Check out the change in store

Supermarkets have brought about one food revolution. What does the future hold for shoppers?
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The Independent Online
If you are not aware that J Sainsbury is making dramatic cuts in the prices of 200 goods you have not been reading the newspapers: big double-page adverts are shouting that items such as an anti-perspirant or a low-fat fool will be two for the price of one this month.

Now of course in one sense this is just another version of the January sales applied to the grocery business. And we all know that supermarkets do not offer low prices out of the goodness of their hearts; they offer them because they want to pack in the punters - and then make the profit by selling them something else.

But I believe the Sainsbury's campaign is also symptomatic of bigger changes in the industry, in which the supermarkets are learning to live in a world where prices are stable and consumers far more sensitive to variations in them.

We have the most powerful supermarkets in the world, dominating our lifestyle and culture in an unparalleled way. They are unusual in three main ways. They earn higher margins on food than any others; the top three (Sainsbury, Tesco and Asda) control a higher proportion of sales than the top three in any other country; and they sell a higher proportion of own-label products and fresh prepared foods than elsewhere.

These three distinctive features are interlinked, though the precise nature of the links is hotly disputed. The high gross profit margins must to some extent be associated with concentration, though the chains understandably enough deny that they exploit their oligopoly power. They argue that the main reason their mark-ups are higher than in the US is because of their extra costs: higher land prices and planning controls make the building of new supermarkets more expensive.

Planning controls probably have encouraged concentration, but I suspect that the really important reason both for concentration and for fat margins is the third feature: the astonishing level and sophistication of product development that our supermarkets now carry out, particularly in own-label and fresh foods.

Think about it. If you are simply selling branded products from other manufacturers - Heinz tomato soup or Nescafe, to take two of the products on the Sainsbury 200 list - all you are selling on is price. You add nothing to the brand name, except to sell it in pleasant and convenient surroundings.

So you make the serious money by doing things other people cannot. We have long had a tradition here of up-market own-label products, whereas in the US until recently these were rather tacky imitations of branded lines. The advantage of own-label is that stores can experiment, testing new products directly on customers and seeing which lines sell, rather than relying on the marketing departments of some distant food manufacturer. The result of this has been that product development has become customer- led, rather than producer-led.

The outstanding genius in product development was not one of the regular supermarkets but Marks & Spencer. If the food-writer Elizabeth David transformed the way middle-class, cooking Britons cooked, M&S has transformed the way non-cooking Brits eat. Americans visiting M&S food stores are astonished at the variety and sophistication of the prepared foods on sale. We regard this as normal; actually there is nothing quite like it in the world.

Americans are also astonished by the prices, which pitch closer to a restaurant meal than to regular unprepared food. But it works: people pay. Once it became clear that M&S was making a fortune out of high-quality fresh food, the supermarkets followed, with the results we see all about us. There has been, for perhaps the past 15 years, a relentless, almost frantic search for new and more exciting ways to persuade us to spend money on yet more exotic food.

We are now, I think, nearing the end of this phase - let's call it the kiwi-fruit period. I cannot prove it, but I suspect that the Great British Shopper is beginning to tire of endless innovation and to prefer straightforward good quality at the lowest possible cost.

As the population ages, expect this revolt to gather pace. And as inflation disappears expect much more emphasis on price, for people will get used to the idea of certain items always costing the same, known amount. Price- cutting by the mainline chains, either in the form of January sales or continuous low prices on a handful of popular lines, is one response.

But it is not the only possible response. Another, as we have seen over the past year, is the loyalty card, pioneered by Sainsbury's great rival Tesco.

The genius here is not so much that by giving a discount to regular shoppers you persuade people to switch to your stores. Rather it is that if you chart a regular shopper's weekly purchases, you can build a picture of their entire lives: how much and what they drink, the rough age of their children, what their pets like to eat (or rather what the owners think their pets like to eat), whether the goldfish has died.

So there are perhaps two candidates for successors to the kiwi-fruit period. One might be dubbed "Victorian values" - straightforward emphasis on quality at the best price. This might seem slightly staid, but it could be tailored to the day-to-day concerns of an ageing population: healthy food grown for taste rather than show, meat from animals treated with decency and dispatched with dignity, non-polluting products (witness Sainsbury's clean diesel fuel), and so on.

The other candidate might be called "know thy customer" - supermarkets which have so much information about their shoppers that they are able to tailor products very closely to their observed choices. The more a stores group knows about its customers, the easier it can cross-sell other products, perhaps with higher mark-ups. So young families can be sold life assurance or pension plans, gardeners new garden kit, students new bank accounts.

We cannot know how the pattern of retailing will develop over the next generation. We operate now on a system developed in the US in the 1950s, when quite suddenly the developed world moved from a daily shop in different places to a weekly or even monthly one in a single place. A combination of women working, the car and the supermarket trolley made this possible.

Maybe the present supermarket system will continue for another couple of generations. Or maybe something more radical will happen and "know thy customer" will lead to an even more profound shift than the supermarket revolution itself. But that is a long way from two tins of beans for the price of one.

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