The Prime Minister claimed that “a family with a reasonable drinking habit” was “actually subsidising the binge drinker” because supermarkets were increasing the price of food to fund cuts in the cost of wine, beer and cider.
The comments, to a group of factory workers in north Wales, provoked astonishment from supermarkets last night.
The British Retail Consortium said the remarks were “nonsense” and demanded to know what the evidence was for the claims, while a spokesman for Sainsburt said the Prime Minister was “plain wrong”..
But Downing Street stuck to its guns, citing an article from a medical journal in 2009 by a leading liver specialist which suggested supermarkets were overcharging for food to pay for cheap drink.
So let us assume that the supermarkets really do use cheap booze as a loss leader.
Get them into the store with cheap something or other and then rook ‘em on the other stuff they buy on the way around.
Actually, we’re pretty sure that they do do this on some products. The ones that we pretty much know the price on. Milk, bread, the basics. Might be booze in that class as well.
But, here’s the thing. Well, a couple of things actually. The first being that it’s not normally the supermarket that takes the hit on a special offer. It’s the supplier. BOGOF and all that, it ain’t Tesco that eats the cost of that second frozen pizza. It’s Dr. Oertikkers or whoever.
The second is rather more important. Loss leading doesn’t work if you’re making a loss on one customer and then making it up on hte second.
It only works if you’re makingt a loss on one part of a sale to a customer and then making it up on the other part of the sale.
For example, of what value is a band of chavs coming in for three cases of lager each upon which the supermarket loses £1 a case? If that’s all they buy?
That’s “a band” x 3 £s that the supermarket has just lost. And they’ll not attract upper middle class families like the Camreons to their stores to spend more on food as a result of having subsidised the chavs, will they?
The connection is not between rooking the Camerons on food and subsidising the chavs. It’s between subsidising the same shoppers on one part of their shopping bill in order to rook the same shoppers on another part of their bill.
Entirely drinkable Oz wine at two for a fiver might get someone through the door who then happily pays £7 for a filet steak to go with it. Or £25 for the entire meal being washed down.
And the whole scheme only actually works if this is what happens. If the chavs don’t leave a decent profit on the white bread and beans they’re going to dine on, the wine drinkers on their tidbits, then there’s absolutely no point at all in subsidising the booze in the first place.
That’s what’s wrong with Cameron’s assertion: he’s got the logic wrong.It’s not cross subsidy across shoppers. It’s cross subsidy across the things that shoppers buy.
Well, of course, there’s the other thing that Cameron’s got wrong which is that the government defining what price two private players must conclude a contract at is a ludicrous infringement of freedom and liberty. But then we all knew he was an authoritarian fucker anyway.
And stupid to boot as it’s all illegal.