If you have given yourself less than 90 minutes to investigate one of the hottest business and political issues of the hour – the charge of “greedflation” as it applies to supermarkets – it is usually a good idea to stick to the subject. Sadly, this was not the approach adopted by MPs on the business and trade select committee on Tuesday.
The supposed grilling of a crew of supermarket representatives turned into a tour of multiple horizons, including boardroom pay and workers’ collective bargaining rights, which, though fascinating subjects, are only tangentially connected to the rising price of essential stuff.
The closest thing to a revelation was the admission by Morrisons’ David Potts, the only chief executive of the four-strong panel (why?), that there is “more profit at the retail end of fuel” these days. But that isn’t fresh news. It has been an open secret for at least a year that forecourt competition on petrol and diesel is less intense than it used to be (many point the finger at post-takeover changes at Asda). It is why the Competition and Markets Authority (CMA) has been taking a look – its final report is due next week.
But the next question will be whether the big supermarkets are less competitive on fuel because they are fighting harder on food via their various “Aldi price match” schemes and pledges. That will be their defence and it is worthy of consideration. If the transfer of competitive heat is real, many might regard the switch as legitimate and desirable during a cost of living crisis. Everyone must eat, but not everybody drives.
It would have been useful, then, to hear the supermarket representatives be pressed on the food v fuel margin trade-off in detail. It lies at the heart of this debate. The MPs, however, largely ignored such nuances.
In their absence, we got loose talk about “a cartel” and some apples-and-pears profit comparisons for Sainsbury’s, for instance, that ignored the role of exceptional charges in generating a supposedly enormous increase in returns from pre-pandemic levels. On a like-for-like underlying basis, the four-year increase was more like 15%. And, if food is the focus, one should also strip out the (probably increased) contribution from Argos. Such granular detail matters.
This committee session, then, would have been better timed after the CMA has opined on food and fuel prices. The competition regulator has the power to demand commercially sensitive price information of a sort that is never likely to be coughed up to MPs in a public forum. It is the only way to make definitive judgments about the true state of price tension in the market.
Until the CMA reports, the view here remains the same: yes, “greedinflation” is very likely to be contributing to inflation globally, as central banks and the International Monetary Fund belatedly suggest, but supermarkets are not the obvious candidates to put in the dock.
Tesco, the market leader, runs on profit margins of about 4% and Sainsbury’s does about 3%. That is in line with historical levels. Meanwhile, the lauded Aldi made a thin pre-tax profit of £36m on turnover of £13.6bn in its UK business in 2021, according to its last accounts at Companies House. The more obvious corporate culprits during the food inflation shock are the global agricultural giants who were unmentioned by the MPs.
Wait for the CMA. Its reports can’t fail to be more informative.
