The Myth of Cut-Prices

In the last ten years shopping for the weekly groceries has become a much more modern and efficient operation.


The ever quickening pace of modern capitalist society with the introduction of labour saving devices such as washing machines, drying machines and dish washers together with the availability of private and school nurseries has enabled some housewives to drop their chores and their children and go out to work. Consequently time spent waiting in long queues at the butchers, the bakers, the fishmongers, the fruit shop and the grocers has become a thing of the past. Now all such shopping for foodstuffs can be done under one roof in the supermarket.


The working housewife can nip out of the office during her lunch break, dash round the supermarket, buy all her immediate requirements and be back in time for another cup of tea before resuming work. At the weekend, when she has more time to spare, she can browse round the store at her leisure. The shelves are attractively laid out, and the goods displayed in such a manner that the higher priced items are made more easily available by being placed on popular eye-level shelves while the lower priced commodities are placed on the slower selling bottom shelves. The displays are colourful and eye-catching (usually containing one popular low priced item together with another related item which has a high profit margin). Soft music fills the air. The tills chatter rhythmically. The butcher shouts some flattering cliches about the quality of his meat. The atmosphere is busy and friendly, not unlike that of a fairground. The housewife is relaxed. She can pick and choose, carefully examine and reject the hygienically pre-packed joints of meat until she finds the one she wants. The tomatoes in the pre-packed trays can be discreetly tested for firmness before buying. Finally when the housewife has paid through the checkout she can go home perhaps satisfied that her care has saved her a few shillings. And why shouldn’t she?


The extensive advertising by supermarket companies on television, in the press, by leaflet distribution and in the windows of the stores themselves often claims that that particular company’s prices are the lowest in the country. When all the supermarket chains are flooding the workers’ minds with such advertising it can be almost convincing and certainly confusing. Further a seemingly logical supposition would be that such intense competition between different supermarket groups operating in closely knit areas would force prices down. But are these the facts? Is the price structure of one group lower than the price structures of others? Does competition between the groups force prices down?


In the so-called “cut price war” between supermarket groups one essential factor must be kept in perspective— that these groups must make a profit in order to survive. No company has any intentions of cutting its prices so low that it will end up in liquidation. (In the early days of supermarketing some fly by night petty capitalists attempted to jump on the bandwagon by actually cutting prices but they soon ended up bankrupt or bought out.)


During the time of the controversy about trading stamps, about two years ago, a national newspaper took the trouble to make an extensive survey of the price structure in six of the major supermarkets companies in the country. A list of groceries was purchased from each (approximately four pounds worth) and the difference between the cheapest bill and the dearest bill was 1/2. The dearest company issued trading stamps which were valued at 1/-, so the difference was really 2d. Newspapers seem to delight in surveys and opinion polls; however in this instance it was unnecessary. A simple examination of the economics of the situation would have sufficed.


The successful companies are making an annual net profit of 4 per cent. Let us assume that one were to cut its retail price structure by as little as 2½d. in the pound. This apparently trifling sum would reduce the gross profit by more than 1 per cent and, consequently (all other expenses being equal) the net profit would drop below 3 per cent—more than a 25 per cent drop in net profit. To make it clearer let us further assume that the company has 600 branches each averaging in turnover £3,000 per week or £156,000 per year. The total annual turnover would be £93,744,000. Therefore a reduction in its retail price structure of 2½d. in the pound would result in an annual drop in the net profit of £39,000. Any managing director on the board of any supermarket chain who produced such a result through his ambitious tactics in the “cut price war” would, needless to say, find himself out of a job.


Nevertheless the “cut price war” must go on. But without cutting prices how can it go on?
By creating a cut price image and that is precisely what they do—by using skilful advertising, mentioned before, and by several other shrewdly presented methods of salesmanship. For example the stores must, of course, be clean but not clinically clean. (A store which is all white tiles and streamline can give an impression of high prices. It can also lack atmosphere and repel customers). Tumble displays and baskets containing goods which appear to have been thrown in any old how lend a cheaper impression and sell faster than goods in a neat block which looks as if it would collapse around a customer were she to remove any part of it.


Gaily coloured posters and tickets hanging among balloons help to create the required image. But the most powerful image makers are the periodic cut price offers which usually consist of eight items, those being the items most forcefully advertised. At first this may appear to contradict what has been said earlier. It doesn’t, however, and in order to explain why it is necessary to examine how the price structure is arrived at in a supermarket company.


Most suppliers to the food trade have a sliding scale of prices at cost for the commodities which they sell. These scales are based on the case lots purchased—the larger the number of cases bought the lower the terms. Supermarket chains buy in such huge quantities that they command the lowest terms which enables them to sell to the public at a price permanently below the recommended retail price. Conversely selling below the recommended price ensures a large turnover of the particular item and enables the chain to obtain permanently the lowest terms.


Now to return to periodic cut price or special offers. These usually run for a fortnight. The programme of cut price offers is decided on months before they are actually reduced. There are two ways in which the supermarket chain can reduce prices without affecting the gross profit.


First through making a deal with the supplier and getting extra special terms or bonuses by guaranteeing the supplier a substantially larger order.


Second by increasing the price of the commodity about a month previous to special offer fortnight. It may be noted here that what the supermarket customer gains on the roundabout she had already lost on the swings. So there, the trick has been done. Eight items out of 4,000 have been cut in price without loss of profit and the cut price image has been enhanced. In general the prices of food are on the increase as are most other popular commodities. Each week most supermarket chains issue to their branches a list of price increases and a list of price decreases. The former is in almost every case four times longer than the latter. The decrease list contains mostly items which are in poor demand.


Due to mergers and takeovers there are cases where two supermarkets, practically next door to each other, trading under different names but owned by the same company, operate the same price structure. In fact, the “cut price war” between the supermarket groups isn’t as bloodthirsty as they would have us believe.


Finally let us take a quick look behind the counter. In most supermarket chains each supermarket is a unit in itself and must pay for itself, it must make a profit. Any weak links in the chain are closed down. To see that the unit makes a profit is the responsibility of the supermarket manager. The expenses incurred in the running of the store (heating, lighting, refrigeration, window cleaning, shop cleaning, etc.) are more or less constant. However one of the expenses which can fluctuate is the wages bill. The wages bill is composed of, the gross wages plus company insurance—that part of the cost of the national insurance stamps paid by the company. This bill can fluctuate for various reasons — a fall or rise in trade, absenteeism, staff leaving, new staff starting or increases in N.H.I. The food trade is indisputably the fastest moving of all retail trades and, due to low wages, long hours (having to work Saturdays) and several other pressures it also has a very high proportion of staff entering and leaving the trade. Nevertheless the supermarket companies instruct the managers that they must strictly control the wages bill by keeping it at a fixed percentage of the total sales (usually 4 per cent). In order to make clearer the significance of the wages bill being fixed, as it is, at 4 per cent, ten years ago the wages bill in most personal service grocery stores was 8 per cent. Now staff in a supermarket have to handle twice as much sales turnover. The rate of exploitation has risen in a much higher ratio than have wages.


When a new supermarket opens the pre-opening advertising is magnificent. The cut price offers are almost genuine. The crowds pour in. The staff in their bright new overall dash around enthusiastically, trying to fill the shelves which are being emptied by the customers as quickly as they can fill them. The staff work harder than normal by force of circumstances but their enthusiasm is almost undaunted because they are that little bit happier than normal for several reasons. Some of them were out of work before they got the job. Some have just left what they considered a boring job and are experiencing the feeling that a change is as good as a holiday.


But for how long does the enthusiasm last? After a week or so the supermarket company puts its opening cut price offers back in line with the prices in its other branches. Trade immediately starts to fall and, consequently the wage bill starts to climb. After a month or so half the staff have been sacked for one reason or another; the ones remaining have been drained of their enthusiasm and have rapidly lost any feelings of happiness that they had felt. The job, for them, has become just another unrewarding grind in a world they don’t quite understand.


The class struggle, even more bitterly than before, continues inside the supermarket while the soft music plays on.


H. S.