Are Tesco's profits "wrong"?

Great Debates
1

Tesco’s, a supermarket chain in the UK, supposedly makes about £50 000 an hour and smaller independent supermarkets are supposedly on the decline. Its profits are about £2.03bn a year.

Should this be a worry to me? Some people think so. I’ve been a student for a few years and I’m still in a bit of debt, so I buy cheaply or second hand wherever possible. Tesco’s is convienient for me and lets me save money. Am I losing anything by buying there and not at the more highly priced smaller supermarkets?

2

Thats not an easy question. We face the same thing here in the US with WalMArt.
It’s a matter of short term versus long term. My brother in law worked for a shoe comapny that closed after decades of provideing employment in a small town. He still didn’t understand why he shouldn’t save a buck by shopping at Walmart. I don’t know about Tesco but WalMArt has been under investigation for employment practices and their agreessive style forces some manufacturers to send jobs overseas. Personnaly I like to patronize smaller local buisnesses whenever I can rather than give my money to some huge coorperate office.
My worry is that in another 50 years or so everything will be controlled by a few super coorperations and those cooperations will control the goverment with money.

3

No direct answer to the OP, but a bit of advice: If you are prepared to go to more than one shop, and look at prices carefully, Tesco rarely proves to be the cheapest option.

4

It isn’t as simple as “Wal-Mart/Tesco are big, have market leverage, out-compete other smaller companies, and are therefore EEEVIL.”

Wal-Mart and Tesco are just better at playing the economic game than the others, and the smaller outfits generally don’t realize in time, that you can’t make money trying to sell the same Tide/Persil that Wal-Mart/Tesco does, except for 15% more than they charge.

Even in places where there are many Wal-Marts, you’ll notice that there are still other food, clothing, hardware and sporting goods stores. The catch is that all of the smaller stores have something about them that differentiates them from Wal-Mart (and the other stores in their category, usually). Wal-Mart has a lock on low prices, but they sacrifice variety and often quality to get that. You’re stuck with “Good Value” olive oil in a 32 oz bottle.

However, you can go to the local gourmet food store and get 27 different varieties of extra virgin olive oil. You pay more for this variety, but that’s what this whole post is about.

There are two basic strategies for businesses: being the lowest cost supplier, or differentiating yourself and charging a premium.

Obviously, Wal-Mart is excellent at the Low-Cost strategy. As a matter of fact, it’s pretty much their ONLY strategy.

Other stores successfully competing with Wal-Mart differentiate themselves somehow- whether it’s greater variety within the same category, whole different lines of products that Wal-Mart doesn’t sell, etc… You get the idea.

For example, every corner store, grocery, drugstore, convenience store and news stand all sell cigarettes and tobacco products. Yet there are still specialty tobacco stores who sell stuff you can’t get anywhere else.

I’ve always wondered why we don’t jump all over the small stores for not competing well, than get on the big one for doing what it is supposed to do.

5

As I’ve already pointed out, Tesco doesn’t have anything like that advantage in the average end price.

Even those shops struggle, and that’s excluding the localities where they’ve already lost the battles entirely. And, again, it’s not just about price. A lot of things in Tesco are expensive - i.e. more than I’d expect to spend in a butchers, or fishmonger, or even a restaurant. They’re using convenience (at least for those using the ring-road in question) as a way to disguise their markups.

Very very different from Tesco.

6

I think is should be pointed out that Tesco IS wallmart. They even use the same bouncy smilely in their adverts. But then again according to this I have no idea what I’m talking about. Well hopefully someone can distill a better arguement from that site. :smack:

7

Ok… well, Tesco’s taking the Differentiation strategy, and differentiating themselves based on convenience. Apparently that’s what the customers want and are willing to pay a premium for. Nothing wrong with that.

For what it’s worth, I kind of wish local food stores like fishmongers, butchers and bakers were more common over here in the US. Sure, grocery stores carry that stuff, but few of them allow you to specify your cuts or stock anything unique.

8

I thought ASDA was owned by Walmart. I didn’t know Tesco was.

9

Yeah, I always thought it was ASDA also.

10

Tesco is certainly not owned by Walmart. ASDA is . The two supermarkets are rivals in the UK . Tesco ranks 1 and ASDA 2 in sales.

11

Its not unheard of for a big company to own 2 stores even if they are in competition.
As i see it, even if the stores are in competition for the same customers, the company that owns both still wins.

12

But they don’t own Tesco. And in the UK we have a Monopolies and Merger Commission or somesuch, that would certainly nix any attempt by Walmart to buy any of the few remaining supermarmet chains.

Competition is healthy. Monopolies aren’t.

The main reason in my eyes that high supermarket profits can be detrimental is that they come at the expense of abusing their purchasing power to force unfeasibly low prices on producers. I often listen to Farming Today and you hear real horror stories of arbitrary contract changes, demands for free stock for new stores etc etc and individual producers are in no position to argue. If they don’t comply the company will just drop them as suppliers.

This is one of the main reasons that illegal and migrant workers are employed under the gang system. Farms have to sack their full time workers to cut costs to the bone and beyond. It also drives illegal farming practices.

And neither Asda or Tesco are competitive on prices for fish and fresh meat compared to local markets or quality when compared to Farmer’s Markets. They just score on the convenience and people fall for it. Never mind that the bacon they are buying is so full of water it practically steams itself when cooked or the fish is 50% more per pound.

13

That’s 2.3billion pre-tax profits on 37.07billion in sales, a 5.4% pre-tax operating profit. Their after-tax profits was 1.1billion, or a whopping 2.96% profit margin.

Believe it or not, IIRC those ratios are better than Wal-Marts. FWIW.

As to the other issue, what you’re losing is money. The “we’re losing our towns to the big commercial outfits” complaint has been ongoing since Dickens’ day - here in the US it was used to argue against Sears (now bought out by Kmart) and A&P grocery stores (once 15,000 units strong, now barely 100 remain in NY and NJ.)