Scotland's Economy

Supermarket prices may fall after independence!

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Updated 05/09/2014 with an I told you so:  Tesco Tweeted this morning in response to No camp renewed claims about prices going up:

Tesco (@Tesco)
@JimTorranceSNP Hi, we have a great business in Scotland and will continue to offer the best prices whatever the outcome of the referendum.

Well thats the obvious stated here is what we wrote when they fort brought up this ridiculous scare story.

The London centric media are at it again – chasing business people to make completely innocuous comments on independence and then twisting them out of context to create a negative headline but the story has no real credibility!

The Financial Times claimed today: “Scottish consumers will pay more for food if they vote for independence in next year’s referendum because Britain’s big supermarket chains plan to raise their prices north of the border, senior executives have warned”.

Let’s be absolutely clear: no supermarket has said that prices will rise in an independent Scotland. The FT headline is entirely inaccurate.  In fact, it has been reported on the BBC website that:

“Neither Asda nor Morrisons said they had any plans to raise prices in an independent Scotland”.  Meantime, Tesco and Sainsbury’s have distanced themselves from the report.

The FT article claims that “top executives” representing three of the Big Four supermarket groups told the Financial Times that they currently absorbed the extra costs of doing business in Scotland into their UK operation. But the article does not say that there are any plans to change pricing from any of the supermarkets in response to a change from Westminster to Holyrood Government.

The reality of retail

I spent several years selling both branded products (whilst at P&G) and own label food products (whilst at Northern Foods PLC) to the major retailers and had a specific specialism in ASDA and Morrisons. I also spent several years helping Scottish food companies to deal with the multiple retailers whilst in the Food Sector development team of Scottish Enterprise.

As such I have an insight into – you might even say expertise in- the retail sector. The only bit of truth in the whole story is that there is a higher distribution cost for supermarkets of doing business in Scotland.  To get food and branded products made in the rest of the UK to Kirkwall or even Aberdeen does cost more, but it also costs more to distribute these goods to Cornwall, Northumberland and Cumbria, in fact it is cheaper for ASDA who are Leeds based to distribute goods to Leeds than to Portsmouth. Distance not borders is the source of additional cost. So are the supermarkets planning on new pricing strategy based on distribution costs within England?

Is Asda planning a new advertising campaign where they say “that’s the Asda price, unless you live in Scotland or Cornwall where we are more expensive than the retailers who wanted to take our market share in your area by keeping their costs down”? It’s not a very snappy slogan, or a wise marketing strategy.

In truth, of course, market competition sets prices and if one supermarket decides to raise its prices only in Scotland its competition is very likely to respond with a commitment to keep prices the same for Scots. Imagine the market share they would take, especially from firms which are already seen as South-East of England brands.

As I say, the one element of truth in the story is that it does cost more to distribute goods to Scotland. But it costs more now whilst Scotland is part of the UK, the supermarkets know this, and they also know that if they differentiate prices then consumers will go to the supermarkets that keep their prices down to gain market share and show loyalty to Scottish customers no matter the way they choose to vote.  Markets not geo-political boundaries set supermarket prices. Devolution didn’t raise prices so why should more political autonomy when it includes the retention of a currency union and common market?

A key outcome of independence will be more growth for Scotland’s economy though the use of all the appropriate levers of powers tailored to Scottish circumstances.  A growing Scottish economy with a population that has more money to spend, a more business friendly tax environment and a growing population will consume more goods not less so the cost of doing businesses in Scotland will look more attractive to some supermarkets after independence.

Let’s remember though that this is a scare story and go back to the core truth that is that as reported: “Neither Asda nor Morrisons said they had any plans to raise prices in an independent Scotland”.

Today’s article has also led to counter-claims that food prices may either rise or fall after independence. Both Robert Peston, BBC Economics Editor, and the Scottish Government have highlighted that a reformed Scottish tax system could mean lower prices for shoppers in Scottish stores. The opportunity of these savings are compounded when considering the wider context of the food market in Scotland.

The basis of a scare story

The No Campaign has claimed that doing business in Scotland may require higher costs and therefore may lead to higher prices at the till. This, they claim, is due to the more dispersed nature of Scotland’s population and geography in comparison to the UK as a whole. It’s difficult to tell who actually supports this view. Tesco has already distanced itself from the story and not a single supermarket chain has backed it up today.

There is, however, a wealth of publicly available information which demonstrates that food prices in Scotland are likely to be reduced in the long term.

Six facts: Prices are more likely to fall in the long run

1) It is not in company’s interest to immediately break up their pricing structure

As Robert Peston explains in response to today’s story, there are “cost advantages” of maintaining an equal pricing system. “It would be expensive to change IT systems, marketing, point-of-sale literature and advertising to facilitate differential pricing in Scotland and England.” There is no immediate incentive to break-up the pricing system within the retailing network or to disinvest in Scotland. Supermarkets operate in Scotland as it is profitable.

2) Certain business costs are lower in Scotland than in the rest of the UK

While transport and storage costs may be higher in Scotland’s rural communities, certain costs are lower across Scotland than in the UK as a whole. This includes the price of rent and property; and the cost of wages. When taken in tandem, the cost of doing business in Scotland also includes variables which can reduce overall costs.

3) A distinctive Scottish tax system can help reduce prices and costs for retailers

Two of the key costs in doing business raised by the supermarkets are taxation and cost of fuel. The Scottish Government proposes a reduction in corporation tax following independence which would reduce the costs of food production within the company supply chains. The Government has also proposed extra support for fuel and travel costs to rural communities through an extensive transport development program. These developments can reduce the costs of doing business in Scotland for companies.

4) Investment support for agricultural production will be increased following independence

Harvest_home,_BrickhallRecent figures revealed that Scotland receives the lowest agricultural funding support of any nation in the whole European Union. Member states of the EU are entitled to ‘uplifts’ in their funding allocations within the Common Agricultural Policy. As an independent country Scotland would have been entitled to €1 billion worth of extra funding over the 2013-20 period to support farming and agriculture. This extra investment and support can reduce the costs of food production in Scotland and can lead to lower prices at point of sale retailers.

5) Scotland has strengths in production and export of food and drink

Domestically, Scotland has an abundance of domestic food and drink produce. In 2011 the turnover within this sector was £13.1 billion. These goods form a crucial link between agriculture and retail providers in Scotland. These goods form 18% of Scotland’s overseas exports compared to the 1.5% of UK exports from the same sector. Food and drink production is a great strength in Scotland’s economy. Indeed the opportunity to support this sector and develop more locally sourced food can reduce costs and prices in the long term.

6) Food cost increases, wage stagnation and food bank poverty are marks of Westminster policy not independence

It is inconceivable to claim that the current system of food pricing within the UK is operating in Scotland’s favour. Not only are food prices continuing to increase faster than wages, but thousands of families are being dragged into poverty and dependence upon food hand outs.

As previously argued on Business for Scotland, this is the result of Westminster’s dysfunctional economic and social policy which has failed to mobilise Scotland’s resources and wealth for the people who live in Scotland.

According to the Consumer Price Index, prices are rising at a rate 3 times higher than wages. In September and October the rate of food price increases was 4.8% and 4.3% respectively at the 12-month rate. The overall index has consistently measures towards 3% since late 2011 and was previously much higher for the two years before. This compares poorly to the low rate of wage increases which has been below 1%. James Plunkett, of the thinktank the Resolution Foundation previously remarked that “The fall in real wages we’ve seen has been unprecedented. But perhaps most worrying today is that there’s still no sign of the wage squeeze ending”.

It is this increasing gap between the cost of living and earnings that is leading to stress and strain for consumers in Scotland. Without an economic policy that provides investment, quality employment and support for key business sectors in Scotland, such inequality will continue to harm business.

Conclusion

For these reasons it is clear that the opportunity to reduce supermarket prices is greater than vague assertions concerning Scotland’s geographical or the UK’s political make-up. The business incentives go both ways and many are in Scotland’s favour. The opportunity of developing a tax and business system can reduce costs. A re-allocation of CAP funding will provide greater support for agriculture in Scotland and therefore reduce production barriers. Scotland’s strong food and drink industry provides a home grown produce to benefit the Scottish market. And, finally, it is the current Westminster economic combination of inflation and wage reductions in real terms that is contributing to food poverty across the UK and especially in Scotland.

In contrast, this scare story ran in the FT, a venerable London centric newspaper. The concept of Scottish self-governance is a challenge for all such London centric institutions.  I have challenged them before on the need to think outside the London bubble. To their credit the FT printed my letter last time. But some of those working as part of or in proximity to the failed Westminster system and the City of London fail to comprehend the prospect of Scotland succeeding as a competitive force in the global economy.The Scottish Government’s White Paper – “Scotland’s Future” is a visionary forward thinking, fully costed and detailed document that points the way to building a better Scotland. The No Campaign has no answer to Scotland’s Future. In desperation they try to spin nonsensical scare stories like this that simply do not stand up to intelligent investigation. With independence there is the opportunity to develop a more competitive and fairly priced food market utilising Scotland’s strong economic advantages in food, drink and agriculture. This can reduce prices and leave families and consumers and Scottish suppliers better off as a result.

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

32 Comments

  • So whatever the upshot the obvious answer is to buy produce that is locally produced to reduce distribution costs. As Scotland produces more food than it needs this should be fairly easy to achieve. Will the Scottish firms start charging higher prices in England to cover these costs? Frankly as a resident of NE Scotland I regularly see firms advertising ‘free delivery’ to mainland UK, then see them attempt to slap a surcharge on because of my postcode. My answers to this are that as far as I can tell Moray is connected to the mainland, and thank you but I’ll take my business elsewhere.

  • An overview of business rates paid per sq m by supermarkets in various locations either side of the border indicates a generally slightly lesser sum in Scotland, for each valuation category of store, after also taking into account the Scottish Government’s incremental 13p Public Health Supplement or poundage.

    For instance £115 to £134 per sq m in Newcastle Upon Tyne, £94 to £99 per sq m in Penzance, £61 to £124 per sq m in Manchester, £99 to £125 per sq m in Harrogate, £102 per sq m in Edinburgh and with lesser rates for smaller towns/locations in Scotland.

  • I was glad to see that the One Show has made a shamefaced retraction of their story on air.

  • You do fail, however, to question why the supermarkets would have said it if it were not true. After all, it’s not exactly in their interest to go against the tide of public opinion, or to pronounce either way in a debate they have an interest in remaining out of. They must clearly have the strength of their convictions otherwise they would not have come out, however un-publicly, in protesting against Scottish independence.

    • Hugh they did not say it! Read my blog no supermarket said that prices weld rise or that they had plans to raise prices – none.

      It says so in my blog it says so in the BBC article which still suggest that prices may go up. this is a scare story with absolutely no basis in fact. Within 24 hours Morrisons officially commented “On the issue of Scottish independence, we believe is for the people of Scotland to decide. It would be wrong to say Morrisons is predicting higher food prices at this stage if Scotland voted for independence.”

      My article does say that there are extra costs in dealing with Scotland those exist however we vote next year and the Sainsbury quote was complaining about the extra costs not of the supermarket taxes imposed by the Scottish Government that has nothing to do with independence but the current decision of the Scottish Parliament within the Union.

      Officially from Morrisons “Our view is that if an independent Scotland increased or decreased regulation or taxes we’d have to take a second look at our pricing. Clearly that could work for or against Scottish customers depending on the direction of travel.” Julian Bailey Morrisons spokesperson.

      Stop the press Morrisons have confirmed that food prices are as likely to go down – They did not come out even un-pubilcally we are being lied to and misled almost every day by a biased media.

  • Gordon great aticle. “what a tangled web we weave when first we practce to decieve.” they have obviously given up on trying to find quality arguments and going for quantity. How do the tv presenters keep a straight face when they report this garbage.
    Really just found this site and have spent a lot time going the articles. Correct me if Im wrong here. £60bl in tax reciepts. £53bl back. but only £31bl for SG budget. presume the dif between 53 and 31 is our contribution to trident.defence.debt etc.etc…..

  • Morrisons confirm > Food prices could fall in independent Scotland after Yes vote http://ow.ly/rDqpQ

    Front page news of the Daily Mail? FT to publish retraction?

    Don’t hold your breath.

  • […] They don’t operate such a pricing system now so it would be a political decision by a retail outlet, unless of course it faced higher costs imposed by local regulations. There is another problem because supermarkets are keenly competitive with each other and would naturally want to offer the best deal. So I don’t see them operating as a cartel and as soon as a general price rise went on, the opposition would undercut. http://www.businessforscotland.co.uk/supermarket-prices-may-fall-after-independence/ […]

  • Third time this week the Herald has deleted one of my posts showing their article to be total crap. This time I made a copy. Its my post starting with “Tesco has distanced itself ” I was quoting Gordon from this article and they were not happy bunnies about it. maybe they thought I was really trying to plug the BFS article :-)here is the screen shot. http://archive.is/PHFwG

  • Yet again a tour de force mr MacIntyre-Kemp the logic of your argument is undeniable unless your Alistair Darling of course.

  • In truth, while there is a common border and the distances involved are not large, the prices of food and drink at the point of sale cannot diverge greatly.

    However, there are two very salient facts. First, Scotland is in surplus in regard to food and drink production whereas England is very much in deficit. In that context, England is grossly over populated. It cannot feed itself. Indeed it has about three times the population density of China which is itself well recognised as being over populated. England has the highest population density in Europe of any sizeable country.

    This makes them (and currently the UK) rife for exploitation by other food and drink producers. Indeed, it is one of the reasons the strutting, belligerent posturing of the UK political class is even tolerated by a generally food and drink surplus Europe.

    Effectively, in regard to groceries, the UK is over a barrel. The annual net grocery bill for the UK runs into tens of billions of pounds. And that is a bill which must be met before anything else can even start to be paid off.

    Compare prices in an Aldi’s in Germany with those in the same chain in the UK. Example, Clarke’s Bourbon in Aldi Munich – €6.99, Clarke’s Bourbon in Aldi UK £12.79.

    An independent Scotland will be ultimately be much closer to the normal European model (approximately balanced groceries trade).

    The South centric distribution model, which makes little enough logistical or even commercial sense for Scotland as it is, within the Union, will naturally revert to a more normal European scenario after independence. It is ludicrous that produce from Scotland is transported several hundred miles south for processing and packaging and then transported back north again for resale at 3-4 times the price. (And then described as a ‘subsidisation of Scottish goods’).

    After independence a more rational (for Scotland) processing and distribution system will naturally evolve, not least because the repatriation of the value added, in terms of jobs, taxes and export value make complete commercial sense. And I doubt either, if the brand ‘Produced in Scotland’ will turn out to be a negative compared to ‘Produced in the UK,(possibly from areas renowned for foot and moth, BSE and Bovine Tuberculosis)’.

    So instead of being ridiculously assessed culpable for transportation charges several hundred miles south then several hundred miles back up north, for much of our own produce and grocery goods in the shops, that will simply not happen. Plus, being in a non-desperate situation re food and drink production, unlike England, the pricing leverage available to importers will be much less.

    However, although the food and drink industry, Scotland is set to be a post-independence financial beneficiary possibly even more so than it would be from the more visible oil and gas industry, due to a retained open common border, would not manifest itself so much in price differentials at the point-of-sale, but would, nevertheless, still exist and accrue to a Scottish Exchequer to use as it saw fit.

    • Great post Charles. Sometimes we can’t see the wood for the trees. Fantastic food exporting country supplying, amongst others, a large net food importing country on our doorstep. Then there’s Scotland’s water e.g. Highland Spring owner has made a few groats for himself, around £1.5BN I believe.

  • You’ve not mentioned in this article at all about interest rates and the fact they’ll still be controlled by the Bank of England. This could have a profound affect on prices North of the Border. If they go up, because of issues in England, this could affect borrowing here and put pressure on sales etc. Thoughts?

    • If we vote No and interest rates change because of problems in England then there would be problems – by the way interest rates going up may actually lower price inflation.

  • These supermarkets in some shape or form bankroll the UK parties. We are a huge Market for them way above our population share.

    I bet they are blazing with the spin by the FT, etc.

    I think it’s time for AS to invite them to tea at Bute House and serve them some cakes from Aldi

  • I’ve already started shopping at Aldi.

    I really feel despair when the constant stream of scary (fairy) stories seems never ending. It can get depressing when you hear how many people actually believe them. The main steam media outlets spew out propaganda at an astonishing pace. Can’t even trust the BBC to provide unbiased commentary any longer. The Yes campaign need to stay at the top of their game.

    • The thing you can do is read as much as you can you can rebut the Project Fear B.S when you are speaking to people.

  • Agree with the above comments, but the problem is that the media continue to make these intentionally inacurate assertions which people read, absorb and believe. It’s then too late to have the claims challenged and corrected (doubt that would happen in any case). Maybe Morrisons and Asda should be asked to issue clear and unambiguous statements – if the reports are wrong, they should take action against the media. If correct, maybe we should start shopping elsewhere now. I realise I’m being a little naïve, but I live in hope.

    • They have been asked but are refusing to comment – some like Tesco are saying they never said anything in the first place.

  • One word: “currency”.

    If this changes, uniform pricing structure cannot be maintained.

    Also its a bit depressing, the arguments why prices will be cheaper in Scotland are lower wages and lower corporation tax. Sweat shop Scotland?

    • Currency won’t change it would be idiotic for the rUK to put any barriers to maintaining the currency Union there is no feasible plan b for them other than asking Scotland to continue. http://www.businessforscotland.co.uk/euro-pound-or-scottish-pound/

      We currently have lower wages these are a symptom of the Unionist approach to creating an unbalanced economy with the majority of high wage jobs being sucked out of the rest of the UK and centred around London. How Scotland’s Economy went South bit.ly/15cD2py

  • This comment was also stated on BBC’s The One Show tonight that food would be more expensive if Scotland voted “YES”. Luckily I had read your article today but this scaremongering on BBC’s chat shows certainly depresses people. My husband has gone to bed in disgust at the tactics being used by these London based television shows. I will certainly not be watching this show again.

  • Thank goodness for some sense to counteract this disgraceful behaviour of the No campaign.
    By the No logic meat (Aberdeen Angus) fish, shellfish, Whisky etc will “rocket” in England because of transport costs????

  • Excellent article and I believe it is absolutely true. I also think that in an event that of politically made shenanigans against Scotland, and of course against their own suppliers.
    It would not be too difficult to tempt some of the larger French or German supermarket chains to fill the gap.

    Should this happen, they would lose a lot in profit as they supply near everything on our shelves.
    There is scant products labelled “Scottish” or simply with the Saltire upon them. I think this must be addressed, whatever happens.
    We need to encourage our own producers to gear up, sell more, employ more people.
    This would boost tax receipts also, now that IS the way to go.

  • Well done, Gordon! Quick on the draw with a fully thought out analysis, not a couple of sound-bites!

    I saw the main headline on the “Scottish” Daily Mail today was to the effect that supermarket prices would “soar” in an indy Scotland. I refuse to buy the rag but a sneaky peep at the article confirmed that the man from Asda’s remarks had been twisted and inflated to meet the needs of the Mail’s expressed aim (from 2 years ago) to “campaign tirelessly against Scottish independence”. We just have to keep calm and continue to rebut the scare stories with reasoned argument.

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