“Tesco is evil” seems the be a rallying cry through Britain at the moment. Either in the spate of recent anti Tesco television programs or on various blogs and websites all complaining that Tesco is a virtual monopoly that forces lower prices on it’s suppliers and is killing local shops by under cutting them. Not doubt it’s going to get worse over the next few weeks as Tesco have just reported a 20% rise in profits to 2.55 Billion pounds.

While I’m no fan of Tesco I do wonder if this picking on Tesco is a bit like a return to the playground and bullying of the “clever” kids because they did well in class? So lets examine some of the charges leveled at Tesco.

Being A Monopoly

Well from the stats I can find it seems that Tesco has 29% share of the UK food market, and takes one in every eight pounds spent in British shops. A monopoly however is defined as a persistent market situation where there is only one provider of a kind of product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.

Well clearly on a nationwide basis Tesco do not fit that definition. The situation may differ on a local basis however.

Should the situation change then in the UK we have the Competition Commission (previously known as the Monopolies and Mergers Commission) who will investigate the situation and indeed are currently looking at some of the supermarkets on a local basis.

Forcing Suppliers To Take Lower Prices

I’m sure Tesco do negotiate discounts with their suppliers and I’m sure that due to the quantity they buy they are able to negotiate lower prices than say your local corner shop. It’s common in business to offer lower prices to customers when they buy in bulk and it’s normally a win win situation, the customer gets their product cheaper and the supplier can sell more with lower overheads (it’s a lot cheaper to sell 1000 widgets in one go then to sell 1 widget to 1000 different customers) making more profit for the supplier.

I don’t believe however that Tesco forces suppliers to supply them at unreasonably low prices, after all it’s not in Tesco’s interest to force their suppliers out of business – as they’d then have nothing to sell. It would not surprise me however to find that some suppliers don’t have the confidence or negotiating skill to properly negotiate with the likes of Tesco. Arguably then the supplier should be investing in better training for their sales staff.

Tesco Is Killing Local Shops

Tesco is certainly competing with local shops and in some cases offering lower prices so no doubt those shops that compete purely on price will struggle against Tesco. However there have been hundreds of articles and books published over the years that explain why small businesses should not compete on price alone. If the small businessman continues to ignore this advice then they have to accept some of the blame. Some small businesses have however taken this advice on board and are competing successful with Tesco.

I have a number of suggestions for small businesses wishing to compete with a bigger business and will cover them in detail in a series of future articles:

• 12 Ways For A Small Business To Beat Tesco

Finally …

At the end of the day Tesco will only be successful if the majority of the local population supports them by choosing to buy from them. Oh and don’t forget Tesco is a public company so the profit goes to the shareholders and in the case of Tesco their major shareholders are pension and investment firms, which means it’s ultimately our money.

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