Monday, 27 April 2015

The Modern Agora

Following Tesco's record loss, Paul Mason has indulged his romantic side by reimagining supermarkets: "what public benefit we could achieve if the selling expertise and data power of the supermarket were combined, in synergy, with the suppressed sociability of the buying public". He wishes to free "the untapped human potential" of these "modern agoras", repurposing them as "public benefit corporations" that "socialise the customer-relationship data". The root of his romanticism is a focus on the wasted potential of labour: "Everything in the physical architecture of a big supermarket is designed to make the workforce invisible ... So I would do something that rewarded the workforce for unleashing their wit, knowledge and expertise on the actual customers."

This is blinkered insofar as the visible shop-workers are just the tip of an iceberg that includes agricultural labour, manufacturers, packaging and distribution workers and backoffice staff. Turning shelf-stackers into "customer relationship managers" sounds like a humane strategy to preserve domestic roles as automation advances, but it hardly addresses the conditions of labour in the global alimentary sector. We also shouldn't forget that the layout of a supermarket is designed to get the customer to function as a warehouse picker and (increasingly) a checkout operator: providing free labour to the store. It is in that sense that the workforce is truly invisible. More significant is Mason's admission of the centrality of customer data. The key dynamic in the supermarket sector is selling customers to suppliers, rather than products to customers. The latter produces small margins, but the former produces volume, and that's where the profit lies.

This was the impetus behind the introduction of loyalty cards in the 90s, and also explains the notorious charges levied by supermarkets on suppliers for prominence and special campaigns. As dairy farmers know only too well, the distribution of profit is the result of a struggle between producers and retailers, not the operation of supply and customer demand. This is about more than just dominating access to the consumers (i.e. rent extraction): it's about having sufficient insight into customer expectations to be able to direct suppliers, both in terms of product price (e.g. insisting that certain lines are sold at a loss) and product quality (e.g. refusing "ugly" fruit and veg). Tesco's problem (admittedly one among many) was that it was simultaneously persisting with an older and more expensive form of customer domination and data-gathering, namely opening up new superstores in order to increase market share.

It would be easy to conclude from its property travails that Tesco should have been diverting capital away from bricks to clicks, but it is also worth bearing in mind that online shopping is still a minority habit while the decline of the superstore owes more to cannibalisation by the Big Four's own convenience stores and the advance of discount retailers who eschew online. That said, online is clearly the future because it offers the greatest potential for expanding customer data, which is what will allow supermarkets to secure a greater slice of the revenue pie from suppliers, particularly if they can start to isolate customers for higher-margin products. Though home deliveries and click-n-collect are currently more expensive for supermarkets, and will remain so until "dark stores" become common, they not only produce richer customer preference data but also provide opportunities for "push" marketing - i.e. email and customised Web or app offerings. This in turn increases the potential for customer lock-in, though there is a sting in the tail.

The decline in bonus card schemes (e.g. Sainsbury has just halved its Nectar points) shows the extent to which the lock-in dynamic is shifting from loyalty (i.e. customer familiarity with a retailer) to expectation (i.e. retailer knowledge of a customer). This in turn reflects the extent to which online also empowers the consumer. One of the reasons for the shift from the weekly big shop to a more "segmented" or "promiscuous" approach, where shoppers divide their purchases across multiple stores based on price and choice, is that both the Internet and the growth of convenience stores have lowered the transaction cost for shopper research. At the moment, many consumers are securing more value from the Internet in respect of groceries than the retailers are. Similarly, convenience stores (which supermarkets saw as offering growth at the expense of smaller chains as superstores reached saturation) have encouraged consumers to be more causal in their buying habits as top-ups of preferred products have become easier.

The aim now for retailers is to make buying so frictionless that the cost of research is once more unappealing to customers, hence Amazon's Dash button and the promise of the fridge that automatically orders more milk. The problem is that the genie of convenience cannot be put back in the bottle, which is a backhanded compliment to the power of the big supermarket brands, so the mixed mode of stores of different sizes and different methods of ordering and delivery will likely continue for the foreseeable future. In some ways, this is merely a return to the historical norm. The trend over the centuries has been towards more shops per head of the population, simply because of the profusion of commodities and the increase in living standards. Though we regret the loss of independents and pubs, we forget that there are a lot more retail outlets in total today, despite the advance of the "Big Four" supermarket oligopoly. It is the consolidation of car-centric, out-of-town superstores in the late twentieth century that now looks unusual.

With this in mind, turning supermarkets into "modern agoras", whether by incorporating pro-social activities or just more coffee shops and concessions, is serving a business model that requires customers to be corralled and coerced. Paul Mason's contention that "the average supermarket is a chilly, fluorescent-lit hell" is not necessarily a problem so long as there is a plurality of retail outlets and you can choose your preferred inferno. The current angst in the supermarket sector does not arise because we are spending less but because we are distributing our spending across more channels (we are less inclined to be corralled), which raises transaction costs in the short-term even if it promises to lower them in the long-term. But this means that the supermarkets must quicken the pace of their transformation (which explains Tesco's deck-clearing loss announcement) to highly-automated dark stores fronted by user-friendly online interfaces and sophisticated data analysis. What isn't going to happen is the revival of the agora.


  1. I can understand more shelf space, but are you sure about more shops? I'm thinking about some redeveloped housing areas, where shops on the corner of every terraced street have been replaced by one shop on the estate, and villages where a dozen shops have been whittled down to one.

    1. Shops (or more broadly "outlets" - a shop is just one form) can be thought of as an optimisation strategy for connecting producers and consumers. The shop is a nexus. There are two sides to this: establishing the consumers needs and distributing goods. A store provides a way of efficiently dealing with product selection (all goods on display in one place) and dividing the cost of storage and distribution (between producer to store and consumer to home). As these costs fall, the optimum nexus (in terms of the number of products and customers) shrinks. It becomes more personalised and product-specific.

      From the late 19th century, the number of shops increased due to the growth in commodities and disposable incomes. However, there was also a countervailing trend towards concentration (first department stores, then superstores and malls), which was due to the advance in transport and the fall in urban density after WW2 (which shifted activity to bigger outlets in car-friendly suburbs). That countervailing trend has weakened since the 90s, as much because of increased urban density as the growth of online shopping.

      The "dying high street" trope suggests that the number of shops is in decline, but this ignores both dispersion in urban areas with growing density (e.g. many convenience stores now occupy the ground floor of new tower blocks - the equivalent of old end-of-terrace shops) and the enormous impact of the Internet in creating whole new categories of outlet. The "dying village" trope reflects the way that these settlements have become exurban middle-class dormitories

      The Internet means that small businesses that would have historically rented a shop can now be wholly online (and the owners can live in a village and complain about the dearth of decent butchers). It has also made it easier for customers to shop around - i.e. visit more outlets (and not just multiple retailers but manufacturers and price copmparison sites that wouldn't previously have been easily accessible). If you think of outlets, rather than bricks-n-mortar, there is a profusion because the cost of a "shop" has fallen.

    2. I think the 'dying high street' idea is true in certain places, but obviously not in others. In large cities there seem to be as many shops as ever, just dominated a lot more by chain stores and some 'premium' independents, and I agree that there are a lot more convenience stores in city centres now. In Leeds ten years ago there was one supermarket/general store in the entire city centre, now there must be more than a dozen.
      In medium and small towns I think the opposite is the case, and many smaller town centres would be practically moribund without Poundland and charity shops. I think this is probably more due to the out-of-town supermarkets than internet shopping.
      Pubs and bars seem to have followed a very similar pattern. In Leeds a lot of real ale pubs have opened in the past ten years, but in some suburbs you can walk for miles without seeing one, though you might well pass a few derelict lots and converted flats where a pub once was. Even the market places of small towns that thronged with pubs and acted as an open air midnight boxing ring for years are looking pretty depleted these days.