The potential power of supermarkets and large high street stores over our lives was brought into sharp focus in the run up to the referendum, when a number of them pointed out what they (and Downing Street) saw as the benefits of voting No: Marks and Spencer, B&Q, Asda, John Lewis, Timpson’s, all weighed in.
Campaigns against the power of supermarkets – in their establishing land banks, in supermarkets crowding out small retailers, and in the low prices they pay to farmers – have been waged for many years.
This note looks at another aspect: how these large retail businesses affect the whole of the supply chain and create vulnerability in the food supply chain in Scotland. It shows how we in Scotland have passively allowed large distributors of goods and services to have power over our economy. It suggests that we as customers have been too weak in demonstrating our collective buying power so that the resulting bargain Scotland gets out of its relationship with large stores and supermarkets has been too much in their favour.
The size of the grocery market (excluding fuel) in the UK in 2013/14 is estimated by the trade itself at £174.5 billion, with sales in Scotland estimated at just short of £15 billion. This is sizeable, and it is reasonable to ask how it affects the Scottish economy.
So, first, where do we spend it? Primarily in the large chains: the big four of Tesco, Sainsburys, Asda, and Morrisons, followed by Marks and Spencer, Iceland, Farmfoods, and the Co-op, with big incursions in market share in recent years by Lidl and Aldi. According to ONS, 80% of spend in the UK on food and non-alcoholic drink is through supermarkets with a further 4.2% of the total over the internet.
And, of course, there are benefits: reasonable quality, variety, convenience, and so on. (The overall shopping model and its competitiveness is however being challenged fairly successfully by discount stores like Lidl and Aldi).
But what we are concerned about here are some of the less obvious effects on the Scottish economy – effects on the supply chain that we could do something about.
Take Tesco for example: it is Scotland’s largest grocery retailer. In the Spring of 2013, Tesco wrote to the Scottish Government that “In 2012/13, sales of Scottish products totalled over £320m in Scottish stores and over £2.1bn in UK stores.”
Tesco website reveals that they have around 180 Scottish suppliers providing 1600 lines to their nearly 200 stores in Scotland. Since May 2013, for example, this includes 100% Scottish chicken sold right across Scotland, produced by over 20 Scottish farmers: and since February 2014, Tesco has been selling the full range of Scottish beef across all stores in Scotland. (However, this only covers fresh meat. Its own label frozen and ready meals are made with meat from Irish and British farms.) But seen against the bigger picture, this performance is not so impressive.
- During the financial year, 2012/13, Tesco reported UK sales of £48.216 billion. (Annual Accounts). So just over 4% of its sales in the UK are of Scottish produce: and note too that several of its Scottish lines will be expensive malt whiskies giving a false impression of the penetration of Scottish goods, particularly as over 80% of the price is tax.
- A large Tesco supermarket carries 40,000 or more lines in total. Against this, the total number of Scottish product lines sold in Tesco’s Scottish stores is 1,600. It is also interesting to note that in Poland, Tesco sells more than 9,700 regional products.
- Tesco’s share of the Scottish market is now 30.2%. Using the above estimates of the size of the grocery market, this would imply sales of around £4.5 billion in Scotland. However it sells only £320 million of Scottish produce in Scotland: this implies just over 7% of its sales in supermarkets in Scotland are actually coming from Scotland.
And on to Sainsbury’s: Sainsbury has 16.8% of the UK grocery market with £26.6 billion sales in 2013-14. (Scotland does not merit a separate mention in the Annual Report and Accounts.) Information from Sainsbury’s (Jan 2012) tells us that they source 1,500 product lines through 140 Scottish suppliers at a value of £600 million. According to Sainsbury’s that makes them “a huge supporter of the wider Scottish economy”. But given that a Sainsbury’s supermarket will commonly carry around 30,000 product lines, their sales of Scottish produce actually look quite modest.
And Asda: Asda has 59 Asda and two distribution centres across Scotland, employing around 20,000. Since 2013, Asda has been engaged in working with local Scottish suppliers to improve the amount of Scottish food and drink it sells, (supported in the costs of so doing by the Scottish government and Scotland Food and Drink).As a retailer, Asda says it is totally committed to the Scottish food and drink sector, but for all these words, it currently stocks less than 1,000 Scottish products from 89 suppliers.
The food retailing arm of John Lewis, Waitrose, has been expanding its reach in Scotland but, according to one of the six supermarkets they have in Scotland, its team of buyers includes only two with a remit to seek out Scottish suppliers.
So, altogether, although Lidl and Aldi are carrying a fairly big number of Scottish products, the others have a shamefully low percentage of Scottish goods on their shelves. Add this to minimum wages, split shifts, the need for working tax credits to bolster wages, and in some cases zero hour contracts, and one has to ask whether the benefits of the big four supermarket chains outweigh their disadvantages as far as the whole Scottish economy is concerned.
Now, of course, we are not saying that all of Scotland’s food products should end up being marketed as distinctively Scottish brands or lines. Naturally, a lot of what we produce will be bulk, generic products, which will be sold in the international food market, (like bulk grain), and will not be obviously “Scottish” when they finally reach the consumer. But on the other hand, if you want to have a healthy agricultural and food industry, and a healthy economy, there are great advantages in having a healthy number of products which are sold as distinctively Scottish lines. The advantages include:
- Since the processing of Scottish branded products takes place in Scotland , this increases Scottish employment and value added.
- Having Scottish branded products helps to retain in Scotland the intermediate processing facilities without which parts of the sector might suddenly find themselves at risk. A good example of the importance of processing facilities is pork. When Scotland lost its major pork processing facility in 2011, the NFU described this as being catastrophic for pig farmers in Scotland.
- Having distinctive Scottish products gives opportunities for brand imaging and marketing which can encourage growth – and the opportunities for growth are not just in food production, since raising Scotland’s profile has wider benefits, for example, in tourism.
- And there are environmental benefits too, like reduced road miles.
Unfortunately, as we have seen, the practices of the big supermarkets, with their emphasis on standardisation and centralised buying, militate against all these advantages. Unless the situation is addressed, we will continue to lose out badly.
This situation is very unlike that in the Irish Republic. There, supermarkets whether Irish or not make considerable effort to boost the sales of Irish products. Aldi Ireland, for example, sources over 50% of its products from Irish suppliers. Its sales of Irish products are marked on a customer’s receipt with IRE**. A similar system operates in Dunnes stores and in the SuperValu- Superquinn chain of stores, with the total spent split into Irish and non-Irish subtotals. Promotional events are frequently held to increase awareness of Irish products. The Tesco Ireland website has a distinct food cupboard section covering Irish sourced groceries.
Despite their hype, it is very unlikely that, on their own initiative, supermarkets in Scotland will support Scottish products in the same way that Irish supermarkets support Irish products. However, we, the customers, do have power to force change – because supermarkets have to respond to demand. We can exercise that power by, individually or in groups, demanding Scottish products – and by patronising those stores which respond.
Let’s look forward to the day when we have a supermarket that can say the equivalent of SuperValu:
“SuperValu has a long and proud history of supporting Irish producers as much as possible. 75% of products in our stores are produced and sourced locally in our communities:” (6th August 2014).
And this doesn’t mean that SuperValu loses out: SuperValu has 25.2% of the Irish grocery market, and has almost caught up on Tesco’s 26%.