Memorandum from Quarterbridge Project
Management Ltd (MARKETS 20)
1. INTRODUCTION:
Thank you for giving us this opportunity to
make a submission to the Committee. Please regard this document
as a preliminary submission illustrating the range of challenges
facing the retail markets industry. It does not purport to illustrate
the full range of policy solutions we believe to be appropriate—those
are best dealt with later. This overview is based upon our unrivalled
experience of the markets industry throughout the UK and abroad
and although we have restricted our comments to the situation
in the UK we suggest the committee consider why other countries
can support a thriving markets industry—for instance Barcelona,
Spain—and the effect of the recently rescinded of the Groceries
Order in Ireland. Background information on Quarterbridge projects
is attached and we would welcome the opportunity to expand on
issues raised in this submission and give verbal evidence to the
committee.
At the outset we must express our concern that
this inquiry does not restrict it's scope in the same way as the
recent Competition Commission enquiry into the groceries sector.
The range of issues this Committee should consider are wide and
cut across many departmental policy agendas—taxation, food
security, the environment, economic development and consumer standards—so
it may be tempting to restrict their scope. That would not be
appropriate and we trust this inquiry will adopt a more informed
approach than the CC and not avoid addressing the most fundamental
policy issues. Unlike the Competition Commission we trust this
inquiry will acknowledge all of the many representations which
will doubtless be made to it.
A review of the policy issues affecting the
retail markets industry is long overdue. This inquiry is an opportunity
to illustrate the profoundly negative impact that the decline
of the industry is having upon consumers and local communities.
2. THE FAILURE
OF UK RETAIL
POLICY:
Since 1945 successive governments have
adopted a laisser faire approach to retail policy in favour
of unrestricted economic growth. It is only now that the impact
of so-called retail consolidation is becoming apparent and it's
insidious effect upon consumers, the UK economy and the environment.
The catastrophic decline of independent retailing in the UK is
typified by a struggling stallholder on a market and illustrates
governmental failure to address a range of interconnected policy
issues. Unlike many European countries the UK has failed to recognise
the importance of retail markets to both the health and social
wellbeing of the nation. There has been no overarching policy
review of the issues raised by retail consolidation. The work
now being undertaken by the Cabinet Office Strategy Unit into
food security and energy security is long overdue as we believe
the industry has passed the tipping point beyond which it will
be unable to recover except with co-ordinated support across many
policy areas.
3. THE OUTLOOK
FOR THE
UK MARKETS INDUSTRY.
The decline of the retail markets industry is
self-evident. Trader numbers and viability have fallen as food
retailing has become concentrated in the hands of the "big
four" supermarket chains—Tesco, Asda/Walmart, Morrisons/Safeway
and Sainsburys. Over the last 20 years they have secured
over 80% of UK sales of household goods and groceries and a sector
which has been a traditional mainstay of the markets industry
has been denied to it. This so-called retail consolidation has
effectively wiped-out independent retailing, not just markets
in many town centres. Shops and market stalls that sold preserves,
dry goods, tinned goods and the like are no longer viable because
of supermarkets' ability to undercut them by buying-in long shelf-life
stock in bulk, direct from the producer. Retail consolidation
has forced many traders out of the industry and left the consumer
reliant upon a limited range of retailers and their procurement
and pricing policies—not a healthy situation. The Office
of Fair Trading has only recently begun to take positive action
to address these issues but still lacks support. The recent Competition
Commission enquiry into the Groceries sector was, quite frankly
a waste of time and effort. The fines imposed on supermarket chains
by the OFT for colluding to fix the price of dairy products have
been laughed-off by the guilty parties and they continue to pursue
thinly-disguised predatory pricing policies. Now that the groceries
sector is effectively consolidated the supermarket chains are
adopting similar tactics to maintain profits by expanding into
non-food lines, encouraged by the short-sighted relaxation of
planning legislation enabling them to install mezzanine floors
in existing superstores. Governmental policy guidance has either
been ineffectual eg the almost-offhand comment in PPS6 recognising
the significance of markets in town centres, or frustrated by
the lobbying power of supermarkets and the British Retail Consortium
eg the failure to pursue a commendable initiative of levying a
charge on "free" out-of-town store parking.
In short, the markets industry is being driven
into extinction by the failure of successive governments to restrain
the supermarkets industry. Whilst supermarkets have been (supposedly)
driving down food prices, few politicians have risked standing
up to say "at what cost?" Policies that run the risk
of increasing food prices do not win votes.
4. THE IMPACT
OF MARKET
FAILURES ON
COMMUNITY PROVISION
Local Authorities have welcomed the additional
rates income from new superstore developments but those which
own a market ie Market Authorities have witnessed a matching decline
in the income from their market operations. Fewer traders generate
less rent, and fewer stalls represents less choice and variety
for the community. These indirect effects are the most insidious
and damaging effect of retail consolidation. The low prices offered
on markets have always played a vital role in providing for many
of the most vulnerable and disadvantaged members of society, especially
those with limited mobility and income. The closure of a market
directly impacts on their welfare and undermines policies that
alleviate poverty. The markets industry is now largely reliant
upon elderly shoppers with low disposable incomes as reflected
in failing market businesses, stagnant rents and falling occupancy
rates. Traders are being forced to leave the industry to seek
other ways to earn a living wage.
The argument can be made that supermarket competition
forces down prices to the benefit of the consumer but on closer
scrutiny this can be seen to be untrue. In reality markets consistently
offer a 20-30% discount on supermarket prices.
A survey amongst members of NABMA (The National
Association of British Markets Authorities) in 2005 estimated
that 96,000 people are employed in the UK retail markets
industry. Retail consolidation is not only putting their livelihoods
at risk but also those of the producers, processors and distributors
who rely upon them as customers. This effect is apparent in the
wholesale groceries industry where traders are finding it increasingly
difficult to source product. By our estimation some 1.5 livelihoods
are directly dependent upon each market stall in the UK and they
in turn support a further 1.5 livelihoods in the producer/supplier
chain. The contrast with the vertical integration and shortened
supply chain of a supermarket is stark.
The Association of Convenience Stores, The Rural
Shops Alliance, New Economics Foundation, Joseph Rowntree Trust
and Association of Sub-Postmasters (amongst others) have all undertaken
excellent research into such social and economic effects. We suggest
the Committee invites them to make submissions.
5. THE ABSENCE
OF STATISTICAL
EVIDENCE
Quarterbridge has undertaken detailed financial
analyses and prepared Business Plans for many Market Authorities
over the years which have all confirmed that Council-run markets
are in a decline slowed only by a remarkably high level of shopper
loyalty. Regrettably there are no meaningful national statistics
to measure this trend. Admittedly there are some bright spots
eg periodic Farmers Markets and Carboot sales but we see no possibility
of so-called regular Open Markets and Market Halls reversing their
decline unless they secure policy support from central government
and adopt the same management strategies as their retail competitors.
In an increasingly affluent and mobile society
markets are no longer the retail destination of necessity and
most have been unable to convert themselves into the retail destination
of choice. Those that are fortunate enough to be well-located
eg Old Covent Garden and Borough Market are an exception to the
rule but all others must struggle to reinvent themselves without
access to the financial resources their competitors enjoy.
6. THE NEED
FOR IMPROVED
LOCAL AUTHORITY
MANAGEMENT
The under-performance of Council-run Markets
is compounded by their failure to adopt commercial management
skills. Councils tend to concentrate on their primary function
of delivering efficient regulatory services rather than competing
in the retail industry. Their management skills—or rather,
the lack of them—reflects as much. Market Authorities are
generally good at controlling operating costs but equally poor
at exploiting business opportunities. Most still operate on the
false assumption that a waiting list of traders exists for their
stalls and they consistently fail to either to attract new "customers"
ie traders or promote their offer to shoppers.
Historically, Council-run markets have generally
been treated as a "cash cow" to deliver revenue support
for other budgets without the application of any revenue ring-fencing
for business development. This is an almost universal failure
of local government and in many cases extends to starving markets
of even the most essential repair and maintenance, let alone modernisation.
Councils' reluctance to reinvest has been compounded
by a singular lack of business planning amongst Market Authorities
and their failure to adopt profits-focussed management—an
obvious failure in a fast-moving industry like retailing where
there is little room for sentiment. Historic Market Hall buildings
with their statutory listing and high maintenance costs are a
particular problem for many Councils and effectively constitute
a liability rather than an asset. Many suffer from a backlog of
repairs and are unsuitable for alternative use so there is no
exit strategy to dispose of the liabilities. It is not uncommon
for a financially-viable Open Market operation to be dragged down
by the cost of maintaining an inherently-unviable Market Hall.
Small wonder then that most markets have failed to keep pace with
their retail competitors.
Some market operations have passed the tipping-point
beyond which they can recover. The decline in trading profits
has reduced support for Councils' general funds to the point where
in the current economic climate we expect 2009-10 to witness
an unprecedented level of closures.
7. THE NEED
TO SUPPORT
TRADER DEVELOPMENT
Decreasing viability is not a single-cause problem.
Many market traders have still not adopted the most basic of modern
retailing techniques, eg EFT (Electronic Funds Transfer—accepting
credit and debit cards)—and are equally poor at promoting
or reinvesting in their business. They mistakenly consider the
market owners promotional efforts as sufficient to promote their
individual businesses and unlike their mainstream competitors
they generally lack formal training in business planning and product
presentation.
Market traders are generally self-reliant, enterprising
and opportunistic but too often are also under-capitalised sole
proprietorships (sometimes not even VAT-registered) competing
in arguably the most dynamic and competitive sector of the UK
economy. Their inherent reluctant to admit they "have a problem"
and to seek support means they are slow to take-up commendable
initiatives such as the Local Enterprise Growth Initiative. For
our part we believe LEGI to be an excellent method of attracting
new traders into the industry and are keen to actively promote
it as a fundamental component of market improvement plans.
8. THE IMPACT
OF MARKET
FAILURES ON
THE ENVIRONMENT
The environmental impact of modern retailing
patterns has been highlighted by other organisations such as Greenpeace
and the Sustain Alliance. They are better qualified to comment
than us so we suggest they are invited to make submissions.
But it is clear to even the least-informed that
retail consolidation has been accompanied by an unprecedented
rise in "food miles" due to centralised distribution
systems and the air freighting of non-seasonal foods. This, combined
with car-bone shopping trips to "free" carparking at
edge of town retail parks is undermining attempts to reduce CO2 emissions.
By contrast the town centre location of traditional markets and
their predominantly local product sourcing is patently more environmentally-friendly.
But it has to be said that the markets industry has been lamentably
poor at promoting such "good news" stories such as the
"How Green is your Market?" promotion recently launched
by the National Market Traders Federation.
9. SUGGESTIONS
FOR FURTHER
CONSIDERATION BY
THE COMMITTEE
— Retail diversity: Retail consolidation
has created the "clone town" effect identified by the
New Economics Foundation and others. This is at odds with planning
policy guidance via PPS6 etc. and undermines the efforts
of most town centre retail plans.
— Over-reliance on a narrow supply chain:
The dangers of concentrating too much supply into the hands of
too few retailers became apparent with the recent petrol tanker
drivers dispute, as were the public health issues raised by the
recent H5N1 bird "flu" scare and potential contamination
of the food chain.
— Sustainable local economies: Markets
retain the "shoppers pound" within the local economy
and do not remit it to remote, institutional shareholders. They
retain cash within the local economy and support the local producer/supplier
base that creates sustainable local economies. This effect has
been researched in detail by the NEF.
— Employment: Multiple retailers seek to
drive down costs by adopting self-serve methods so it is self-evident
that fewer persons are employed per square metre of supermarket
floorspace than on a market. The common assertion that a new local
superstore will "create an additional 250 jobs"
is in fact a complete fallacy. It may do so in the short term
but double that number of jobs are lost from the closure of local
independent retailers in the medium term. The opening of a new
superstore is followed by the failure of the local Market Hall
within two years or so once the independents have exhausted their
resources. They are not equipped to compete against loss-leader
pricing and thinly-disguised predatory pricing techniques and
the ripple-out effect of a market's decline amongst it's local
suppliers and distributors is equally profound. It is no surprise
that markets thrive best in areas where supermarkets do not (yet)
dominate the local economy.
We hope you find these initial comments informative
and helpful and would be pleased to expand upon them further.
We look forward to hearing from you in due course.
January 2009
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