Work: CRITICISMS OF SUPERMARKETS REPORT
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CRITICISMS OF SUPERMARKETS REPORT
PART 1
Introduction
The essay will examine major supermarkets such as Sainsbury and Tesco. It will also consider Wal-Mart as it is the largest retailer in the world (Planet Retail 2011). The discussion will study the implications of supermarkets, for communities across the world. A recurrent theme of supermarket dominance will emerge. Concerns about supermarkets are shared across many areas of the world.
Three Examples of Problems Caused by Supermarkets
1. Harmful effects on communities and customers
Supermarkets have been criticised for damaging the communities in which they serve. In the U.K. there has been a campaign against the activities of Tesco (Tescopoly 2012). There is public concern that major supermarkets, such as Tesco, continually apply for planning permission for new stores (Tescopoly 2012a). This is despite UK food retail already being dominated by a few companies. The market structure can therefore be described as an oligopoly (Anderton 2008:365).
Arguably, it would be better if food retail markets were perfectly competitive. This would mean cheaper prices for consumers. This is because “in a perfectly competitive market (grocers selling) homogenous goods compete ... on price” which should reduce prices (Anderton 2008:366). Market stalls selling fruit and vegetables are an example of perfect competition in practice.
The problem for consumers is that supermarkets often do not compete on price. This can lead to higher prices for shoppers. Instead supermarkets compete on the basis of non-price competition such as advertising. Such advertising is wasteful to consumers. If it is merely persuasive then it only “manipulates consumer preferences” and encourages consumers to move between different supermarket brands (Anderton 2008:430). This does not improve consumer welfare but raises consumer prices as the cost of the advertising can be incorporated into the retail price.
Supermarkets invest in cutting prices but it is doubtful whether this helps the consumer. For example, Sainsbury offered promotions over the course of a year on half of its 20,000 main product lines. The effect of this promotional activity is that it can be difficult for consumers to evaluate prices and determine ‘value for money’ (Lang and Heasman 2004:166).
The public may be unaware of the strength of the supermarkets given their use of ‘shadow brands’. These brands are owned by the supermarket. However, the brands have a different name and organisational structure to the supermarket. In the UK, Tesco has a shadow convenience store brand called One Stop (Goodley 2010). The public may believe that One Stop is separate from Tesco and is competing with it. This is not the case as it is a wholly owned subsidiary of Tesco. Tesco has used One Stop to further increase its market share particularly in the convenience sector.
The public may also be unaware of the way in which the supermarkets have developed ‘barriers’ to discourage competition. The major companies have been able to encourage customer loyalty through the development of hypermarkets. Large stores encourage shopping to be done all in one place. This discourages consumers from going to other shops (Reynolds and Cuthbertson 2004:12).
The expansion of supermarkets has led to the decline of small shops. In 2009, 12,000 independent local shops closed. In 2010, another 2,000 shut (Vallely 2011). This expansion leads to less choice and many urban areas have poor access to fresh food. These trends have been well documented for many years (Lang and Raven 1995), (Nicholson-Lord 1995).
2. Unemployment and its consequences
The decline in small shops leads to greater unemployment. Independent retailers have been unable to compete with the supermarkets and have closed in their “their hundreds of thousands” since 1945 (Reynolds and Cuthbertson 2004:5). This pattern of increased unemployment could be repeated elsewhere in the world. Small Indian shopkeepers have expressed concern that the entry of Wal-Mart into India could unsettle the businesses of small traders who operate throughout the Indian market (Gentleman 2007).
Technological unemployment could also increase. Supermarkets have introduced labour-saving technologies such as self-scanning which could reduce employment (Ryan 2009). For those people who remain employed in the supermarket sector, it is likely that that they will enjoy less autonomy than if they were running their own independent shop. Supermarket strategies are determined by head offices with decisions “communicated to retail branches” (Reynolds and Cuthbertson 2004:59). This limits the autonomy of the supermarket manager. They do not make decisions such as over pricing policy.
UK unemployment has also been caused by redundancies from supermarkets’ suppliers. Instead of buying goods from British suppliers, supermarkets have bought merchandise from “lower cost overseas producers” (Palmer et. al. 2006:325).
One of the consequences of unemployment is poverty. Consumers are often in a vulnerable position in western societies. Poverty is such that consumers are obliged to shop at supermarkets. They have to accept what is sold in supermarkets, such as cheap clothing produced by poorly paid garment workers. American or European consumers may not be able to pay the retail prices, which should lead to garment workers being paid an adequate wage (Christopherson and Lillee 2004:15). Therefore consumer poverty can have a clear effect on suppliers.
3. Supermarkets and their effects on suppliers
Tesco has described its relationship with its suppliers as a “natural tension” (Reynolds and Cuthbertson 2004:319). This ignores the disputes between supermarkets and their suppliers. The most recent dispute, in 2012, has been over accusations that milk producers are not paid an adequate price (Hickman 2012).
British supermarkets have been criticised for exploiting their suppliers. For example, they have sought discounts from suppliers retrospectively. These discounts have reduced the price “agreed at the time of the sale” (Lang and Heasman 2004: 166). The UK Competition Commission has also argued that supermarkets need to “pay a supplier for products ... within (a) reasonable time" (Just Food 2009).
The problem is that supermarkets are content with a minimum level of conditions for suppliers. Supermarkets do not improve the standards in their suppliers until problems emerge. They only seem to intervene if there are allegations of poor standards amongst their suppliers (Palmer et. al. 2006:323). This topic will be covered in more detail in part 2.
Conclusion to Part 1
Supermarkets have led to higher consumer prices and arguably less consumer choice for customers. There has also been an increase in unemployment which can be attributed to the supermarkets business policies.
PART 2
2.1. The biggest supermarkets in the world
The terms supermarkets and hypermarkets are used inter-changeably here. The top 3 leading global supermarkets are Wal-Mart Stores, Carrefour and Tesco (Fast Market Research 2012), (Planet Retail 2011). There are different measures of the largest supermarkets or hypermarkets in the world. For example, it is stated that: “Wal-Mart is still, by far, the largest retailer in the world. France’s Carrefour is still #2. Germany’s Metro AG overtook the United Kingdom’s Tesco chain and claimed the #3 position on the list (About.com 2010). It can be seen that Wal-Mart is the largest company in the world in terms of revenues or sales (Money.cnn.com 2011). Kroger is well down the list at 25 (Money.cnn.com 2011a). These firms are very large despite criticism that “Supermarkets ‘need to scrutinise (the) supply chain more closely’” (Talking Retail 2012).
2.2. The company’s size measured by worth, sales and profitability
The different companies worth or value is measured by stockholder equity, shareholder funds or market capitalisation. Sales are measured by revenue and profitability by net income.
Wal-Mart
Total Stockholder Equity
Shareholder Funds / 71,315,000
(Source: Yahoo Finance 2012)
Total Revenue 446,950,000
Net Income / Profit 15,699,000
(Source: Yahoo Finance 2012a)
All numbers are in thousands for the last financial year (Jan 30, 2012).
The currency is U.S. dollars.
Tesco
Shareholder Funds / 17,775
Total Stockholder Equity
Total Revenue 64,539
Net Income / Profit 2,956
All numbers in UK millions (Source: Redmayne Bentley 2012)
Carrefour
Market Capitalisation 9,883.7 Million Euros
(Source Google Finance 2012)
Sales 81.3 Billion Euros 81,300 Million Euros
Profits 371 Million Euros
(Source BBC 2012)
2.3. What do supermarkets sell and where does it come from?
How good are supermarkets at controlling their supply chains?
Can supermarkets be sure there is no child labour?
Multinational companies such as Tesco and Wal-Mart source their products globally. This section will examine the provenance of food in the UK. It will then consider the overseas clothing sector; as supermarkets have diversified into this market.
Supermarkets claim to sell ‘locally produced’ food. However, they have been criticised for making such claims. Supermarkets may sell local foods such as Cornish ice cream in Cornwall. However, such foods which were initially sold locally are then sold nationally. When the product is sold nationally the product is no longer local (Corporate Watch 2012). This contradicts marketing claims of food being derived from local sources.
Supermarkets have been criticised for local sourcing policies which are at best limited (Hill 2007). The problem is that, the supermarkets have invested in food transport, which is based on packing huge quantities of food and moving this food, large distances across the country. There are few facilities for the local packing of produce which means that locally derived food cannot be sold (Lawrence 2007). Supermarkets have also been criticised for labelling meat as British, but which has actually been imported from New Zealand (Daily Mail 2007). Another concern is that local economies rarely benefit from supermarkets. This is because money taken at the tills is often not re-invested in the local community (Boyde 2001).
The food system has become controlled by a few large supermarkets. This concentration of corporate power now controls a large number of subjugated suppliers (Scott et. al. 2012:16). “This divide is important because it creates a hierarchy of employment between (the supermarkets and) “their less powerful subcontractors” (Scott et. al. 2012:16). Contracting out business to suppliers is an “effective way for employers to cut costs (and discard) responsibility” (Scott et. al. 2012:16).
This is a pattern which exists with UK supermarkets; dealing with either UK suppliers or overseas suppliers. The supermarkets are good at controlling their supply chains, in this manner, to reduce their purchasing costs. They could, however, control their supply chains to improve labour practices. For example, they could have acquired food manufacturers or food processers and brought them ‘in-house’. They could have invested in vertical integration whereby they could have taken over their suppliers. The supermarkets could then have directly managed the labour force and overseen proper working practices. They have chosen not to pursue this strategy. Presumably they want to reduce costs and responsibility. This leads to a supply chain which is not transparent and more difficult to control.
Tesco has taken steps to control and improve its clothing supply chain. “The company decided to boycott (cotton from Uzbekistan) following reports of forced and state-sanctioned child labour”. However, improvements to such systems cannot “guarantee ethical behaviour” (Tyrell 2010). This is because measures taken by the supermarkets have not helped producers. “Supply chain auditing ... (has) delivered limited change for workers, added significant cost to the supply chain and, increasingly, does not provide reliable assurances about standards because of growing audit fraud.” (Tyrell 2010). Also, simply banning purchases from particular countries, or suppliers, because of concerns over the use of child labour does not address unease over poorly paid adult labour.
There is a gap between the rhetoric and reality of supply chain audits. Wal-Mart states that it is a requirement that factories conform “to local workplace laws and that there is no illegal child labour”. It also states that it “works with independent monitoring firms to randomly inspect ... factories to help ensure (their) compliance” (Christopherson and Lillee 2004:17). There is a gap between the rhetoric of the company statement and the reality of the factory labour standards. Policy statements overlook the “complicity in the abuse of labour standards as a consequence of” reducing the profits of subcontractors. The risk, of failing to meet adequate labour standards, is placed on the supplier (Christopherson and Lillee 2004:18). Suppliers have to accept the prices which Wal-Mart is willing to pay, otherwise they will lose contracts. This places the supplier in an invidious position.
Conclusion to Part 2
To summarise, supermarket policies of contracting-out make it difficult for them to manage their supply chains. Supermarkets will find it complicated to make sure that abuses do not occur. Their control over suppliers, and the need for suppliers to reduce their costs, makes labour exploitation more likely rather than less likely.
References
About.com, (2010), 2010 World's Largest Retailers by Country - Top Global Retail Companies List
Anderton, A., (2008), Economics, Fourth Edition, Harlow, Causeway Press
BBC (2012), Retailer Carrefour in profit fall as sales stall
Boyde, T., (2001), Cusgarne Organics Local Money Flows
Christopherson, S. and Lillie, N. (2004), neither global nor standard, Corporate Strategies in the new era of Labour Standards, Department of City and Regional Planning and School of Industrial and Labour Relations, Cornell University
Corporate Watch (2012), What's wrong with Supermarket Local?
Daily Mail (2007), Banned: Tesco's 'British' lamb thatreally comes from New Zealand
Fast Market Research, (2012), Leading Global Hypermarkets, Supermarkets and Discounters - Company Benchmarking Analysis Report,
Gentleman, A. (2007), Indians protest Wal-Mart's wholesale entry
Goodley, S., (2010), Tesco's One Stop angers rivals with77-store purchase
Google Finance, (2012), Google Financials,
Hickman, M. (2012), Milk crisis turns sour as dairy farmersreveal plans to blockade supermarkets
Hill, A. (2007), Organic food under threat
Just Food, (2009), UK: Commission to introduce Grocery Code of Practice
Lang, T. and Heasman, M. (2004), Food Wars, The Global Battle for Mouths, Minds and Markets, Earthscan, London
Lang, T. and Raven H. (1995), Cheap food - at a huge price
Lawrence, F. (2007), Sainsbury's
Money.cnn.com, (2011), Fortune 500
Money.cnn.com, (2011a), Is Kroger agreat company, or what?
Nicholson- Lord D. (1995), Store giants accused of `commercial tyranny'
Palmer, A. and Hartley, B. (2006), The Business Environment: Fifth Edition, Maidenhead: McGraw Hill Education
Planet Retail (2011), Global Retail Rankings
Redmayne-Bentley, (2012), Tesco profit and loss
Reynolds, J. and Cuthbertson C. editors (2004), Retail Strategy: The View from The Bridge, London, Butterworth-Heinemann
Ryan, C. (2009), NorthamptonTesco Express with no cashiers is 'the future'
Scott, S., Craig G., Geddes A. (2012), Experiences of Forced Labour in the UK Food Industry
Talking Retail, (2012)
Tescopoly, (2012)
Tescopoly, (2012a)
Tyrell, P. (2010), Buyers unravel the ethics behind the label, Financial Times
Vallely, P. (2011), Don't moan about supermarkets – act
Yahoo Finance (2012), Wal-Mart Income Statement,
Yahoo Finance (2012a), Wal-Mart Balance Sheet