SAFEWAY SAGA

I have two contributions to make to the Safeway saga, derived from
my years spent building stores for Sainsburys, in competition with Safeway.

Why Safeway failed  Safeway's retail strategy has always differed
fundamentally from the other four - Sainsburys, Tesco, Asda and Morrisons.
The latter all stressed the importance of selling on price.  There was a
time in the Eighties when Sainsburys, Tesco and Asda used UK-wide TV
advertisements to publicise the actual prices of their chickens, steaks,
chips and Liebfraumilch.  And for that strategy to work, all their stores had to
charge the same price, regardless of store location.  That strategy was good
for the customer, and fostered competition. Retailers watched each others'
price movements like hawks.

Safeway refused to compete on price.   Their strategy was to build stores in
smaller market towns where the "big boys" were less likely to compete.
Safeway preferred to hide themselves away in small-market corners,
effectively enjoying a chain of local monopolies, and merrily charging
higher prices.  Even when Tesco and Sainsburys started to compete in these
smaller markets, Safeway's higher-profit profile enabled them to secure
sites, at higher land-prices.

I well remember leading Sainsburys' attempt (1992) to get into Carmarthen,
where Tesco enjoyed a lucrative local monopoly.  A local developer secured
planning consent for a second supermarket, and the site was put on the
market, for competitive tenders.  I did all my calculations, and found that
the absolute maximum we could afford to pay for the land was £1.75m - if I
were to pay £2m+, the profitability of the eventual store would be
threatened.  Safeway's bid was £4.2m. I could not believe it!   Safeway's
higher profit margins, feeding through from their higher food-price
strategy, showed up in the offer they made for the land.  Safeway secured
the site, and to this day competes with Tesco alone in Carmarthen.  Because
Carmarthen, even with its West Wales regional role, is a relatively small
market, unable to support a third "supermarket".

But this strategy took its toll, eventually, on Safeway.  To this day, it
remains a relatively "expensive" chain, and they must be burdened by the high-prices paid for development sites, when they had finally to compete with "us big boys".
In Carmarthen, the local market would be greatly strengthened and improved
by a Morrison or Sainsburys takeover, and West Wales customers would
undoubtedly be the winners.

What the Government should do.  The bids should all be referred to the
Monopolies Commission.  The pugnacious Ken Morrison is simply wrong in his
opposition to that move, and he would lose any legal challenge he might
launch.  The Commission should deliberate, and allow through the best bid - but the
"winner" should be forced to sell-on any Safeway store in any local market
where the winner was already established.   What matter to shoppers are
local monopolies, not the state of the UK-wide market as a whole.  This
point was well made in the Financial Times, by Andrew Simms of the New Economics Foundation. The sell-on conditions, on this view, would vary
according to the identity of the winner.  I accept that difficult decisions
would have to made on the definition of "local markets", but I am confident
that a satisfactory consensus would emerge.

I do not share Andrew Simms view that supermarkets are undesirable in
themselves, and that small shops are somehow inherently superior. That is
mere Poujadiste sentimentality (.. remember Poujade?).  I agree with Simms
and the New Economics Foundation that much more should be done to generate new local economic networks - but that will require political creativity and commitment - not
merely a stale anti-supermarket negativism. 

• And that's another story.
   

What do you think?  Drop me a line

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