Big Four have stepped up collaboration with them, helping food processors develop new products and subsidising farmers to go organic. Although retail pay is low, the big chains can point to better wages and benefits than many of the independents they displace. Now they are competing over ambitious plans to cut emissions, cut down packaging waste and declare themselves carbon neutral, following a lead improbably set by Asda’s American parent Wal-Mart.

If the government sees any need to challenge the Tescopoly, it is likely to do so by invoking last years Barker Enquiry which recommended a relaxation of planning laws to encourage more supermarket openings, relying on case-by-case checks to ensure that these widen local choice.

With their power to dictate terms over the rest of the supply chain, the Big Four may yet turn them from villains to heroes of the lobbyists once ranged against them. Already the groups advising them on environmental policy are hailing green moves by Tesco, and clothing/food chain Marks & Spencer, as serious steps towards a carbon-free consumerism (Coverage: Forum for the Future ; The Guardian).

What excites the environmentalists is precisely what makes economists afraid: the power of big retail intermediaries to dictate terms to suppliers and edit the choices of consumers. If Tesco decides its vegetables should be organic, its batteries rechargeable and its lightbulbs low-energy, it shakes up the parts of the production process that individual ethical buyers and suppliers cannot reach. Just as a judicious dose of dictatorship occasionally speeds the introduction of democracy, supermarkets armlock over those who stock them and shop in them,this might just come in useful when our supply chains are in need of radical change.

One Response to “A Tesco on Every Street?”

  1. Economics in Action » Blog Archive » The Big Box vs the Black Box Says:

    […] misgivings about the growth of giant retailers, as reviewed in a previous post, the Competition Commission’s new enquiry is unlikely to shake up UK supermarkets any more […]

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