Current trends in food retailing

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1.2. Numbers of grocery/convenience stores

Assessing the total number of ‘convenience’ or ‘grocery’ stores in the UK is an inexact science. The main sources of uncertainty are as follows:-

1) The main supermarket chains, such as Tesco, now operate many convenience fascias (e.g. Tesco Express). These are small grocery stores but are also part of the Tesco chain

2) Garage convenience stores may or may not be counted. The UK had around 9,367 garage forecourt convenience stores in 2001, and some 8,112 in 2005. Garages tend to move into grocery provision when higher oil prices squeeze fuel margins, only to semi-exit the market again if fuel margins improve. The space given to groceries may also vary as retail shelves are given over to motoring spares and road atlases. Additionally, many garage forecourts also host a branch of a major supermarket chain, e.g. Somerfield, Tesco.

3) Some counts of grocery stores include only unaffiliated stores; some include members of symbol groups such as Spar, Nisa Today. Storekeepers may choose to join s symbol group because the group can act as a buying group and thereby gain some economies of scale to compete with the large supermarket chain prices. However there is a loss of commercial autonomy as symbol groups generally insist on certain standards from their members, e.g. cleanliness and presentation of the shop premises, opening hours, level of stocking of some goods such as alcohol. This leads some storekeepers to resist joining. As some previously non-affiliated stores join symbol groups, the tally of loss of (non-affiliated) stores appears worse than it really is.

4) Some counts of small grocery stores only count those in town centres and villages, missing out those in town and city suburbs. The suburban grocery stores are at most risk of closure, whereas there has been something of a revival in town, city, and village centre grocery stores. Such counts may underestimate the true rate of loss of UK convenience stores. See below, ‘debate over how to count convenience/grocery stores’

5) Some (unaffiliated) small CTN (confectionery, tobacconist, newsagency) shops may shift in and out of the food trade. Independent tobacconist and newsagency shops typically stock an extremely small selection of food stuffs, say a few tins of soup, tinned vegetables, and tuna fish, a loaf or two of bread, maybe a few packs of pasta and rice. As the commercial conditions of food supply, demand, and price change, such shops may shift in and out of the margins of being defined as small independent grocery stores.

Approximate number of independent grocery convenience stores in the UK

Year	Total number of stores	Non symbol group stores	Symbol group stores *
1950	265,000
1960	130,000
1961	116,000
1970	90,000
1971	86,565
1976	66,000
1977	63,000
1978	60,000
1979	57,000
1980	55,000
1990	35,000
1995	30,000
2001	41,695	34,520	7,175
2004	35,617	29,030	6,587
2005	39,273	26,873	12,400
2006	38,993	25,893	13,100
2007	38,286	24,526	13,760

* The main Symbol Groups in the UK are (2008) Booker, Costcutter, Londis, Premier, Nisa, and Spar.

Debate over how to count convenience/grocery stores

Cliff Guy (Town and Country Planning, January 2008, pp.14-16) quotes figures from the (ONS) giving a slight increase in convenience stores (defined as ‘non-specialised stores selling predominantly food, beverages, or tobacco, below 280 square metres in size’). According to the ONS, such stores rose in number from ‘around 37,000 in 2000 to 38,000 in 2006’. Meanwhile the ACS issued figures showing showing a decrease in convenience stores over a similar period from 56,000 in 2000 to 51,000 in 2006 (Cliff Guy, ibid).

The Association of Convenience Stores (ACS) often claims that the Office for National Statistics (ONS) paints a rosier picture of the small convenience store situation than is actually the case by missing out suburban shops (which are at most risk of closure). Meanwhile the Competition Commission (CC) criticises the ACS figures, derived from Institute of Grocery Distribution (IGD) data, because (according to the CC), the IGD figures ‘tend to miss out recently—opened convenience stores’, and hence be too pessimistic over the small-stores situation.

The CC uses Experian/Goad data showing a large 70% increase in ‘town centre and High Street’ convenience stores between 2000 and 2006, and ‘an even higher growth rate in independent convenience stores’ (Cliff Guy, ibid).

Guy notes the highest growth rate (according to this Experian/Goad data) was in the high-immigration areas of London and the South east; this may be linked to the ‘Polish grocer’ phenomenon.

It is true that the highest density of independent grocery shops, especially those selling a wide range of fresh fruit and vegetables, occurs in urban areas with a high level of ethnic minorities, especially south-Asian ethnic groups. Polish grocers have also expanded in many areas; these tend to sell less in the way of fresh fruit and vegetables. Many new Polish shops represent a halfway house type of shop combining an off-licence (selling Polish beers etc.) and a (non fresh fruit and vegetable) food store. Much of this expansion, especially amongst east European grocers, has taken place since 2005, following the EU eastwards expansion and accession of 10 mostly former eastern-bloc countries in 2004.

Guy states that around 15% of the new migrant grocery stores set up in previously vacant shop units, a further 30% occupy former newsagents, off-licences, or specialist food stores, and the remaining 55% are conversions from non-food uses.

The Institute of Grocery Distribution (IGD) also said that 2,157 small (unaffiliated) stores, out of a total of 29,030 (2004), ceased trading in 2004, compared to 300 closures in 2003. Of the 2,157 independent stores who closed, 320 became part of larger groups; the rest ceased trading entirely.

Selective closure of weaker (smaller, more isolated) convenience stores

Not surprisingly, there has been a proportionately greater decline in the number of independent grocery stores than there has in their market share. This is because it is selectively the most precarious single grocery stores, with the smallest amounts of business, that have closed. Isolated corner shops were more likely to close than shops on parades. However once one or two shops on a small suburban parade of six shops close, footfall to the remaining ones may fall so far that they too are at risk. G Monbiot (Captive State, 2000, p.169), says, between 1990 and 1996, small specialist food shops fell in numbers by 22%. However if these shops had sales of under £100,000 per annum, they stood a 36% chance of closure over this period.

1.3. Market share of small independent grocery stores

1900, 80%

1940, 54%

1950, 54%

1960, 51%

1970, 43%

1980, 32%

1990, 25%

2000, 18%

Sources, A Haberberg, 2001, p.664, J Tanburn, 1981, p.22, The Guardian, 20/12/1999

1.4. Changes in particular types of small food stores

Sources, J Tanburn, 1981, p.14, ‘Shopped’, J Blythman, p.6, Food Distribution: its impact on marketing in the 80s, J Tanburn

Bakers

1970, 19,000

1971, 18,442

1976, 13,893

1977, 14,984

1978, 12,914

1980, 12,000

Butchers

1960, 43,000

1970, 33,000

1971, 32,415

1976, 22,289

1977, 21,776

1978, 21,422

1980, 21,000

2000, 9,700

April 2000, 9,081

2001, 8,344

2007, 7,186

The decline of 2,500 butchers between 2000 and 2007 is equivalent to one closing every day.

Fishmongers

1970, 6,000

1971, 5,978

1976, 3,286

1977, 3,716

1978, 2,999

1980, 2,800

2000, 2,408

2007, 1,657

Supermarket share of the UK fresh fish market

1990, 21%

2000, 66%

Greengrocers

1970, 29,000

1971, 27,758

1976, 15,246

1977, 15,738

1978, 14,799

1980, 12,000

2004, 3,980 (The Grocer, 6/5/2004, p.15)

Garages (often used as convenience stores by local shoppers on foot; in decline due to supermarket competition on fuel prices)

1967, 39,958

1977, 29,751

1987, 20,197

1997, 14,824

2007, 9,271 (The Times, 12/8/2008, p.38)

Supermarket share of the UK fuel market

1992, 11%

2007, 30%

Off-licences

1970, 9,500

1971, 9,401

1976, 9,845

1977, 10,294

1978, 9,015

1980, 9,000

In 1995 there were 230,000 banks, Post Offices, pubs, grocers, and corner shops in Britain. In 2002 there were 185,000 such outlets, and projected to be just 140,000 by 2009 (Guardian, 16/12/02, p.7, ‘Ghost town Britain looms’).

1.5. Newsagents

Contrary to trends amongst other small independent shops, the number of newsagents has been rising in Britain. From 45,000 in 1995, there were 54,000 in 2005 (Guardian, 17/5/05, p.25). Almost everyone, over 99.9% of us, lives within a five minute drive of one. However this sector too may be under threat from the large supermarkets.

Newspaper and magazine distribution in Britain has traditionally been accomplished by a system of regional monopolies, run by W H Smith, John Menzies, and Dawson News. Over 80% of the UK’s newspapers and magazines are delivered under this system; newsagents may complain that delivery charges have risen by 180% in ten years, but the system at least ensures that a corner newsagent store in rural Wales pays the same for its papers as a big hypermarket in Cardiff. Since 2000, Tesco has been trying to change this system; it wants to be able to arrange its own newspaper and magazine deliveries, and may refuse to stock those titles which refuse to comply with the new arrangements.

If the superstores can persuade the Office of Fair Trading to allow them to opt out of the regional monopoly system, Tesco and the other supermarket giants will secure deliveries at lower cost, due to the bulk of titles they sell. Supermarket customers would not see a reduction in the cover price of the publication, although Tesco et al could argue that there would be extra profits released to fund price cuts elsewhere in store. The risk for small shops would be that, stripped of their most profitable customers, regional deliveries to small rural outlets would fail, or publication charges to these small shops would rise. Either customers would have to be prepared to pay over the cover price for buying a newspaper in a small shop, or they would have to buy it at a supermarket. Dual pricing for some newspapers already exists; university shops can sell certain papers at half price, and customers may be persuaded to pay more for a paper to save them the travel time and queuing at a large superstore. Likely it is the poor, the elderly, the less mobile, who would end up paying more, whilst younger working age households adapted their routine to buy their paper with their groceries.

It is possible that small shops will lose both their newspaper trade and the top-up grocery trade that customers also bought whilst in there, pushing many already-marginal corner stores into closure. A study commissioned by the Periodical Publishers Association suggested (Guardian, 17/5/05, p.25) that 20,000 newsagents could close.

1.6 Changes in number of chemists

Chemists have also declined. In 1965 the UK had 14,137 but by 1975 there were only 11,162, a fall of 21% in ten years. The ones left tended to be the larger chemists, with greater economies of scale. In 1963 43% of chemists dispensed under 12,000 prescriptions a year, and only 16% were large enough to dispense over 24,000 prescriptions a year. By 1972 these percentages had reversed; only 16% of chemists dispensed under 12,000 prescriptions a year, and 45% dispensed over 24,000 prescriptions annually.

The supermarkets have undercut much of the local chemists’ trade by moving into the more profitable lines of toiletries, sunglasses, disposable nappies, and items such as vitamin pills that can be dispensed without a prescription or advice by a qualified pharmacist. ‘Health and Beauty’ shops such as The Body Shop have also undercut some of the chemists’ trade. These type of shops had (1999) a 43% share of the UK’s £10 billion toiletries, cosmetics, and over-the-counter medicines market, and the supermarkets had (1999) a 40% share of this market.

Local chemists are left with only the prescriptions trade and with selling the occasional pack of headache pills, for which people don’t want to travel all the way out to a supermarket for.

However in April 2005 the UK government relaxed the pharmacy rules so that supermarkets could also dispense prescriptions.

By April 2007 the UK’s big four supermarkets, Asda, Morrison, Sainsbury, and Tesco, collectively held 40.1% of the UK health and beauty product, a gain of 12.2% in 5 years (Daily mail 6 April 2007, p.5). Boots is still market leader, but in 2006 Morrison overtook Superdrug in this market, pushing it into 6^th place. Supermarkets also increased their share of NHS prescriptions dispensed, from 4.0% in 2005 to 4.7% in 2006. Asda plans t double the number of its in-store pharmacies during 2007, and Sainsbury will also add more of these facilities.

Crime has also forced some local chemists to close as independent premises and move into doctor’s surgeries. Drugs, and the use of methadone as a heroin substitute, has caused part of this. Moving into a GP complex improves security, and the NHS has leant on chemists to do this, but such a move may reduce the opening hours of chemists to those of the GP surgery.

The closure of local chemists may add to the nation’s health costs as some people will go to their local pharmacist for informal medical advice when they would not bother going to their doctors, possibly facing a long queue in the surgery waiting room. If a local pharmacist is unavailable, some medical conditions may be left until they get much worse and require more expensive treatment.

1.7 Quotes and examples of small shops facing difficulty

South Birmingham newsagent, 2002,

“In ten years time, you’ll have to buy your newspaper from Sainsbury” [because then there will be no local shops left].

Bromwich, Birmingham, butcher, 2003,

“I’ll have to go and work for those [the supermarkets] who’ve put me out of business”.

Bromwich, Birmingham, general grocery store, 2003 (in a reasonably well off area), they had a shotgun held to their head in a robbery, now on Wednesdays [half day closing], they nail up the shop door for security.

Newcastle on Tyne convenience store, poorer area, February 2004,

“I tried stocking vegetables round here for the last three months but nobody buys them, they just go off. I sold one carrot in the last three months, that was for the kids to use as a nose for their snowman”.

Birmingham general stores, western suburbs, 2004,

“A few months ago, schoolchildren around here had to do a project on fresh fruit and vegetables. One came in here asking for a banana, but he didn’t know what one looked like, he didn’t recognise them on the counter”.

Scunthorpe general stores, 2004,

“I would do fresh fruit and vegetables but the delivery people don’t want to deliver it here in the small amounts I could sell”.

North Lincolnshire, small-town greengrocers and general stores, 2004,

“The supermarkets are selling stuff cheaper than I can buy it from the wholesalers. For example Lidl in Barton sell 500g of tomatoes at 29p, my wholesale price is 79p. They do cucumbers for 29p, iceberg lettuces also for 29p, my wholesale prices are 69p for these things. It’s the same thing with the town centre shops. Currys in Scunthorpe had a music centre reduced from £329.95 to £199, but Lidl [Barton] were selling them for £99”.

Grimsby area, rural general stores, 2004,

“If it wasn’t for the [income from the] National Lottery we’d close up today”.

Rural Hampshire grocery stores, 2006,

“All the small shops will be gone in ten years. We’re lucky, we do magazines, but so do Sainsburys now, supermarkets do everything, you can’t compete with them”.

Suburban convenience store, Stoke on Trent, 2008

”Fresh vegetables? They won’t buy anything round here unless it comes in a tin”

Most small shops, if asked about fresh fruit and vegetable provision, or the lack of it, locally, made comments under one of the following four headings.

1) We can’t compete with the retail prices at the supermarkets. Most people who want fresh fruit and vegetables find some way of getting to the supermarkets.

2) Wholesale prices are too high for us, especially for the small amounts we would order.

3) The wholesalers don’t want to deliver the small amounts we would order, and it just isn’t worth my time or money to go a long way to the wholesaler and get it myself. (Centralisation of wholesaling has meant an increasing average distance between shop and wholesaler, and this is exacerbated by high fuel prices).

4) There’s just no demand for it here, they don’t eat them here; mostly it goes off before I sell it, and my business can’t stand any kind of loss as profits are low anyway.

2. Interactions between shops and other properties

As shops close, the closure rate of those remaining may accelerate because there is synergy between some shops. If a parade, small rural town, or suburban centre loses, say, its last butcher, shoppers wanting meat products will have to travel to a larger centre to obtain these. Even though other goods are still available at the smaller shopping centre, these goods too will be increasingly bought away from here as people like to do all their shopping in one place. Closure of one or two shops removes employment and spending power from local shopping centres, reducing the trade to other shops there.

However some shops do not help each other to survive. Off-licences may induce gatherings of rowdy youths, and takeaways are open at different hours to grocery shops. Rowdy youths may put off local shoppers from coming, especially if they are elderly. Off licences may create a litter problem, reducing the amenities and appearance of the area. Both types of shop may occupy premises that could have been used for a type of shop that would have attracted daytime shoppers to the parade, although the number of empty shop premises suggests that such displacement is not a major problem.

Some other shops also appreciated the closure of a shop nearby, for different reasons. A convenience store in Birmingham appreciated the closure of a chemist next door as now there would be more room on the forecourt for his customers to park. Of course the old people in a nearby home would now have to get the bus for half a mile to access the next nearest chemist; at least they had free bus passes. A convenience store in Keadby, Lincolnshire, appreciated the imminent closure of a garden centre across the road because he anticipated a housing estate being built on this site, giving him (he hoped) more custom.

The presence of shops can have a negative or a positive effect on property prices. On the positive side, the Daily Mail, 10 June 2003, p.13, reported that the presence of a Post Office or bank could add 1% to the average house price (average house price was £135,200 at this time). A good foodstore such as Waitrose or Marks and Spencer within 3 miles could add 4% to the house price, and ‘good restaurants, pubs and nightlife’ could add 5%. However a ‘late night drinking or music venue’ could reduce the average house price by 15%, as could a ‘pungent takeaway’. Generally, house purchasers in villages seem to appreciate local facilities that give the village a ‘soul’ such as a Post office and general store, but don’t want them on their doorstep because of the traffic problem. Houses right next door to a shop are likely to have their drive partially blocked by badly parked cars whose drivers are just ‘nipping in for a couple of minutes’. Another concern of householders next door to shops was crime and litter. Shops can attract rowdy gatherings of youths, and C M GUY, Environment and Planning A, Vol.28ii, 1996, wrote of a Lo-Cost supermarket in Cardiff where the gatherings of youths outside it led to residents’ pressure for Cardiff City Council not to renew the shop’s lease. However villages in North Lincolnshire with no shops saw property prices some 5% lower than similar villages with shops.

3. Financial situation of small shops

3.1. Fixed and variable costs, mark up of wholesale groceries.

Small shops are often perceived as charging high prices, and in some was ‘ripping off’ the local customers who cannot get to large supermarkets. One shop, in Scunthorpe, Lincolnshire, now closed, was termed by the local people the ‘robber shop’ because of its high prices. In fact such shops may, despite their higher prices than supermarkets, be selling some foodstuffs at a loss, and their higher overall prices may be due to the basic economics of small shops themselves.

The costs faced by businesses may be classified as either fixed or variable. Fixed costs are those incurred whether the business actually trades or not – for example the rent on its premises. Variable costs are those incurred as a result of trading – for example the wholesale costs of goods bought in to be sold. Of course a business that is to survive, in the long term, must cover both these types of cost, and leave some profit over for the business owner to live on. But it is only the trading that actually brings in income, so the mark up on the wholesale goods, for example, must cover both the variable and fixed costs.

A large business, such as Tesco, will have a low proportion of its costs as fixed, and a high proportion as variable. This is for two reasons. Firstly, if the company has high levels of trading, as Tesco does, the volume of variable costs (e.g. wholesale prices) simply is very large compared to fixed costs such as premises rental. Secondly, a large retailer like Tesco can employ its staff flexibly, having more in when demand is high, sending some home when demand is low. So staff costs are a variable costs for Tesco.

Yet for a small shop, staff costs are fixed costs, because the shopkeeper must be there whether the shop is busy or not. And small shops have lower levels of trade anyway. So small shops are the opposite to a large retailer such as Tesco; small shops have high proportions of their costs as fixed costs, low proportions as variable costs.

So what does this mean for the mark-up in Tesco, and in small shops? It means that Tesco can afford to make a quite low level of mark-up on its variable costs (wholesale prices) to cover what is quite a small extra level of fixed costs. On the other hand, small shops must make a high level of mark up on their relatively low level of trade to cover a greater relative amount of fixed costs. Therefore, Tesco can manage to cover its total costs, and make a profit, by marking up its wholesale prices by perhaps 6%. A small shopkeeper could never cover all their costs, and have some left over to live on, by marking up their wholesale prices by 6%. Typically, small shops need mark-ups of 80%, 100%, or more to generate enough profit to live on.

3.2. Regulations and fees on small shops

A major complaint of small shops was the amount of time and money they had to spend on regulations and charges.

Of course all businesspersons complain at almost any amount of regulation and fees, however small, but the problem for small shops seemed to be that regulations applied to all shops, regardless of size, affected them relatively more. For example environmental regulations on waste paper could be absorbed by a supermarket, with the staff and resources to comply with this, but to a small shopkeeper this was an extra burden on their time they could ill-afford. A survey by NatWest claimed that sole traders were “spending 41% more time dealing with government regulations and paperwork than they did three years ago, 8.9 hours a month as against 6.3 hours”, (Daily Telegraph, 15/9/2003, p.29). Meanwhile the same survey found companies employing over 50 people spending slightly less time on these activities than three years ago, spending just 1.2 hours a month per employee here, as against 1.3 hours three years ago. Even so this translated into the larger companies having to employ one person per 50 employees to spend 79.9 hours a month – around 2 weeks – on government regulations.

Fees for gaining approval to diversify, for example into sandwiches to supplement a declining grocery trade, could be in the hundreds of pounds. If the shop went just a little too far in its food provision, it might just be re-classified as a restaurant, with hundreds of pounds more of licence fees and requirements such as ventilation installation.

3.3. Supermarket buying power, the social costs of low prices

The large supermarkets like Tesco can bring their prices down in other ways too. They do not actually use wholesalers but buy their goods directly from manufacturers and farmers. This cuts out a middleman; small shops cannot do this because farmers and manufacturers would not want the complications of dealing with thousands of small shops as customers – they prefer to sell via a wholesaler. Supermarkets, though, are such large customers to those producing food and other goods that they can virtually dictate on what terms and at what prices they will buy. Wal-Mart, for example, buys about a fifth of the entire output of Pampers nappies (2002) so that Pampers, keen not to lose such a large chunk of demand for its output, will agree to supply Wal-Mart at lower prices than it will supply wholesalers and other smaller customers. This power of the supermarkets to force down manufacturers’ prices is called ‘buying power’. Large companies such as Tesco, also large manufacturers such as Toyota, also have the power to demand certain concessions, such as on tax, from governments, in return for locating some of their commercial operations in that country.

Supermarket buying power is illustrated by a table in The Guardian (9 November 2002, p.9) showing the differences between supermarket shelf prices and the prices paid to UK farmers (remember there is no middleman wholesaler, the supermarkets buy direct from the farmers). Beef in the supermarket was £6.58 a kilo; the farmer got £1.72 a kilo (25% of supermarket price). Pork loin, supermarket, £4.78/kilo, farmer paid £0.95/kilo (20%). Carrots, supermarket, £0.58/kilo, farmer paid £0.16, (28%). Onions, supermarket, £0.73, farmer paid £0.17 (23%). Milk, per litre, supermarket £0.36, farmer paid £0.17 (25%). Peas, per kilo, supermarket, £0.98, farmer paid £0.17 (17%). Potatoes, per kilo, supermarket £0.30, farmer Paid 30.05 (17%). It is hardly surprising that farmers are going out of business, and farms merging to bigger agri-industrial units with larger economies of scale, or diversifying into non-farming activities, as fast as small shops are closing.

So when the shopper sees a supermarket bargain price, this is how it has been achieved. The cost is elsewhere, but is still real; the cost is lower wages for manufacturing workers, more automation or production overseas so as to reduce manufacturing costs, or cutbacks in environmental protection. The cost is less legislation to protect workers’ rights, less environmental regulation, as nation states compete to offer ever more attractive terms to companies, so as to get them to locate in that nation state and bring at least some employment there. The cost is lower tax revenue to the governments from large corporations, which means two things. Higher tax on the poor and the middle classes, perhaps achieved through stealth, through rises in VAT, in vehicle excise duty, in National Insurance, in Council Tax, in a host of small ways the electorate may not be able to keep track of. The other thing is lower social spending by the government. Less spending on roads, hospitals, pensions, and so on. This is the unseen bargain we, the shopper, make with governments as well as big multinationals in return for lower supermarket prices.

3.4. Supermarkets, small shops, and credit cards

Supermarkets have another advantage over small shops – the increasing tendency of customers to pay by credit card. There are several reasons why customers may shift from cash to credit cards. More of us are paid monthly, into a bank account, rather than weekly by cash. Credit cards are perceived as safer than carrying cash. The banks have actively marketed the use of credit cards as they are cheaper to process than cheque payments, and if we get used to plastic, we don’t mind so much being miles from a bank branch so the banks can save more money by closing local branches – the same reason the banks like their customers to bank on the Internet, the phone, by automatic hole in the wall cash machine, anything but a real cashier in a real building. The customer gets a few weeks of free credit, and can avoid interest altogether by paying the bill on time (the bank would much rather you didn’t though, and racked up some interest charges at a rather higher than average APR). And for larger items, many credit cards offer fringe benefits such as a few weeks free insurance, or loyalty points, so that after a few thousand pounds spent on everyday items you get, say, a free pair of bathroom scales.

The customer pays the same whether they pay by cash or credit card (it wasn’t always this way, some hotels, in the early days of credit cards, would surcharge credit card payers, but they no longer do). But nothing is free, and the banks recover the cost of your credit card payment from the shop, say 2.5% of the price. In effect cash payers, mostly the poorer customers, are subsidising the wealthier credit card payers. Small shops therefore often won’t take credit cards for £5 of groceries because the small profit they make is swallowed up by bank charges. It probably isn’t worth it for a small convenience store to install the hardware needed for credit card payments.

Larger stores have managed to squeeze another cash advantage out of credit cards, this time from the Treasury (that’s you, again, the taxpayer). Large stores were saying 2.5% of their sales should be VAT-exempt because this 2.5% was in fact a handling fee for credit cards. In June 2004 the Treasury lost a test case against Debenhams (Guardian 30/6/04, p.14) to stop this practise; the Treasury contended that there was nothing to stop the 2.55 becoming 10%, say, or to stop other large stores across the 25 members of the EU adopting this VAT reduction exercise. To run the scheme, large stores had to set up a subsidiary company to handle the card fees, an exercise only financially worthwhile for larger retailers.

3.5. Supermarket price wars

Supermarkets compete heavily on price, and just as many other retailers seem to have ‘permanent sales’ especially in clothing, footwear, and electrical/electronic goods (resulting in deflation in those areas), supermarkets may permanently advertise these low prices. Asda has an ongoing ‘rollback of prices’ campaign, Tesco has a price-cutting logo, Kwik Save has a ‘pricefighters’ campaign.

Occasionally the low level cold war between the major players erupts into a local bloody skirmish. This often happens over the price of a single type of good. In the early 1990s it was baked beans, with some supermarkets offering tins for as little as 7p. In 1999 it was over the price of a loaf of bread; in February 1999 Tesco and Asda were selling own-brand white loaves for 9p. Kwik Save then offered its ‘no-frills’ brand of white loaf for 7p.

Shoppers enjoy it whilst it lasts, and the supermarkets can afford such loss leaders for many months, making up the few pennies loss per item bought wit the profit on other items bought; no-one goes to a supermarket just to buy a 9p, or even a 7p, loaf of bread. The losers are the small shops, and the local food producers such as the bakeries, whose products they sell. This local product may be of superior quality but that doesn’t guarantee customer loyalty. These small shops have no financial cushion for a long-lasting price war of loss-leaders. Indeed, if local shops close, the loss-leader of the supermarket may not be such a loss-maker after all.

In February 2004 Tesco offered vouchers to certain households offering them £8 off for spending just £20 at the local Tesco supermarket. The 6,000 households who received this offer all lived in Withernsea, a small seaside town in East Yorkshire, where there are just two supermarkets, a Tesco and one of the six-strong chain of Proudfoot supermarkets. Tesco also erected a banner opposite the Withernsea Proudfoot advertising their own store.

3.6. Small shops’ pricing policies

3.6.1. Small shops more expensive

‘The Observer’, 13/9/98, p.11, reported that ‘on some less well off housing estates, food prices in the local shops could be up to 60% higher than in the supermarkets. Many shopper’s comments in a survey of Leeds, and in Birmingham during 1999 and 2000 confirmed this. In Sparkbrook, Birmingham, a corner shop sold flour at 80p a kilo (2002) but at a small supermarket one kilometre away it was 47p a kilo. A 2-litre bottle of coke was 80p in a small shop 92002) but Sainsbury had a BOGOF offer of 2 2-litre bottles for 31.00. With tinned tomatoes there was an even bigger price differential, because the small shop only bought one box at a time. So the small shop faced a bigger wholesale price, because of the small delivery and besides the supermarket would but direct from the manufacturer, cutting out a middleman. Then the small shop needed higher margins to survive. The small shop paid £12 a box, as against the supermarket paying £2 a box. Retail, the supermarket sold the tins at 5p each; they were 80p in the small shop.

3.6.2. Local monopolies, or loss leaders

Some small shops may exploit the fact that they have a catchment area containing elderly disabled, or people who cannot afford cars and so find it hard to get to cheaper supermarkets, and raise their prices by more than necessary. One grocery shop in Scunthorpe (now closed) was called the ‘robber shop’ because of its high prices. Many customers mentioned prices at local shops as being 50% to 100% higher than supermarket prices for the same goods.

In may cases however the small shop will sell staple goods such as bread and milk at lower prices than they paid the wholesaler for it. A small shop in East Park, Leeds, sold bread for 55p a loaf, despite paying the wholesaler 89p for it (2003). Morrison in Hunslet, nearby, sold similar bread for 39p a loaf.

The idea is to get shoppers in who would have otherwise travel to larger shops for these things; these customers may then buy items like alcohol and cigarettes which the small shop will make more profit on. Unfortunately for small shops, the strategy of loss leading on staple foods to capture alcohol and cigarette trade is undermined by tax shifts. As governments shift tax away from the multinationals, and compensate by raising it on alcohol and cigarettes, consumers behave like the multinationals and attempt to source these items from lower cost countries. So UK drinkers and smokers go on ‘booze cruises’ to Calais, or buy these things over the Internet from, for example, wholesalers in Belgium. Now not only do small shops lose trade but so do local pubs, as alcohol brought from France is consumed at home with friends. The local area where the shop is loses part of its social fabric as the pub, and perhaps the shop too, closes, and local employment, at shop and pub, is lost.

3.6.3. Higher wholesale prices

The wholesaler may charge five times or more, per item, to a small shop buying just a few tins of tomatoes than it would to a supermarket buying many cases of tinned tomatoes.

3.6.4. Competitive High Streets

However some small shops in High Street locations, where there is plenty of passing trade, (and competition from neighbouring small shops too) may offer prices below those of the supermarket. The BBC1 ‘Panorama’ programme broadcast from 10pm on 23/11/1998 stated that meat prices in a supermarket at Grantham were 10% to 30% more than in the town’s High Street butcher; vegetables at the same supermarket were 40% more than on the High Street. The Guardian (26/3/1999, p.12) reported that, in Hexham, the High Street butcher, Huddlestones, was charging £1.89 and £0.99 per pound for lamb chops and steak mince; at a nearby Safeway store the prices were £2.79 and £2.99 respectively. It was likely that extra-large profit making by the supermarkets concerned, rather than major cost reductions or lower wholesale prices at the shops, were the cause of these relative price differentials. UK consumers were reported by the same ‘Panorama’ programme to be ‘the least price-sensitive in Europe’. UK shoppers seem to be more protective of their time than their money, a result perhaps of the UK having generally longer work hours than other European countries. Despite Huddlestones lower prices, a shopper in Safeway said “I like to shop in the High Street but it’s quicker in the supermarket. Safeway is cheaper for some things but I try and shop in Huddlestones – if I can”.

3.6.5. Gains in trade by small grocery shops

The Grocer, 6/5/2004, Convenience store sales rose by 4% over the last 12 months, compared to a 2% rise by all food retailers.

3.7. Small shops, delayed closure when supermarket arrives

A paradoxical effect of small shops having a high level of fixed costs to their variable costs is that they can continue to trade at a loss for quite some time before finally closing. We said above that for ultimate survival, a business must cover both its variable (trading) costs and its fixed (costs incurred without trading) costs and leave a profit for the owner. But in the short term, a business making just enough money to cover its trading costs alone, but not managing to cover its fixed costs too, should still stay open. The business is making more money by staying open than it would if it ceased trading altogether. Fixed costs can be covered from the reserves the business has. Only when these reserves, the money in the bank the business has kept for a rainy day, run out will the business finally have to close. It is a bit like a hungry animal, a predator, not finding enough food to keep itself alive. The hungry animal does better to chase after what little prey there is, rather than sitting still to conserve energy, so long as the food value of the prey is higher than the energy the predator spent in chasing it. The predator can live off its fat reserves till times get better. Only when the fat reserves are gone does the predator die (or ‘cease trading’ in business terms).

So when a supermarket enters an area, the small shops around may not close immediately. A typical time lag is in fact two to three years between the opening of a new supermarket and the closure of the small shops it will ultimately supplant. During this time, some shopkeepers may retire, shopping patters will shift, and the link between the new supermarket and local shop closures is blurred.

Banks, under pressure to raise profits and therefore to avoid bad debts, may be hasty to foreclose on an ailing shops’ overdraft, rather than be willing to wait and see if the shop can turn itself around.

3.8. ‘Opportunity costs’ and small shop closures

Even where small shops are still generating a living for their owner, they are liable to be closed through something called ‘opportunity costs’. ‘Opportunity cost’ is the next most profitable alternative use of some asset, such as a shop premises, that is foregone by using it in its current situation. If the ‘opportunity cost’ is more lucrative than the current use, economic logic dictates that the current use should be changed to this new more lucrative use. (Note that this is ‘economic’ logic – often there are psychological factors in running, say, a small shop, such as contact with regular customers, liking that lifestyle, etc. Most second hand bookshops, for example, would fail the ‘opportunity cost’ test and be immediately changed to some other retail of office use). In areas that are ‘gentrifying’, being taken upmarket by an influx of wealthy house buyers, shop uses such as bistros, wine bars, restaurants, will always bring in more money than grocery shops. Usually such uses can bid to pay more rent than the grocery shop, and the landlord of any rented grocery shop premises will raise the rent demands to the maximum they can get, so the grocery gives way to the bistro.

3.9. Goods and services, different inflation rates, effect on small shops

A more subtle economic threat to local grocery shops comes from the fact that Britain experiences not one but several inflation rates. We have become used to the idea of multiple alternative inflation rates, for example the Retail Price Index, the price Index minus housing costs, the Tax and Price Index, and so on. This is the tip of a multiplicity of inflation rates. In general the price of manufactured goods rises more slowly than the price of services. This is because the manufacture of goods can often be shifted to a low wage country, or automated, and there has been a general worldwide trend for the global price of raw materials to fall. Improving technology enables manufactured goods to be made more efficiently, with less inputs of energy and materials. In the case of computers, the UK has experienced price falls – deflation – for several years as technology here has progressed rapidly; price falls are greater if improvements in quality are taken into account. The shift to cheaper wage countries has meant the UK has also seen deflation in clothes and footwear.

Meanwhile, services often have a high labour content, and salaries generally rise by 2% to 3% more than the (average) inflation rate. Services, from hairdressing and personal care to accountancy and architecture, cannot easily be delivered from abroad or automated. Incidentally, this differential inflation hurts pensioners on the State Pension, which for some years has risen only in line with the average inflation rate. Pensioners tend to buy a ‘basket’ of goods and services containing more services than the average, on which the Retail price Index is based. Hence pensioners experience a slightly higher inflation rate than the headline rate, on which the pension rises are based, so gradually their standard of living is eroded. Pension rises in line with inflation only in any case deny them the general rise in living standards other people experience.

Back to small shops; the rise in services prices means service providers, for example architects, can outbid grocery shops, whose prices (food prices) are rising more slowly, kept down by supermarket buying power in the grocery area. Local grocery shops are therefore liable to be taken over as service provider’s offices, especially for such a service providers as do not need to be in the city centre and will value the cheaper rent of a suburban or village premises that already had planning permission for business use. Local grocery shops have already been taken over by accountants, architects, taxi firms, and property rental agencies, to mention a few.

3.10. Crime and shops

3.10.1. Types of crime shops are vulnerable to

There is a complex interaction between crime (including here non-criminal but ‘anti-social’ activity such as crowds or rowdy youths hanging around shops) and the viability of retail premises.

‘Crime’ associated with shops includes violent assaults on shopkeepers, burglaries and shoplifting, vandalism, drug-dealing within the shop, traffic offences by customers illegally parking, and as said, sub-criminal rowdy youth gatherings, perhaps fuelled by under-age drinking. A drug addict will, on average, need £22,000 to £44,000 a year to fund their drug habit.

The Independent Retail News of 14/11/03, p.12, reported that ‘more than one in five grocers have suffered a break-in or burglary at least once in the past three years. 20% of victims had been targeted twice, and 15% had suffered three times or more. A quarter of burglary victims bore losses of £3,000 or more in stock, damaged equipment, and lost sales. However some 18% of grocers admitted they could improve their security but had not the time to do so. Key anti-crime measures such as mortice locks, CCTV, or security lighting were frequently not present, often due to time constraints as much as cash flow.

Improving security at the major town centre chain stores and banks has diverted robbers to the softer targets of suburban small shops and isolated petrol stations, as well as to street robberies, of pedestrians. However Post Office crime (that is, robberies involving a firearm) has remained stable over the period 1992-2002, according to the Economist, 3/1/04, p.17. But whereas in 1992 the ratio of robberies involving a firearm on banks and building societies to such crimes committed on shops and service stations was 1 to 1.5, the ratio in 2002 was 8 to 1.

P JONES, D HILLIER, D COMFORT, P COZENS, ‘Retail crime and urban regeneration’, Town and Country Planning, 9/04, pp.257-259

3.10.2. Effects of crime on shops and shop staff

The Daily Telegraph (p.21, 25/8/2000) reported that almost a quarter of independent retailers and their staff had been victims of violent crime at work. Thefts by customers from shops climbed from an average of 25 per shop per year in 2001 to 30 in 2002 (Sunday Express, 17/8/2003, p.30). This was said to add £90 to each household’s grocery bill annually.

Weapons used or threatened against them have included firearms, knives, iron bars, broken bottles, baseball bats, bricks, and syringes containing blood. Many of the attacks have led to hospital treatment being required, many more have at least required time off work. Often the psychological impact is even worse than the physical injury, and psychological trauma can take much longer to get over than the healing of physical wounds. Many shops that are financially viable close, either permanently or for an extended period of many months, because of an attack on the staff there, and the shopkeeper retires early.

3.10.3. Financial effects of crime on the shop

Damage to the shop fabric as well as losses due to burglary or shoplifting can tip a just-profitable shop into the red and also close it. After a crime, other business costs may rise. These include insurance premiums, the cost of shutters and new windows, and the electricity needed to run CCTV cameras.

Many shops have installed steel shutters against crime and vandalism. However this can give shopping areas a very forbidding and run-down appearance after the shops have closed. By deterring human activity in the area, crime such as vandalism in such districts may actually rise. Shops have to be their own local crime experts in deciding whether to install shutters inside or outside their plate glass windows. If vandalism is the main problem, the shutter should be put outside, so the window cannot easily be broken. If theft is the main problem, the shutter should be inside, because the window can then be alarmed – it is easier to electrically alarm a window than a metal shutter. In some historic areas, local conservation regulations forbid the use of shutters anyway.

3.11. Garage convenience stores

During the 1990s many garages began to stock a range of groceries. This was to capture the ‘convenience market’, a similar market to the one small corner stores were aiming at. Because of space reasons, the range at a garage convenience store often fell far short of that at all but the most sparely stocked convenience store, but there was a real threat to the latter nevertheless. Some garage convenience stores, those with a link to the major supermarkets, were very well stocked, including a good range of fresh fruit and vegetables.

During the Iraq crisis of the late 1990s, and because of the ‘tax escalator’ the UK government had imposed on petrol, fuel prices rose to around 80p a litre in 2001, prompting the ‘dump the pump’ campaign. This was directed mostly against the garages and petrol companies, yet in fact these companies profits had been eroded by the fuel prices. Garages were making more profit on their grocery sales than on the petrol. Many garages increased their grocery range then. Subsequently, crude oil prices and petrol prices have fallen back, yet the margin of profit to garages has increased. With the intense competition on groceries offered by the supermarkets, many garages have cut back again on grocery provision, giving the space over to motoring accessories such as car spare parts and the burgeoning number of street atlases on the market.

However petrol station customers have come to expect to be able to buy a range of sweets, soft drinks, motoring –related goods, and some top-up groceries when they fill up, and very small independent garages that have no room for this ancillary retailing. Because of high petrol taxes, times may recur when the higher margins on this ancillary trading keep the business going and so such small garages may close the petrol retailing side too and concentrate on motor repairs.

4. Loss of rural shops

The Rural Shops Alliance says that there are (2002) less than 12,000 rural shops left in Britain, and that 300 of these close every year (Guardian, 16/12/02, p.7, ‘Ghost town Britain looms’).

In1997, a survey of 9,000 English parishes by the Rural Development Commission found that 42% had no shop of any kind. Other media reports in 2001/2 said 7 out of ten villages had no shop of any kind (Daily Express, 8/6/02, p.9; Daily Mail, 7/11/01, p.35)

43% had no Post Office, almost half had no school, and three quarters had no daily bus service (G Monbiot, Captive State, 2000, p.169, Guardian, 10/6/2002, p.24). 30% of rural settlements had no bus service at all.

Note that surveys looking at ‘parishes’ will generally give higher percentages of such units which are lacking some facility than surveys looking at ‘villages’. This is because ‘parishes’ are essentially mediaeval units, and many are virtually ‘empty’, containing perhaps just a few farm cottages, not a recognisable ‘village’.

In many villages, the percentage loss of shops by 2002 seems to be greatest for those villages with least shops in 1950. Villages that had 10-12 shops in 1950 often have only one now, usually a combined Post Office and convenience store; a loss of 90% of the shops. Villages that had 15-20 shops in 1950 will have 2 or 3 today, and the larger villages, with 40-50 shops in 1950, may have around 10 left now.