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Economics - Groceries

ShopsBRITAIN'S consumers are still being forced to pay over the odds for their groceries. Despite recent decisions by the Monopolies and Mergers Commission (MMC) to investigate "excess profitability" in the grocery sector, the gap between food prices in Britain and some foreign countries is becoming wider.

Seven months ago, a major British newspaper revealed that consumers were being charged far more than shoppers in America and Europe. (surprise, surprise!!) The new study, based on the same items, found that despite the retailers' claims to be offering better value, the gap has stayed virtually the same or even widened. A year ago British consumers were paying about 30% more for their food than the French, now the figure has risen to 43%. In Germany the price difference has fallen from 35% to 32%. The National Consumer Council said: "There is a suspicion that British consumers are paying considerably more in the supermarkets and there is no clear reason why."

In both surveys a basket of 22 grocery items were bought from various stores in Britain, France, America and Germany. The items were chosen because they were available in each country in similar sizes. In the latest survey the goods cost £81.46 at Sainsbury. In France, however, they cost more than £34 less, in Germany the saving was almost £26 and in America the saving was more than £19. The American figures, although showing lower savings, are particularly surprising because the goods were bought at Shaw's, which is owned by Sainsbury!

Of the 22 items it was the meat and vegetables that seemed to show the biggest price discrepancies between Britain and other countries. In a parallel survey of Marks & Spencer stores in London and Paris, the prices of the 14 bestselling food items were compared. It showed that a customer buying them in London would pay £54.59 whereas in Paris they could cost £48.44, a difference of 11%. The Office of Fair Trading (OFT) has written to 25 retailers to warn them it was about to ask the MMC to carry out a full investigation into their high profits.

The retailers included the big four supermarket chains, Tesco, Sainsbury, Asda and Safeway. There was uncertainty whether Marks & Spencer would also be included. John Bridgeman, director-general of the OFT, said in the letter that he had collated evidence of "excess profitability" in the grocery sector. He said he had looked at a range of indicators, all of which highlighted the same issue. Among the areas to be examined by any inquiry are the relationships between supermarkets and their suppliers.

Some suppliers have revealed how retailers mark up many fresh foods such as milk and poultry by more than a third. Similar margins are made with fresh fruit, vegetables and eggs, on which the supermarkets typically impose mark-ups of 40%. Some exotic fruits and fresh organic products cost 50% more in-store than the wholesale price. Other products such as instant coffee, prepared meals and continental meats were as much as 50% above their wholesale price. A common theme among all suppliers was the way retailers forced them to make discounts but then failed to pass them on to consumers.

Any inquiry must focus how supermarkets can generate such high profits. Tesco and Sainsbury are likely to be particularly closely scrutinised since they announced pre-tax profits of more than £1.5 billion between them last year. Tesco made £832m and Sainsbury made £728m. Many smaller retailers, along with Asda and Safeway, accuse Tesco and Sainsbury of profiteering and say they are bringing the whole sector into disrepute. Between them the two stores account for 39% of all British grocery sales. It has been revealed that the OFT believed the two stores were making "super-normal" profits - far higher than were reasonable given the size of their investments.


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