Yahoo Sports Fixing supermarket prices take us down the road to socialism
Who would want to be the CEO of a supermarket chain? For years, you get attacked for selling food too cheaply. Your “buy one, get one free” deals are blamed for making the country fat. Your £3 chickens are accused of making the animals’ lives a misery, by forcing down production costs and animal welfare standards with it. Your price wars are said to undermine local shops, and your relentless focus on bringing best value for the consumer is blamed for driving UK farmers to the wall.
And then, thanks to global pressures beyond your control, food price inflation surges to nearly 20 per cent? Suddenly, you are an ogre profiteering from people’s hunger and misery. You are indulging in shrinkflation, greedflation and many other devious methods of extracting profits from unsuspecting customers. Today’s news that, according to the British Retail Consortium, food price inflation has eased slightly to 15.4 per cent in May from 15.7 per cent in April will make no difference – once the narrative has become established that supermarkets are profiteering, it will be very difficult to shift public debate.
The reality is that supermarkets are engaged in a cut-throat business with wafer-thin margins – and that consumers continue to benefit from that as they have for decades. It already was a highly competitive industry when Aldi and Lidl stepped in to try to gobble up the Big Four’s lunch, but has become even more so now. Tesco last year made profits of £1.5 billion – a figure which might sound enormous when cited alone and out of context, but which, on a turnover of £65.7 billion works out at a profit margin of 2.2 per cent. Sainsbury’s made profits of £562 million on a turnover of £31.4 billion – a profit margin of 1.8 percent. That isn’t profiteering – it is living on a knife edge. If you really expect supermarkets to sell us food at last year’s prices, you won’t get cheap food for long – on the contrary, supermarkets would rapidly go bust, driving up prices in the shops which remained.
That is what makes Rishi Sunak’s proposal to cap the prices of supermarket basics so foolish. Why pick on an industry where competition is demonstrably working? If he wants to tackle overcharging, there are plenty of other industries he could work on – such as the localised monopolies awarded to train companies through the franchising system, or the restrictive practices which drive up legal bills. But instead he goes after supermarkets, which have transformed our ability to eat good food at an affordable price. To those who think supermarkets are profiteering: do you really want to go back to the days when the only choice in town was a grocer whose out-of-season offering of fresh food amounted to a few curled carrots and wilted cabbages? We have become so used to burgeoning shelves that we really notice when gaps appear, as they have recently for al kinds of reasons. Yet even at their slackest, today’s supermarkets offer a choice of which shoppers could only have dreamed half a century ago.
True, food inflation has been quite shocking over the past year – a result of high energy prices and the invasion of Ukraine, a country which has sometimes been called the bread basket of Europe. But it comes after decades in which food prices were pretty static. What’s more, food inflation now seems to be abating as the inflationary pressures from energy costs drop away. Everyone wants good quality, affordable food, but the way the government can ensure that is not to go down the blind alley of price-fixing. It is to let the free market get on with it.