6 January 2009
Ten years ago, overcome by the twin excitements of the dot com boom and the arrival of my first delivery of groceries ordered online from the Food Ferry – which boasted of being London’s Grocery Home Shopping Company – I wrote a paper predicting the demise of the supermarket.
I wasn’t quite daft enough to think that everybody was going to do their food shopping online. My argument was slightly more subtle, though it has so far proved no less wrong: it was that enough of the cash-rich, time-poor customers from whom supermarkets make most of their profits would defect to make the job of serving the lower-margin customers insufficiently profitable to sustain the overheads of large sheds with even larger car parks wrapped round them. As it turned out, Tesco roughly trebled both its turnover and its profits between 1999 and 2007, which demonstrates fairly clearly that they know more about running whelk stalls than I do.
Clearly the economic downturn is the direct cause of most of these failures but I believe it is the straw that broke the camel’s back in most cases. The internet, now closing in on 15 years old in its mainstream incarnation as the world wide web, is in many cases the underlying cause of these business failures. Bits of information flowing over a wire (or through the air) are just more efficient than physical infrastructure.
It’s debatable whether the internet did for Woolies – it seemed well able to destroy itself without any outside help. But the general point remains: the more that traditional retailers lose market share, the more of a burden their fixed overheads will be, and the more vulnerable they will be to online competition, risking a vicious circle of decline. Electrical stuff is an obvious example of where that can already be seen: on 2 June 2000 you could have bought a share in DSG (Dixons and Currys) for 350p. This afternoon, you could have sold it for 21p.
Not all of us live by daily sales figures. But all of us will have to live with the expectations that these changing patterns of behaviour create. As Tom Watson concludes.
Globalisation in a connected world did for Woolies. When my son is a teenager, his friends will arrange to meet online and share their music tastes before pressing the ‘buy’ button. They’ll discover the world from their shared trust in favourite web sites.
We are entering an era of profound and irreversible change to the way people choose to live their lives and organise the world around them.
The conventional supermarket may still have plenty of life in it. But that’s a long way from guaranteeing its long-term sustainability. Perhaps it was my timing which was wrong in 1999, not my argument.