Growth and Waist

UK grocery sales in decline for first time in 20 years.

… was the shocking headline in the Guardian in November 2014.  At a time of very low inflation, UK shoppers failed to buy more from supermarkets than they had the previous year for the first time since 1994.  This is taken as evidence of something being seriously wrong with the supermarket business, a fact emphasised by the much publicised difficulties that Tesco – the UK market leader with still over 30% share of the groceries market.

The blame for this alarming state of affairs was put at the door of the so-called “discounters” – ALDI and LIDL – who have between them taken nearly 10% of the UK market in recent years.  Discounter market share is expected to grow, despite the minor contraction in total market size, to the extent that market analysts and Tesco’s shareholders were beginning to ask serious questions.

Because “growth” is an imperative in all markets and, indeed, all free market economies.  Growth in total revenue is a given, but so also (bizarrely) is growth in market share.  It is logically impossible for all players in a particular market to grow their share, but provided the market itself grows, everyone could at least grow their revenue.  With the kind of inflation levels we now understand to be essential for free market economies (about 2%, by the sound of it) then with no change in market share, everyone could (in money terms) earn a bit more every year.  And everyone ought to be content – but obviously wouldn’t be.

For some market players to grow their share, other players must lose it.  Sustained growth in market share by some means sustained contraction in market share for others, leading eventually to the elimination of the weaker players.  And if this happens in a market that isn’t itself growing in real revenue terms, you could have the frightening situation where even the market leader is ceasing to grow revenue, as is happening to Tesco now.

So should the rest of us be worried about the difficulties being experienced by the supermarket industry, and in particular the market leader?  Leaving aside (as we must for now) the tragedies and social costs of people losing their jobs and pension funds losing income, should we be alarmed if the supermarket industry stopped growing its total revenue, with the likelihood in that event of some familiar, and perhaps even formerly dominant, players going to the wall?

Because this is, after all, the “natural” state of things in other biological and ecological systems.  All organisms come to life, grow, reproduce (if successful in that respect), decline and die.  Individual organisms have natural lifespans to which they have evolved over time.  But do companies, industries, nation states and civilisations have a natural lifespan?  And if they are not to be subject to the laws governing the lifespans of other living things, how do they manage it?

The food industry as an organism occupies an interesting spot on a spectrum that ranges from individual living things, through collectives such as businesses to cultural phenomena such as nation states and civilisations.  This is because it services an essential need of another organism, the population.  And in a steady state, the total calorie intake – the amount of food consumed – of a population should only grow in line with the population.

The UK population is currently growing at a little over 0.6% a year, a rate that peaked in the early part of the last decade at about 0.8%.  So the amount of food we eat ought to increase at less than 1% a year.  If the UK food industry were to grow its revenue (in real terms) at a faster rate than the population growth rate we’d either have to throw away a lot of food, get fatter, or export more of our food output.  Sadly, there is a lot of evidence we’re doing the first two, but let’s suppose that we can, as a nation, take control of both our waste and our waist and consume food at a steady state.  How, then, could the food industry grow its year-on-year revenue faster than the population?

The obvious way is to charge more for the same (amount of) food, leaving consumers with proportionately less money to spend on other goods or services.  In this case, the food industry would only be able to grow its market share of consumer expenditure at the expense of other suppliers of things we spend money on.  Unfortunately for the food industry, many of those competing industries aren’t constrained in the same way, and have greater (though never unlimited) capacity to generate and manipulate demand for their product.  The advantage the food industry has in this competition is that it benefits and will always benefit from a continuous and sustained demand for its output – we all have to eat – with far less consumer discretion over whether and when to buy it.  But that is also a major disadvantage in an economy where there is a seemingly universal imperative to grow faster than the population.  I can perhaps be persuaded to buy a new iPad every year instead of every other year, but I hope I doubt I could ever be persuaded to eat twice as often, or twice as much, as I do now.

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About Alison Kidd

Research Psychologist
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