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Business Review 2006 from
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Food cartel: It's a myth
Jim Hopley
CI Co-op retail controller
The food retail sector in Jersey has been a subject of much debate in the past 12 months with the introduction of competition law, CI Trader's purchase of the Morrison's Safeway store and the publication and public consultation on the Experian report.
The suggestion has been that there is lack of competition and that last year's loss of a third supermarket retailer has made it more likely for the two largest supermarket operators to abuse their dominant market position.
However, this isn't true, as the cost of food has actually been bringing down the average RPI and contributing to lowering the cost of inflation. Perhaps it is time to accept that this 'anti-competitive cartel' image of the local food marketplace simply isn't accurate.
The annual change in RPI in 2005 saw an annual percentage change of just 0.6% in food costs, with only motoring and leisure goods showing lesser annual increases.
This compares to the 2.2% rate on all items and in stark contrast to 16.3% in fuel and light - the profiteering simply hasn't happened, and nor is it expected to. Despite having only two large supermarket operators in the Island, having local directors and senior management personnel keeps business honest, helps ensure that food retailing is focused entirely on the needs of the local community, that local suppliers are preferred whenever possible and that taxes are paid locally.
A consultation process has started with dialogues between the Jersey States and stakeholders with regards to the Experian Report, focusing on just how Jersey is going to map out it's future in the retail sector.
Panic action is the last thing that the sector needs as short-term consumer gains may be achievable but at the possible expense of the production standards of local producers in agriculture and fisheries and long-term implications for our community.
Offering incentives to attract a third competitor into the marketplace is a plan fraught with long-term problems as such a move would be anti-competitive by its very nature. Market entrants would be faced with similar operating costs to businesses that are already here with 40% higher staffing costs, shipping, higher costs of land, construction and facilities maintenance adding to the overheads burden of doing business.
Promotions
In fact, food retailers have continually offered excellent price promotions throughout the last trading year and the Co-operative Society's return to customer shareholders has smashed through the £10 million pound barrier for the very first time. Trade increases have provided the Society with economies of scale and allowed for a greater investment in the promotional budget.
Retailers are continuously looking for ways to drive down the costs of doing business, developing economies of scale and delivering the best value products to customers. At the Society, these ambitions have combined with increases in turnover to enable the Society to return over £11million in Dividend, Double Dividend, share and loan account interest, multi-buys and petrol coupons. All other profits have been invested in business development, dedicated to charity sponsorship or put into reserves.
Sponsorship
Local businesses also invest heavily in their local communities, providing a route to market for many local producers, investing in staff training and development, sponsoring community programs and paying local taxes on business profits. Anyone who is talking positively about enticing a large UK or Continental multiple retailer such as Tesco or Asda (even Aldi has been mooted) should consider the impact their introduction could have on the Island and think carefully if that is a price they want to pay.
Our local economy could be adversely affected with smaller retailers unable to survive, local producers being marginalised and our town centre showing signs of abandonment. The fact that these larger companies are not clamouring for entry to the market and that it appears it would require political intervention to convince them to come shows that the Jersey consumer is not their greatest consideration.
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