Saturday, 26 September 2009

Losing loss leading

I see the Tories are planning to ban loss-leading in the off trade if they gain power next year. “Shadow licensing minister Tobias Ellwood has said the Tories will ban supermarkets from selling alcohol as a loss leader if they get into power.”

Setting aside the obvious administrative burden of establishing that nothing is being sold at a loss, I think people would be surprised how little difference it made. The extent of loss-leading in supermarkets even now is far less than many imagine – I would be amazed if it accounted for more than around 2% of all alcohol units sold. Most of those keen prices come from driving a hard bargain with suppliers, and if loss leading was banned the retailers would simply turn the screw further to make suppliers fund more of the promotions.

Given that you can’t pass a law to say that no business can trade at a loss, you can’t ban loss leading by the people who actually make the stuff. And would it become illegal to sell off surplus or short-dated stock below the wholesale price? If so, retailers might well become much more reluctant to stock anything that might represent a bit of a risk - or force producers to supply it on a sale-or-return basis.

Banning loss-leading stands alongside minimum pricing as another delusional panacea that in practice would bring no discernible benefit for the on-trade.

And yet more evidence that a Tory election victory won’t really make much difference.

6 comments:

  1. I'm not aware that I've ever seen a supermarket selling alcohol at a loss. Does anyone know what a can of lager costs at wholesale prices? My local Somerfield is currently selling Blackthorn cider at £1.89 for 4. A good deal (and they're not promoting it in any way), but they are still making a profit, no?

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  2. Some of the "two-for-one" deals where you get two 15-packs of cans for a tenner may be loss-leaders, but, as I said in the post, I would expect it to be a tiny proportion of overall sales. Tesco et al may be many things, but stupid they are not.

    I would expect a "ban on loss leaders" to make no noticeable difference to the business of supermarkets, but to impose a new bureaucratic burden on small shops.

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  3. As you say, yet again a suggestion for legislation that will have much greater impact on small businesses than big.

    Interestingly, for 30 cans a tenner might still be more than the duty, depending on the strength of the beer. It might not be a loss leader given that the residue value of the beer, once you remove duty, is possibly negligible for the type of swill they are selling. The point is it might well not be loss leading as transport costs etc. are absorbed by the supermarkets.

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  4. Agreed. They are completely mentally ill.

    Even if it were the case that some supermarkets sell alcohol at a loss, it would be nigh impossible to prove (how much do you allocate in the way of overheads - rent, lighting, transport, shelf stackers, checkout people?).

    Further, taxes on alcohol + VAT are so stupendous that in terms of raw materials, there is still a mark-up - it is only the taxes that push it into a loss.

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  5. If voting changed anything it would be banned.

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  6. "And yet more evidence that a Tory election victory won’t really make much difference."

    Next week: dog bites man:)

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