Sunday, 22 January 2012

Supermarkets more powerful than governments, and cheap booze subsidised by tax-payers

As Albert Camus said "A man without ethics is a wild beast loosed upon this world".  The supermarkets are today's wild beast, profit continues to be their sole master, and governments are unable to tame them.  George Monbiot wrote in The Ecologist in 2000 "British supermarkets enjoy more political influence than almost any other corporate sector in Britain. Their huge financial muscle helps them to bend both local and national government to their will".

Salmond, Cameron, Shortall and Poots prepare for battle
Inside operators and off-shore bank accounts
corporate watch report in 2004 found that while Tesco claimed 'it made no political donations' the group in fact 'made contributions of £44,713 in the form of sponsorship for political events: Labour Party - £14,368; Conservative Party - £5,502; Liberal Democrat Party - £6,340; Plaid Cymru - £1,300; Fianna Fáil - £1,203; Usdaw (the main union for Tesco employees) - £16,000'. 

Influence is also on the inside of government.  Lord Sainsbury, for example, was minister at the Department of Trade and Industry in the UK, while according to Red Star research, 'in the late 1990's Tesco executives featured on six government task forces, more than for any single company and far more than the other supermarket chains. These included Sir Terry Leahy (Tesco Chairman until 2011), who sat on the Board of Trade's Competitiveness Advisory Group'. 

Meanwhile in Ireland the main competitor to Tesco Ireland, Dunnes Stores, boasted 'the alleged unorthodoxy of Ben Dunne's business practices, which included funneling Dunnes Stores funds into the offshore bank accounts of a number of Ireland's political figures'. 

Now, Monbiot writes "The only lasting solution to (these) monopolies and monopsonies is to break them up. Do the Tories have the guts to do this? I doubt it".

So why is this relevant to alcohol? 
All four governments in the UK,Scotland, Northern Ireland and the Republic of Ireland are building up to a showdown with supermarkets over minimum pricing and below-cost selling of alcohol.  This practice is one of the known key drivers of an alarming and costly epidemic of alcoholism in the four countries.  Who says so?  A major Independent Review of the Effects of Alcohol Pricing and Promotion  by the University of Sheffield, commissioned by the UK government in 2008, tells us for example that "just over 50% of all alcohol purchased from supermarkets is sold on promotion".  It is also the cause of much alcohol related cost and harm.  If governments were to pursue minimum pricing policies, the report finds, 'a 40p minimum price would give
'an estimated reduction of around 41,000 hospital admissions per annum....and unemployment due to alcohol problems ...is estimated to reduce as prices increase: e.g. 3,800 avoided unemployment cases per annum for a 30p minimum price versus 12,400 for a 40p minimum price".
In Ireland the same conclusions were drawn in the 2010 HSE study 'Costs to Society of Problem Alcohol Use,' which reported that 'higher beer prices were found to significantly reduce the likelihood of drinking, drinking frequency and binge drinking among underage drinkers' and these findings are supported by a thorough World Health Organisation report in 2010.  So what is the hold up in applying minimum pricing?  The HSE report finds that 'large retailers (supermarkets) are increasingly using the discounting of alcohol at low prices or even below cost to attract customers ...Alcohol is used as a heavily advertised loss leader'.  And they always seem to get what they want.

"stack 'em high, sell 'em cheap"
The politics of booze-pricing
For supermarkets the issue is obviously one of profit and market share.  As Felicity Lawrence writes in 'Not On The Label', customers are attracted in by cheap prices on popular goods identified as Known Value Indicators (goods people know the price of well enough to make comparisons) and supermarkets 'losses on KVI's are made good in higher prices elsewhere'.  The most attractive KVI loss leader has become alcohol, an addictive substance particularly attractive to the 56% of shoppers who now drink to dangerous levels.  Meanwhile smaller competitors are put out of business because they cannot absorb these often below-cost prices.  But, as Lawrence writes, neither do the supermarkets.  Any losses incurred by supermarkets are passed ruthlessly onto suppliers who are forced to accept the mark down price themselves or are asked for 'a contribution towards profits'.  This is no small matter. 'Studies in Australia suggest that over half the gross profit of the big retailers is coming from payments made by suppliers direct to supermarket head offices'.  They have little choice but to comply with the demands of their biggest customers.

Tax-payers also subsidising supermarket losses
Tax-payers are also picking up the tab for these supermarket trading practices, according to industry insiders.  As reported by Shelf Life journal, "in a recent presentation to the Oireachtas Sub-Committee...Evelyn Jones (chairperson of NOffLA, the Off Licencers' Association) explained that a retailer can apply for a VAT differential refund when alcohol is sold below cost price, meaning that taxpayers are subsidising large retailers to sell alcohol below cost price".  This 'insult to injury' as described by TD Kevin Humphries in the Dail (reported in Taxaton.ie) is also very lucrative.  The Sunday Business Post finds that “The large retailers can claw back revenue amounting to €350 from every 1,000 units of wine sold below cost, DIGI figures show”.

The supermarkets' chief competitors in selling booze are of course the pubs and off licences, and the suppliers hit hardest are the smaller indigenous drinks manufacturers.  Pubs in Ireland and the UK are going out of business at a rate of 52 per week according to The Times, and The Guardian reported that 'a total of 23 companies from the drinks sector went bust in the first quarter, compared with 11 over the same period of 2009'.  Many of these are represented in Ireland by the Alcohol and Beverage Federation of Ireland who are also doing their own lobbying,  An ABFI submission to the Oireachtas committee on pricing in 2011 complained quite reasonably that:
'In 2005, the drinks industry vocally opposed the decision taken by the Government to abolish the ban on below cost selling in the grocery sector. We recommended at the time, that an exception be made for alcohol as it was our belief, that such a move would lead to alcohol being used as a loss leader to drive greater footfall. This has been borne out by the ensuing retailer activity since 2005, which has seen prices and deep discounting of alcohol products.
The National Off-Licence Association (NOffLA) also spilled the beans.  Evelyn Jones explained in an excellent Shelf Life article headlined 'Minister echoes NOffLA policy'
“an ad hoc approach to alcohol policy and voluntary codes of practice for retailers of alcohol has been proven not to work...One can buy alcohol in every corner shop and every filling station. ..alcohol is displayed along with the sweets, biscuits, bread or milk and it normalises the idea of alcohol as a product...and is a direct target on young people,”
Bets are on...
Of course to introduce minimum pricing or even (though far less effectively) to outlaw below-cost selling will lead to a major legal and political challenge by the richer, better connected, more powerful and less accountable supermarkets.  As the ABFI points out, "The EU Commission has in the past noted that setting a minimum price for alcohol would be contrary to the EU Internal Market, meaning ...a costly legal battle with the EU Commission'.   In Scotland the counter-argument has already been led by Murdo Fraser, Deputy Leader of the Scottish Conservatives. "SNP plans for indiscriminate blanket minimum pricing would penalise responsible drinkers, harm the Scotch whisky industry, cost jobs and are illegal" he said.  A legal challenge by the whisky manufacturers is already under way.  In the UK the “Prime Minister is very concerned about protecting traditional pubs", and has bravely dismissed Health Secretary Andrew Lansley's call for a 'voluntary approach'.  Discussions continue, but the issues are already known and have in fact been on the table in all four jurisdictions since 2008.  

..and off again
Will legislation even scratch the surface if it is enacted?  As reported by the OECD , 'in 2004 two supermarket chains, Tesco and Dunnes were fined for reducing the price of nappies and baby food in contravention of the Groceries order'.  A pathetic fine of 2,000 Euro was imposed.  Tesco profits in the same year topped 1.3 billion, more than 2,500 Euro per second.  Not surprisingly, despite abject apologies at the time, they were at it again the following year by selling below cost Coca Cola.  In the summer of 2005, Dunnes successfully appealed the nappies case, and by 2006 the law had been changed to allow below-cost selling.  Who is in charge, government or supermarket?

The fight is on.  Expect a long winded retreat.  But as Camus said “Where there is no hope, it is incumbent on us to invent it.”.