Performance in Food Retailing: A Cross‐national Consideration and Comparison of Retail Margins
| DOI | http://doi.org/10.1111/1467-8551.0046 |
| Published date | 01 June 1997 |
| Author | Steve Burt,Leigh Sparks |
| Date | 01 June 1997 |
Introduction
United Kingdom retailers report the highest
net and gross profit margins for food retailing in
Europe (OXIRM, 1994b). On the one hand this
encourages claims that they are the most efficient
and best-run retailers in the continent, if not the
world, but on the other hand that they are using
their competitive position to exploit the consumer.
The high profile entry of discount food retailers
such as Aldi, Netto, Ed, Lidl and Shoprite into the
UK grocery market since 1990 has been attri-
buted in part to the attraction of higher margins
and the opportunities to focus on price (Burt and
Sparks, 1994). A number of newspapers and
magazines (particularly the Sunday Times) have
seized the opportunity for a good story, reporting
various comparisons amongst consumer prices for
selected products in the UK and other countries,
and highlighting the differences in reported profit
margins. The major UK food retailers, particularly
the ‘big three’, Tesco, J. Sainsbury and Argyll, are
portrayed as villains making excessive profits at
the expense of lower prices for the consumer.
Academics too have questioned the level of re-
ported profitability of food retailers (Moir, 1990)
and have focused on the sustainability of these
apparent levels (Wrigley, 1991, 1994).
Claims about abuses of market power in con-
sumer markets are not new. Investigations into
potential abuses of power by the large grocery re-
tailers were prompted in the early 1980s by small
shopkeeper organizations and manufacturers.
Both the Monopolies and Mergers Commission
(1981) and the Office of Fair Trading (1985)
reported on the concentration of grocery sales in
the hands of a limited number of organizations,
but failed to find any evidence that the benefits of
scale were not being passed on to the consumer.
The most dramatic growth in profit figures and
improvements in operating margins reported by
the largest chains have, however, occurred since
the mid-1980s (Moir, 1990; Wrigley 1991). In the
British Journal of Management, Vol. 8, 133–150 (1997)
Performance in Food Retailing:
A Cross-national Consideration and
Comparison of Retail Margins1
Steve Burt and Leigh Sparks
Institute for Retail Studies, University of Stirling, Stirling FK9 4LA, UK
The leading United Kingdom food retailers have recently come under considerable
scrutiny in respect of their reported profits, margins and accounting policies. Journ-
alists and analysts as well as academics have focused on comparisons with continental
European retailers. This paper argues that a number of factors are pertinent to the
debate on performance in food retailing. The classification introduced (accountancy
practices, cost structures, management structures and control and the environmental
context), is illustrated using UK and French company data. The conclusion is drawn
that it is not just simple differences but also the operational dimensions of company
practices relating to these factors which are important determinants of performance.
Simplistic headline comparisons are too inaccurate to be meaningful.
© 1997 British Academy of Management
1The authors thank the anonymous referee who pro-
vided very detailed comments on earlier versions of
this paper. We trust they feel that the time and effort
spent on our work was worthwhile.
1990s, with increasing concern over Europeaniza-
tion, the onset of recession in the UK, continuing
concentration in food retailing, rising worries
about the sustainability of superstore develop-
ment programmes and town centres and ab-
normally and historically high profit margins, the
conditions were right for the press and analysts to
investigate the situation. Food retailers began to
be questioned about their activities and attacked
for their development, pricing and accounting
policies (e.g. The Times, 1992a; Shiret, 1991,
1992). In addition a new wave of competition,
mainly from continental discounters, began to
enter the market focusing attention on price and
margins (Burt and Sparks, 1994).
This paper attempts to go behind the news-
paper headlines and aims to understand perform-
ance in food retailing, through an analysis of the
construction of retail margin differences between
the UK and France. Whilst there are many ways
of assessing or comparing performance (Kay,
1993) the emphasis here is on the construction
of retailer margins, as this has been the focus of
particular comment and controversy (e.g. Moir,
1990). The objectives are to examine the situation
as described in company reports and analysis and
then to go beyond this by looking for explana-
tions of these differences, with an overall aim
of encouraging a more informed debate of the
issues. The paper does not cover the introduction
of new operations into the UK (see Burt and
Sparks, 1994), but does aim to explore the reality
behind one of the stated reasons for the discount
reorientation, namely ‘margin envy’. To achieve
these aims and objectives, the paper is organized
into three main sections. First, the basis of meas-
urement in comparing performance is presented.
Second, some explanations are provided accord-
ing to a classification developed here. Finally,
some concluding comments and discussion of the
findings are made.
Comparing performance:
the basis of measurement
The ‘evidence’ against the large grocery retailers
comes from two sources; comparisons of con-
sumer prices for a selected range of products in
different countries and comparisons of reported
profit levels and profitability. In reality, the latter
source may be the more important as it is more
fundamental to business practices and operations
and has a long history of study by both academics
and analysts. Price comparisons, however, are
vitally important in the climate of concern over
prices and profitability. Whilst always easy to
question, price studies such as those discussed
below have been important in the destabilization
of the market (both for goods and services, and
ultimately share prices), as these have been seized
upon by the media.
Comparisons of retail prices
Whilst generally providing good headlines, the
price comparisons provide conflicting evidence
and are often based on questionable methods.
The Sunday Times/Sainsbury debate in August
1991 (see Wrigley, 1991) began with the publi-
cation of a survey (Sunday Times, 1991a) claiming
that a basket of nine items cost twice as much in
London as in Boston and Berlin. Paris was slightly
cheaper than London, but Brussels slightly more
expensive. The findings were used to accuse UK
food retailers of having excess prices and profits
and not looking after the consumer. The Sains-
bury repost, an advert with its own prices com-
pared to those of four European retailers, showed
different results which were then in turn chal-
lenged by the Sunday Times (1991b). The Sunday
Times continued to run articles attacking the
prices and margins of UK food retailers (e.g.
1992, 1993a, 1993b), culminating in an editorial
on ‘predatory grocers’ (Wrigley, 1994).
A variety of similar attempts to compare prices
based on surveys by reputable market research
agencies and consultancies have been published.
All of these appear to be based on the final price
paid by the consumer. A survey by International
Information Services (part of Mintel) ranked the
UK as fifth dearest for a basket of goods bought
in thirteen countries including Iceland, Czecho-
slovakia, India and Mexico. Of the European
countries, Belgium, France and Italy were more
expensive, whilst Holland, Germany (marginally)
and Spain were less so (The Times, 1992b, The
Independent, 1992). The UK was more expensive
for cigarettes and alcohol, but cheaper for deter-
gent, sugar and petrol. Another survey, The Nielsen
Pan-European Price Monitor (The Financial Times,
1993a, 1993c) concentrated on 45 identified ‘Euro-
brands’ which were marketed in identical formats
in at least four European markets, but were on
134 S. Burt and L. Sparks
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