Battle of the Giants

Ah the long awaited report from the Competition Commission regarding supermarkets is out and the morning news programmes have been doing their normal bang-up job of not really discussing it.

GMTV did a sterling one-sided job by interviewing a spokesperson on behalf of small retailers while the BBC matched them by getting one from the Competition Commission. Oo small thought how about having both on one show?

The GMTV report was the most amusing as it dealt with Bicester (Bis-ter for any foreign readers) and it's six Tesco stores. The locals want choice, they want another supermarket... no they want choice and that doesn't equate to another supermarket; except according to paraphrasing of the report that's what choice means. If you have one supermarket chain 'dominating' the town then the report allegedly suggests that planning restrictions should be relaxed to allow another supermarket in.

GMTV gave the segment the heading of David vs. Goliath so I'll stick with that theme.

Imagine a small town filled with David style shops. The townsfolk grumble that sometimes they can't get what they want, and that prices are more expensive then the Goliath shop in the next town.

So all the townsfolk are happy when Goliath moves in, oh sure some of the Davids are going to leave, but that's the price of competition. But oh the Goliath is spreading and taking over, what can we do? How about getting in another Goliath - Goliath II, we'll even bend the rules so they can build on a site they wouldn't normally have been allowed to. So now with two Goliaths in town everyone's happy right?

Here are the outcomes I see -

1. Both Goliaths go straight into competition with each other cutting obvious prices to draw townsfolk to them, the Davids can't compete and leave. The townsfolk are happy because they get cheap goods. Except when they want something the Goliaths don't provide because no other town wants it and no David can survive to provide this one specialist item.
2. Neither Goliath competes with each other, they get together and set prices for staple goods and work out various sectors they'll sell. Goliath I sells food and clothes while Goliath II sells food and electronics. The David stores all close.
3. Both Goliaths go straight into competition with each other cutting obvious prices to draw townsfolk to them, most of the Davids can't compete and leave except for some who move into speciality ranges then the Goliaths don't sell. This continues until the Goliaths spot the profit in those goods and start to sell them.

This seems to be the essence of the peripheral argument of the Competition Commission - small shops can compete with the giants by not competing with them. They need to find goods to sell that are in demand in their locality, but aren't in enough demand nationally for the giants to consider them worthy of bulk-purchase and distribution (or they need to sell something of profoundly better quality that buyers are willing to pay for). Now that's a damn narrow path to tread.

Now as I've mentioned elsewhere (and the BBC repeated) this report investigated competition between supermarkets and their supply chains everything else was peripheral. This point needed to be rammed home when Declan of the BBC quoted lawyers for the small retailers saying that the Commission "didn't understand the reality of the situation" and the spokesman replied that after an exhaustive two year study of course they knew what was going on. Well no not if that wasn't what you were looking at.

Now before anyone considers me to be anti-supermarket, anti-business, anti-capitalist; I'm all for competition. The problem is there is no competition between a supermarket and a small store, the supermarket wins every time. They can buy in bulk at cheaper rates and absorb losses over a larger scale where their smaller 'competitors' can't.

Likewise battles between supermarkets can actually reduce choice. That seems an odd thing to say when you can just walk down an aisle and you see shelves full of, say, various cooking sauces. Except look closer and you'll see there's really only three brands plus the store-own; go into another 'equivalent-sector' supermarket and you'll spot the same three plus one brands.

Now I had to add in that equivalent-sector bit because if you went to Tesco and Lidl you'd get different brands, thus the cry 'See, so many choices' however this doesn't question the case of mobility.

How many people shop at more then one supermarket? How many pick up items at one store then go to another to pick up other items, then possibly even a third? If I can pick up all my week's shopping at Tesco except one specialist item that only Lidl sells am I going to head there just for that one item? Note that this same argument applies to the little stores; sure our local butcher does much better meat, but am I going to traipse all the way over there to get some when I'm already in a place that sells meat that's only not quite as good?

It's at this point, I think, that the report fails. They seem to expect that people will travel from one store to another to get the 'best' product without taking into account the convenience of settling for what' s in front of you right now. That's what the supermarkets already know and take advantage of and that's what they don't what anyone else to figure out.