Tesco admits to price manipulation – increasing the price of products before reducing them again as part of a price promotion. I’m shocked. Checkout magazine claimed that Tesco, rather than engaging in ‘price-cutting competition’, actually raised the price of 8,000 products in the first two months of this year. I’m stunned. Is this what capitalism has been reduced to – an Orwellian shopping spree where stores announce price cuts even though the products were cheaper the day before?
Why be surprised? This is how profits are made. How much profit? Oh, we’re not allowed to know that:
‘Commercially sensitive” is a favourite phrase of Tesco executives. When the company is asked for details of its profit margins in the Republic it says it can’t share them because they are commercially sensitive.’
So much for the theory of perfect competition where vendor and buyer are on equal terms knowledge-wise; especially when companies can use the expedient of ‘unlimited companies’ or ‘branch of a multi-national’ to avoid having to report their accounts.
When the recession hit town we were lectured over the cause of our high prices: workers were ‘over-priced’, government charges and taxes were too high, we were paying ourselves too much and not working hard enough or smart enough. Excessive profits? Er, no, that can’t happen – not when you have ‘competition’. And everyone knows that the retail sector is fiercely competitive; Tesco executives tell us so.
Okay, so retail executives can’t share this sensitive information. But fortunately we have other sources to find out if enterprises are engaging in excessive profits. From the EU Klems we can discover the amount of profit (capital compensation) earned for each hour worked in the retail sector – up to 2007, the last year available.
Hmmm. No wonder Tesco executives want to keep their profit margins secret. If profit levels fell to the Eurozone average, prices could be reduced by 19 percent. Or wages could have been increased by a third. Those are big impact sums.
Let’s look at the issue another way, profits as a percentage of turnover (output). Yes, we can now see why such commercial information might be classified as ‘sensitive’.
In Ireland profits are over three times, nearly four times, the level of turnover than throughout the Eurozone.
When we debate high costs in this country, excessive profits are rarely mentioned. Yet it is a key element in price setting – as key as labour costs which are blamed for all sorts of ills. We can put this in some perspective, by looking at profits as a percentage of labour costs in the retail sector.
Nothing can explain this save for excessive profit maximisation (no, it’s not about high labour costs – in 2008, Irish labour costs in the wholesale/retail sector were over 5 percent below the EU-15 average, and over 11 percent below uber-labour cost competitive Germany).
Of course, maybe there’s something wrong with the EU Klems data. One should never rely on one dataset. However, it is part of a general trend that has been examined previously – such as this analysis of high-profit Ireland. Both the Eurostat and OECD produce data showing profits higher in Ireland than almost anywhere else in Europe.
And this is not the case of multi-national accounting activities in the retail sector (not like the Chemical/Pharmaceutical sector); Irish enterprises still dominate overall retail- at least in terms of
But there is one thing that the new Government could do to start informing the debate: require all enterprises to publicly produce accounts, including profits. Limited companies have to do this – there’s no reason why all companies shouldn’t do this.
Let’s desensitise this commercial information. And if there is little we can do in the short-term to prevent excessive profits, at least we should know how much we’re being stitched up for. That would be a start.