Depending on who you listen to, the Office of Fair Trading’s (OFT)
investigation into profit margins and competition between the big four
supermarkets is either an over-simplistic farce egged on by a
self-righteous media or a timely opportunity to debate consumers’
Either way, last week’s leaked news that the OFT’s director-general is
’mindful to refer’ the matter to the Monopolies and Mergers Commission
means Sainsbury’s, Tesco, Asda and Safeway are going to have to endure
critical public scrutiny over far more than their prices and competitive
practice for many months to come.
The pricing policy of the big four has attracted consistent, negative
attention in recent months.
The Grocer magazine publishes a weekly guide for 33 similar grocery
items bought in different supermarkets to show the cost of the average
consumer shop. Its most recent table shows Sainsbury’s as the most
expensive, at pounds 44.06, followed by Waitrose (pounds 42.66), Safeway
(pounds 41.82), Somerfield (pounds 40.28), Tesco (pounds 39.70), Asda
(pounds 39.52) and Morrisons (pounds 38.88p).
Typically, in the cut-throat world of retail, the supermarkets’ united
front protesting that they are not too expensive has already
Asda has attempted to distance itself from the others. It claimed that
in meetings with the OFT it had been assured that its ’prices and
margins are lower and profits are beyond criticism’ and that ’if
everyone’s profit numbers looked like yours there would be no
For a marketing sector which in many areas has led the way in marketing
and communicating with consumers, the supermarkets appear to have
adopted an ostrich-like position to the price issue. While national
newspapers and television have been sticking it to them on price, they
have buried their heads deeper in the sand.
When the BBC’s Panorama devoted a whole programme to the question of
’Are supermarkets ripping us off?’, only Safeway was prepared to put up
a spokesman to counter the accusations. That PR strategy has changed
recently under Baroness Glenys Thornton, the consultant appointed last
November to be a spokeswoman for the supermarkets’ own trade body, the
British Retail Consortium.
She has sought to direct the supermarkets’ response to price concerns -
and explain some of the complex issues which they claim are being
overlooked in a simple but flawed comparison with other countries.
’I think that when dealing with the leaked OFT letter, the supermarkets
all gave out a similar message about competition and a positive message
about welcoming the inquiry because it would clear the air,’ she
(Although this clearly was not true of Asda.) Lady Thornton also
suggests that the whole inquiry has been led less by public disquiet
about prices, and more by the media.
Ironically, she has some support from the Consumers’ Association, often
highly vocal on price rip-offs.
Phil Evans of the Consumers’ Association says: ’The British public
haven’t traditionally been bothered about pricing, particularly in
Whereas a CD is comparable in price between here and the US, it’s an
identical product bought for the same purpose. But food is culturally
specific and most don’t know what individual items cost.’
There are other factors that support the supermarkets’ case. Some are to
do with the ’consumer championing’ government’s own policies.
Orange juice may be considered to be a basic food these days, yet there
is 17.5% VAT on the product, whereas in France there’s 5% on all food
At the same time, some international supermarket chains, such as
Wal-Mart have been put off opening outlets in the UK because of
restrictions on out-of-town shopping developments, which are designed to
protect existing businesses.
So why has the perception stuck that consumers are being ripped off and
how will supermarkets overcome the negative propaganda? If Asda’s PR
manager Nick Agarwal is anything to go by, repetition of key phrases
will ram the point home: ’Ask anybody what Asda is famous for and
they’ll say it’s our low prices. Our brand is value. We’re value
Perhaps that is part of the problem. Supermarkets which have spent years
building their brands on price and value (with quality chucked in when
it suits them), struggle to have a public dialogue about why prices in
the UK may legitimately be higher than in other countries.
Difficulties with dialogue
Robert Clark, an independent retail market consultant, says: ’UK
supermarket chains face higher costs in terms of land and building
costs, and business rates are higher.’
They are also listed on the stock market and have a duty to their
shareholders along with their customers. It’s a hard act to sell
yourself to consumers on low prices, while presenting yourself to the
City as a high-profit organisation.
The supermarkets’ biggest mistake, according to Richard Perks, senior
retail analyst at Retail Intelligence, is their coyness in putting their
arguments to the media.
In response to last week’s OFT leak, Asda’s press release was nothing
but ’the usual complacent marketing chat’, he says. ’The supermarkets’
PR has been unbelievably ineffective when the newspapers have been
basing their high-price claims on the flimsiest of evidence.
’The supermarkets are left looking guilty and vulnerable because they
have failed to address numerous contradictory forces and the complexity
of the problems they face,’ Perks says.
Kevin Hawkins, Safeway’s communications director, and according to Perks
one of the few men from the industry to have raised his head above the
parapet, is convinced that the message is at last getting through.
’We have been attempting to educate journalists,’ he says. ’One can see
from the coverage in the last few days in the broadsheets that there’s
been greater recognition of cost structure issues than there was six
As for the MMC referral, Hawkins believes that was inevitable as it
suits the government’s agenda - promoting itself as the consumers’
champion and supporting entry to the European Monetary Union (EMU).
’There was Helen Liddell (minister for education in the Scottish Office)
on Panorama a few weeks ago saying entry to EMU would help make price
comparisons easier and that will put added pressure on
retailers ... when you get something as blatant as that, well the media
bangs away,’ says Hawkins.
He also says that he judges the importance of the OFT issues by the size
of his postbag. ’I know this because all these customer letters
eventually land on my desk; in the past three weeks, letters on
genetically modified organisms have been running at 40 a week, while on
pricing I’ve had fewer than 20 in total over nine months. It’s not an
issue people find it easy to respond to.’
Then there is the question of what the government can actually do about
it if the MMC decides that prices are too high. Some commentators have
already suggested the absurdity of a regulator, checking to see that
bread rolls were not being overpriced.
If the government wants more competition in the market it is going to
have to consider less regulation, not more. And once again it ignores
the fact that for most supermarket shoppers price is not the deciding
factor governing which store they use.
There is a confidence among many of the supermarkets that they don’t
have too much to worry about. The biggest danger is that the inquiry
will damage the supermarkets’ brands and claims to value, even if
ultimately it finds no reason to take action.