Supermarkets: the squeezed middle

14 March 2014
The Guardian
Editorial: Before George Osborne crows about the recovery in the budget, he should look to the UK’s high streets and supermarkets
Unemployment is tumbling, inflation is easing off and, by the summer, the British economy might well be bigger than ever before. It all sounds terrific – just so long as you forget all about the dreadful starting point bequeathed by the biggest slump in living memory. If George Osborne is feeling the itch to crow about the recovery in next week’s budget, he should look to the high streets and supermarkets across the length and breadth of the country, where the statistical recouping in the financial data is much less in evidence than the continuing toll of six lost years.
Yesterday it was Morrison’s turn to come clean about becoming a basket case. After reporting £176m in losses for last year, it revised down expected profits for the next and effectively conceded that margins were going to be squeezed into the indefinite future, as a result, not of a passing cyclical dip, but owing to what the chief executive, Dalton Philips, called “a paradigm shift”. Aided by booming bottom-end retailers, such as Aldi and Lidl who have come from nowhere to snatch a combined market share of a substantial 7%, customers ground down by austerity are hunting out value like never before, establishing what Mr Philips calls “a new price norm”.
This environment has had grave implications for Tesco, too, whose market share is now at its lowest in a decade. Sainsbury’s might well be struggling in the same way, had it not been so slovenly in investing in the giant out-of-town hyperstores, where bubble-time shoppers would totter along with trolleys that bulged, not only with groceries but also with espresso machines and DVD players. Not so long ago these hyperstores seemed like the future, but – as convenience stores proliferate and ever-more retail moves online – they are rapidly being consigned to the past.
If the vast middle tier of British shopping is being squeezed in line with middling pay packets, it is a very different story at the top end. Far away from the piled-high towers of tinned tomatoes and pre-cut Swiss cheese in Lidl, at the other end of the market is a tide of salmon en croute and sea bass fillets with fennel butter, which is lifting Waitrose to ever-giddier heights. Its rip-roaring success began in 2009 of all times, the very darkest hour for the economy. Partly, it is true, this has been about deft management, which was not above nodding to straitened times through an “essential” range; an underlying trend towards bulk buying storeroom staples online also suits the chain, because it leaves supermarket trips as times to pick-up special ingredients and other treats.
More fundamentally, though, the bifurcation of Britain’s food-buying habits reflects a divergence in customers’ circumstances, the slow split into two economic nations.