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By Blessed Economist
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Inflation has taken off and people are feeling the pain of rising prices. The two places where they experience this pain the most are when they fill up their car with petrol and when they go to the supermarket to buy their groceries.

Here in New Zealand, two big supermarket chains dominate the market. One is a cooperative with most of its supermarkets being owner-operated (Foodstuffs) and the other is a subsidiary of an Australian chain. Critics have learned the word duopoly and are blaming the supermarket chains for rising prices. Some are claiming that the supermarkets are making excessive profits at the expense of their customers.

I am quite happy with the service that the supermarkets provide. I am amazed that all the things that I need for daily life are ready to purchase when I need them.

  • If I want to go to see a doctor, I have to make an appointment, often days in advance. The same is true if I want to have my car serviced. In contrast, I can go to a supermarket any time day or night and purchase what I want.

  • The supermarkets offer their customers an amazing array of choices. If I go into the breakfast cereal, there are a dozen different brands to choose from. And within each brand, there are numerous types and flavours of cereal available. The situation is the same for most of the products that I might want to buy. I am not limited to a few choices that someone decides would be good for me, but can choose which brand and type of product I want. Having all the choices available on display for customers to choose from is a real benefit, except for those who hate making decisions.

  • Looking at the food products that are available, I see products that have come from all over the world. I don’t have to organise the delivery of products from the other side of the world, because the supermarket has done the ordering and organised the delivery before I have even realised that I want the product.

  • Supermarkets make sure that the food and grocery products that people want are always available when they want them. Even when supply chain disruption occurs, most of the products that I want are available when I want them. We just take this for granted, but a huge amount of organisation goes on behind the scenes to make it happen.

    I remember a few days after the Christchurch earthquake when we had no water and electricity at our house. We went to a nearby supermarket and at the back found three big pallets of bottled water. We were delighted to get some drinking water, but I was amazed to see the amount of stock available at a time and wondered how it had got there when many of the transport links into the city were still disrupted. I presume that the supermarket chains had stocks of drinking water in their warehouses that they were able to bring out.

    New Zealand is a small island nation, a long way from everywhere, so most of the groceries that we buy have to be brought in by ship. Not only does this make them more expensive, but it makes the logistics more difficult to organize.

  • If I make an order online, the supermarket will gather up my groceries and have them available when I want to pick them up. Alternatively, I can get them delivered to my home if that is more convenient.

  • People can buy many of the food and grocery products from other more specialist providers, but it would take a huge amount of time and effort going around them all. Most people don’t have spare time for this, so being able to purchase everything needed at one site is a huge benefit.

  • Some commentators are suggesting that we need a state-owned grocery wholesale operation that all supermarkets could go to for their stock. I doubt that government bureaucrats with “no skin in the game” would ensure that the products we need are always available in the way that the same way as the supermarket chains do.

I don’t know if the supermarket owners are making excessive profits, but the following factors need to be taken into account before making a judgment.

  • Managing a supermarket/supermarket chain is an incredibly difficult task. Managers have to order goods from all over the nation and many other parts of the world and ensure that they are delivered when they are needed. They manage delivery chains across the nation. They have to ensure that their store is open seven days a week and most hours of the day, with staff there to serve customers when they choose to come. They have to ensure that the shelves are stocked at times when their customers won’t be inconvenienced.

  • I would not want to be the owner or manager of a supermarket. These people have to manage a large number of staff and organise logistics to keep food and groceries available when people want them. They have to respond quickly to changing consumer preferences and changes in the most efficient supplier.

  • Many of the products that supermarkets stock are perishable or have a short shelf life. If the supermarkets over-order, they can easily be left with unsaleable product that they have already paid for. Excessive losses can quickly cut into their profits.

  • The managers of supermarkets and their various departments tend to be recruited from inside the organisation. You don’t hear of them being recruited from the finance sector, because supermarket operation is a very specialised set of skills.

  • Not many supermarket owners get to be on the “rich list” so I presume that there are easier paths for people who really want to get wealthy.

  • I know that some supermarkets are not profitable. In our city, one shut down a few years ago, after being rebuilt just a few years earlier, because it ran at a loss. I presume that the owners lost a significant amount of money. Like all businesses, the profit of supermarkets will vary according to the site and level of competition faced.

  • Loyalty to supermarket brands tend to be quite weak. Most consumers have a choice between several supermarkets near where they live, so owners that are not on the top of their game can lose customers quickly.

  • I hope that supermarkets that I purchase from are making good profits because I want them to continue investing so that they are resilient for the future. I want them to be well organised if the disruptions to supply chains that the world is currently experiencing become worse.

  • Over the last decade, property developers and property speculators have made enormous profits without providing any service at all. These are the excessive profits that concern me far more, because they are unrighteous wealth. The owners of supermarkets might have made excessive profits, but they have had to work hard to get them. They will have to continue working even harder in an unsettled and inflationary climate to remain profitable.

The price inflation that people are currently experiencing is real and painful. The supermarkets are an easy target, but I am not sure that they are the main culprit.


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