Isn’t the free part of free market capitalism so lovely?
It is wholly true that there is no such thing as a “free market”. All interactions between humans are intermediated by culture, the law, geography, language and so on and so on. Which is why we neoliberal types normally don’t mean that version of free. Rather, we mean a market that someone is free to enter.
You’ve got a new idea, can you set up and try it out? Yes, obviously, there will be constraints, can you gain finance, planning permission, find the staff and on and on. But all of these things run along a spectrum, we can talk of markets that are freer to enter than others. And, our - most neoliberal, we confess - contention is that the freer to enter the more such markets will serve consumers.
But for some, the move belied a desperate bid to once again steal a march on Britain’s established supermarkets as they became increasingly adept at copying Aldi’s strategy.
Tesco, Sainsbury’s and Morrisons are among those advertising “Aldi price match” products.
The result, apparently, being that Aldi’s not doing as well - in growth at least - as it used to:
The timing is awkward for Aldi. Its sales rose by just 0.8pc in the 12 weeks to Aug 8, according to NIQ – compared with 8.2pc at Lidl, 13pc at M&S, 17pc at Ocado and 3.6pc at Sainsbury’s.
Aldi has continued opening new shops, making the slowdown more significant.
Shame, what a pity, etc.
As we’ve noted before a useful little pencil sketch of the British grocery market was that Tesco had the world’s highest margins - net profit as a percentage of sales - globally in the sector a quarter century back at 6% or so. Then came the irruption of Aldi and Lidl, substantially cutting those margins and they’ve only just recently climbed back to perhaps 3%. Pencil sketch again, but Aldi’s arrival, in volume, has meant all groceries, bought by everyone, are 3% cheaper. This effect, across the entire market, is vastly larger than any amount of profit the owners of Aldi have been able to ship off back to HQ in Germany. The winners here are us, the British consumer. That pressure remains - thus those Aldi price matches mentioned above.
One useful observation here is that we don’t need all that many competitors for a market to look as if it’s free in that competitive sense. The addition of a fifth and sixth serious competitor does indeed seem to be enough to remove market power and cut the capitalist profit margins. It’s not necessary to have that infinite number of producers in order for producers to have - not much at least - market power.
The major one though is free market capitalism, what a system, eh? The capitalists compete with each other for the profits that can be screwed out of us, folk with new ideas get to enter the fray and guess who benefits over time? That’s us, us out here, we consumers. It’s a heck of a system we tell ‘ee, a heck of a system.
Tim Worstall