Why supermarkets are a force for good

They've been criticised for squeezing suppliers, damaging the environment, mistreating workers and the homogenisation of the high street, but are the supermarket chains really as bad as all that?

This feature is part of our FREE daily Money Morning email. If you'd like to sign up, please click here: sign up for Money Morning

For those who fear that Tesco is taking over the world, the news that the UK's supermarket behemoth has just opened its first own-brand branch in China will merely confirm their worries.

The group already has a presence in China, in a 46-store joint venture with Le Gou ('Happy Shopping'). But the latest opening in Beijing marks the first time the Tesco brand name has been on the store front.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Of course, one store does not an invasion make - and there are plenty of hurdles for Tesco to overcome, including different customer tastes. But judging by its success elsewhere, it won't be long before millions of Chinese are complaining about the threat to their high streets.

The big question is - would they be right to do so?

The Competition Commission has released preliminary findings from its latest tilt at the supermarket chains (this is the third competition probe inside eight years). As before, it looks like the supermarkes have no case to answer. The commission has found no evidence that suppliers are squeezed harder by the supermarkets than by their smaller rivals; and certainly nothing to say that consumers have suffered as a result of the rise of Tesco's and its rivals.

This is no surprise. If anything, the government should be down on its knees thanking the supermarkets. Of all the anti-inflationary forces that have enabled the low base rate to prop up the UK economy over the past decade or so, supermarkets are one of the biggest. Between them and China, the price of electronic goods and clothes has plunged; and that's not to mention the cost of food, driven lower by brutal competiiton between the rival chains.

However, the latest findings are of course, unlikely to put off the supermarkets' opponents - Tesco-bashing has become a kind of religion-substitute along with all other things vaguely to do with green or 'community' issues. Nils Pratley in The Guardian accepts that there seems to be little justification for the Competition Commission to find against the likes of Tesco: '90% of consumers live within 20 minutes' drive of at least three different supermarket formats. If pure competition is the remit, that is a powerful statistic.'

However, Pratley wonders if it's time to probe the supermarkets on other issues. 'Most complaints about supermarkets are not about the lack of choice between individual operators... rather, the main grumbles concern damage to local communities, town centres and the environment, treatment of workers, both at home and in countries such as Bangladesh, and animal welfare.'

These are all interesting points, and all worthy causes to be concerned about. But the trouble is, it's very difficult to actually point to one of these issues and say that supermarkets are making things worse.

Let's look at this clearly. If Tesco was the only supermarket in the UK, it could treat its workers as badly as it wanted; it could source all its meat from the cheapest, most brutal suppliers; and it could send out as many plastic bags as it liked. And worse still, so could any other small shops that were managing to scrape a living in its wake.

However, this simply isn't the case. As the Competition Commission is showing, the supermarket sector is one of the most competitive in the country. And one of the ways for supermarkets to compete, is to show that they are responding to consumers' concerns.

Big names like Tesco and Sainsbury's are a gift to lobby groups and campaigners. Why? Because they're high profile and easy to investigate. If you are campaigning to improve animal welfare, which would you rather have to deal with - 100 independent shops each sourcing meat to different standards and from different suppliers? Or two big chains with 50 shops each, where you can easily track down the necessary data and then put out a nice easily understood press release saying 'Leafy Green Supermarket is much nicer to its animals than Plunder & Sons'.

Just to take one issue raised by Pratley, animal welfare - Compassion in World Farming does a bi-annual survey of the supermarkets, focusing on how well the big chains score when it comes to their treatment of the animals that end up on their shelves. The latest one for 05/06 put Tesco in fourth position - behind Waitrose, Marks & Spencer, and the Co-op. That's not a bad result at all, given that, unlike those three, Tesco has never made a virtue out of its policies on animal welfare.

Ultimately, animal welfare and the treatment of workers (both overseas and abroad) are consumer issues - it's up to you, as the person with the money in your pocket, to decide whether you care enough about a chicken's living conditions to pay extra for one that had a more pleasant life. And in Britain, consumers clearly do care, because we spend a great deal more than most on issue-driven food, from Free Trade to organic.

Supermarkets notice that. And they're in a much better position to put pressure on their suppliers to conform to standards that their customers will like, and are also better able to offer organic and other premium foods at a price that doesn't put them out of reach of all but the most wealthy households.

More than half of the eggs sold in supermarkets in the UK are free-range. Progress has been made on even relatively obscure issues such as salmon farming.

So perhaps, as Andrew Murray-Watson suggests in The Independent, Tesco-bashing is simply yet another form of that great British indulgence - pure snobbery. And maybe those who indulge in Tesco-bashing while hiding behind green issues might want to consider that, before they 'drive their Chelsea tractors to upmarket delis where they spend a fortune on small pots of olives, sun-dried tomatoes and other such gunk,' as he puts it.

Apart from anything else, you can get all that stuff at Tesco now too.

Turning to the stock markets...

Enjoying this article? Why not sign up to receive Money Morning FREE every weekday? Just click here: FREE daily Money Morning email

In London, the FTSE 100 closed 41 points lower - at 6,228 - on Friday as weakness on Wall Street and the mining sector weighed. Xstrata was the biggest faller of the day on fears of strike action at its Canadian nickel unit. Imperial Tobacco made the greatest advances on positive broker comment, with fellow tobacco stocks BAT, Gallaher and Japan Tobacco rising in sympathy. For a full market report, see: London market close

Elsewhere in Europe, investor sentiment was also hit by the poor start on Wall Street. The Paris CAC-40 closed 26 points lower, at 5,582, whilst in Frankfurt the DAX-30 ended the day 29 points higher, at 6,690.

Across the Atlantic, the Nasdaq managed to gain one point to end Friday at 2,435, despite disappointing results from Microsoft. The Dow Jones, however, lost 15 points to finish the week at 12,487 as fear of further interest rate hikes weighed. The S&P 500 ended 2 points lower, at 1,422.

In Asia, the Nikkei closed at 17,470 today - a 48-point gain - following a session of cautious trading.

Crude oil was trading at $55.70 this morning, whilst Brent spot was at $55.60 in London this morning.

Spot gold was at $635,80 this morning, off an intraday high of $647.70. Silver had risen to $13.32.

And the results of a survey released by Hometrack today showed that house prices experienced their fastest rise in three and a half years in January, gaining 6% year-on-year. However, growing weakness across most of the country was masked by very strong gains in London.

And our two recommended articles for today...

Why the UK base rate could rise next month

- The publication of the latest batch of Bank of England minutes has convinced many market operators that the UK base rate has peaked. Charles Stanley's Jeremy Batstone is not so sure. For his analysis of the votes, the minutes and the latest economic data, click here: Why the UK base rate could rise next month

The secret of Northern Rock's success

- How did a modest Newcastle-based building society achieve the accolade of 'best financial borrower' this year? By selling mortgage-backed bonds. To find out what they are - and the risks of using such products - read: The secret of Northern Rock's success

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.