Sunday, 26 April 2015

How are the mighty fallen

Last week, Tesco posted one of the largest corporate losses ever seen in the UK, at £6.4 billion. It has to be said that most of this is due to property write-offs, and they still made a trading profit, but even so it represents a spectacular example of corporate over-ambition and mismanagement.

No doubt many CAMRA activists will be experiencing a profound sense of Schadenfreude, given how they have argued over the years that Tesco has been highly destructive of the pub trade through selling beer at rock-bottom prices and buying up entirely viable pubs to convert to Tesco Express stores. Now, in my view these two issues are greatly exaggerated as reasons for pub decline. But it does underline a far more important point.

No institution, however dominant and established it may appear, is ever secure. The free market, ultimately, will wreak its revenge. History is littered with examples of apparently all-conquering businesses – General Motors, ICI, IBM, Microsoft – that have been brought down to size. The once all-powerful “Big Six” of British brewing have all either disappeared, been taken over, or turned in to companies with little interest in brewing and pubs.

Large organisations almost inevitably fall victim to a sense of arrogance and complacency, A variety of competitors have sprung up to challenge the dominance of the big supermarkets – obviously the discounters such as ALDI and Lidl, but also pound shops and value retailers such as Home Bargains and B&M. People may still go to the big stores, but they’re giving them a lower proportion of their overall spending. Clearly there’s a trade-off of time vs money, but personally I’m spending around a tenner a week at Home Bargains that otherwise would have been spent – at much higher prices – in Tesco or Morrisons.

I am the in fortunate position where all four of the major supermarkets are within a couple of miles, but I tend to favour Tesco and Morrisons – Sainsbury’s being noticeably more expensive on many everyday purchases, and ASDA giving the impression of going for the mums’ market and failing to provide smaller packs. Each has one or two things the other doesn’t, so it’s worth dividing my attention.

Perhaps the most irritating thing about supermarkets is the constantly changing offers, so that you never quite know where you are. This has got to the point where it is now being investigated by the Competition Commission. Personally, constant, steady low prices would be much more of a draw, and Tesco are far more guilty of this than Morrisons.

The price war at last seems to have got through to the realm of Premium Bottled Ales. For quite a while, they stood against the tide, but recently Morrisons have dropped their £1.89 a bottle; £5 for three offer in favour of £1.65 a bottle; £6 for four. This offer also includes various craft beers, such as Thwaites 13 Guns and three from Hardknott in 330ml bottles or cans.

Tesco have gone one step further, for a while selling quite a few PBAs for £1.25, and most of the rest for £1.50, including those such as Old Crafty Hen that normally sell for well above £2. They’ve now reverted to a general £6 for four offer, with individual bottles at £1.99 (although a few still at £1.25), but the general trend towards price-cutting remains. When you consider that they can sell 440ml cans of Carlsberg for about 55p each without making a loss, there’s obviously a lot of margin in PBAs

For many people, the PBA offer will be a major factor in choosing which supermarket to patronise, and I expect we’ll see a lot more price competition in the future.

The day will also come, although I won’t predict when, that Wetherspoon’s find out that they’ve attempted an expansion too far.

7 comments:

  1. Professor Pie-Tin27 April 2015 at 10:16

    I kept Mrs Professor Pie-Tin merrily pissed for years on cases of generic Aussie white wine at £2.99 a bottle from Tesco.
    And therefore did my weekly shop with them.
    Then they jacked up the prices and I stopped having a reason to shop with them.
    Many of my friends tell me price is also the reason why they avoid Tesco.
    Here in Ireland Aldi and Lidl seem to be the Boozer's shop of choice.

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  2. In my view, Yim Martin IS Wetherspoons. My prediction is that when he steps down, they will start to lose focus.

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  3. In which way did The once all-powerful “Big Six” fall victim to a free market?

    Legislation actually preventing the free market in the shape of the Beer Orders put paid to them.

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  4. I was chatting about Wetherspoons to the licensee of my local, the Guest House, only yesterday. Her view was that Spoons has already overreached itself and was having to compromise on what it offered, with prices not quite as competitive as they once were.

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  5. Stanley Blenkinsop28 April 2015 at 08:19

    @RedNev
    Perhaps that's why Wetherspoons is spending millions on expanding its operation in Ireland ?
    I suppose there might come a point when Wetherspoons has bought up every ailing pub and failed High Street bank and transformed them into successful boozers selling good quality ale and food at reasonable prices.
    But I don't see it just yet.

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  6. Wetherspoons have already had quite a few failed and closed sites around the country. On top of that, during their most dramatic phase of expansion they were defrauded by a property agent. Went to court and won an action but still lost a lot.

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  7. @Jeff - yes, Spoons have made some mistakes in site selection over the years, often because they haven't properly checked them out on the ground. The Edwin Chadwick in Longsight, Manchester was one of the worst.

    However, in general there's some way to go before the wheels start to come off their cart.

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