New barons of the food cupboard

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The Independent Online
Once, they were the coal and iron-ore magnates, ship builders, foundry owners and engineers - they worked in dirty industries but they knew how to make brass from muck.

The new barons of British commerce are a different breed - clean-cut and sharp-suited. Men such as Archie Norman of Asda and Sir Ian MacLaurin of Tesco have built their fortunes by applying a clinical, hi-tech approach to selling the most basic commodity of all: food.

Over the past decade, Asda, Tesco, Sainsbury's, Safeway, Waitrose and Morrison's have taken over our lives - to a degree that could never have been imagined. Experts agree that the recent pledge of John Gummer, Secretary of State for the Environment, to save the high street from the superstore, is too little, too late. Too many superstores have already been built, too many marketplaces and high streets decimated.

While shops disappear from the high street, they are opening up all the time - inside the supermarkets. In-store "mini high streets" are the thing, offering banks' cash machines, dry-cleaning facilities, post offices and newsagents. Asda recently bought 10 pharmacies and moved them, lock, stock and barrel, into its nearest stores.

Whatever the Government does, said Professor Tim Lang, Director of the Centre for Food Policy at Thames Valley University, "we will be increasingly at their mercy".

The supermarket groups have cut out the middleman on transport and distribution, boosting their profits. They have made themselves more efficient to such a degree, Professor Lang claims, "that we now do their work for them".

"The warehouse is literally on the road all the time. As soon as we buy something, new stock is sent out on the road to replace it. Our motorways have become their warehouses - they are disproportionately heavy users of our road system."

Contrary to popular opinion we do not pay more for our food, but, according to latest figures from Management Horizons, the retail location consultancy, our supermarkets have higher profit margins than their overseas rivals.

We could pay less for food but we are paying for the supermarkets' rapid expansion. Their supporters say that on another indicator of financial performance, return on capital employed - the one favoured by the City - British supermarkets do not outperform their foreign counterparts.

"Operating margins here are much bigger and sales per square foot are much bigger," David Stoddart, an analyst at the City broking company Henderson Crosthwaite, said. "But the capital costs are much bigger."

In a recent paper comparing superstore profitability here and overseas, Management Horizons explained that "although operating margins have grown significantly over the past 10 years this has required enormous capital investment particularly in superstore sites which have become hugely expensive to acquire. A 3,000-square-metre site, for example, would typically cost around pounds 15m to acquire and develop".

Despite increased competition and booming profits, we are still eating the same amount of food. So how is it that the profits are booming?

Typically, a Sainsbury's superstore will sell almost 25 per cent more per square metre than an in-town store. The wage bill out of town will be more than 30 per cent less per square metre and profits will be 75 per cent higher. Operators are buying out-of-town freeholds rather than in-town leaseholds, saving on rent.

Bigger stores mean more space for more profitable items such as crisps and snacks. Last year Britons munched their way through an average of 5.2kg each in crisps and nibbles last year, almost 50 per cent more than 15 years ago. On average, each person ate 80 bags of crisps.

From a standing start a decade ago, the market in ready meals has grown to pounds 1bn a year. More than 500 million ready meals were sold last year, almost all of them in supermarkets, most of them in the big chains' superstores.

While ready meals sales continue to rise by 10 per cent to 20 per cent a year, fresh vegetables are in decline, with Britain eating 10 per cent less of them than it did 15 years ago. That figure disguises an even more marked decline in the sales of traditional home-grown vegetables such as cauliflower, parsnips, sprouts and cabbage, whose consumption has fallen in the face of competition from more profitable "exotic" imports like rocket salad and baby sweetcorn, stocked mainly by the bigger stores.

Own label is king. Typically, own-brand goods are 15 per cent cheaper than the name brand but achieve the same profit. And, not surprisingly, the big operators have swamped their stores with their own label. Sainsbury's own label accounts for more than 50 per cent of its sales, Tesco's is just below 50 per cent. Often, they exploit the reputation and quality of name brands by mimicking as closely as possible their packaging - even though both products may be made by different manufacturers. We think we are getting the same product for less; they get higher profits.

Of course, according to supermarket advertising campaigns, they are actually doing us a favour. Every one of them emphasises the cheapness of their products - "Good food costs less" at Sainsbury's, "Every little helps" at Tesco, "Pocket the difference" at Asda.

The open-all-hours culture came another step closer yesterday when Selfridges in London, inspired by the 24-hour shopping malls of Las Vegas and Los Angeles, revealed plans to entice customers to shop and bop the night away.

An extra 200,000 sq ft of selling space in its Oxford Street store has been identified as having potential to house anything from all-night restaurants and nightclubs to virtual-reality arcades, spas, gymnasiums and beauty-care counselling, "We want to make it one of the destinations in London," said Liam Strong, chief executive of the holding company, Sears.