I read a fascinating article in the Financial Times this week that examined the pricing model of pub chain JD Wetherspoon. It found that if you purchased the same five items from its menu in 213 of its pubs, you would end up paying 130 different prices with an almost £11 swing between its suburban Birmingham and urban Manchester sites.
What really caught my eye, though, was the article’s comparison of the pub industry to the UK grocery market. Both have a fairly even independent/multiple split, with a few dominant operators benefiting from huge buying power, efficient logistics and economies of scale.
However, one key difference is, thanks to a Competition Commission ruling, unlike pubs, supermarkets cannot engage in local price wars. It means every branch of Tesco Express, for example, charges the same prices. This is certainly one explanation why the CMA dropped its interest in the 350 areas where Tesco and Booker symbol stores compete closely.
Another significant difference is the profit performance of the two industries’ major players; Wetherspoon’s 7.7% operating margin is significantly higher than the 1.8% Tesco achieved at group level last year.
Since the merger was first announced, Booker retailers have delighted at the opportunity to access Tesco’s buying terms to help them drive up store margin and remain competitive. But how much of this advantage will be passed to independent retailers and how much will be used to bring Tesco’s pretty lean bottom line closer to Wetherspoon’s 7.7% remains to be seen.