Supermarkets: Cheap Convenience or Part of the Problem?

This week’s blog was written by Gareth Conlon. Gareth has been involved with Development Perspectives since 2008. Gareth is currently studying for his Masters degree in Development in Kimmage Development Studies Centre.
tumblr_inline_msnj7cwSBx1qz4rgpOne of the biggest challenges we face in Irish society today is that of unemployment. If we listen to the government who stated in their action plan for jobs 2012 and 2013 that “The Irish society must prioritise the actions that will help people find the jobs on which they can build their own lives and build thriving communities around them.” (Pg 13) I believe that if we are to do this sustainability then it is not enough to look at the future actions, we must look at our past actions and see what has led us to this point. This blog will look at peoples shopping patterns and aim to create a discussion around this. Are our individual actions and shopping choices part of the problem or solution? I will look at independent stores compared to supermarkets and the effect each have on a local economy.


The Reason for this Blog:
Tesco are currently up-scaling their operations in Dundalk to a mega-store. The Dundalk Democrat (Delight as Tesco gets Green Light, 2011) quoted the Dundalk Chamber of Commerce CEO Bill Tosh who argued after Tesco was given the green light in 2011 to upscale its operation on the old Dublin road of Dundalk that this was “good news” for Dundalk. €55 million will be pumped into transforming the site into a state-of-the-art supermarket and Tesco will increase its staff from 100 to 200. I believe this to be very short sighted however, if Tesco does employ 200 people but they are costing 300 jobs in other parts of the system then this is not good for Dundalk or Ireland as a whole. There have been several studies done by Goldsmith and Mander (2001) and another one cited by Simms (2007) which show that for every 1 job a supermarket creates they cost 1 ½ else were. This maybe from the Farmers, the Butchers, the Delicatessens or some other part of the chain. This is because existing or independent retailers are more labour intensive. It is also because independent businesses have a much better multiplier effect for the local economy. Simms (2007) argues on the cover of his book Tescopoly that instead of Tesco saying their catchphrase every little helps, that it is more accurate to say “every little hurts”.
The Multiplier Effect:
The multiplier effect is the benefits an economy gets from money entering into the region. For example, if I buy €20 worth of goods in a shop, this shopkeeper then uses this €20 and buys goods from her supplier, the supplier then pays wages with this €20. This €20 that I have entered into the economy has now multiplied its benefit to €60 because other businesses have received it also. It has circulated around the economy. The longer it stays in a local economy the better for the region.

Small business as a source of employment:
Nijkamp and Van Hermert, (2007) argue that Small and Medium enterprises (SME) generate 60 to 70 % of employment and create a large number of new jobs. Mateev (2010) talks about the SME sector accounts for over 95 per cent of enterprises and 60-70 per cent of employment. They generate a large share of new jobs in OECD (Organisation for Economic Co-operation and Development) economies. The OECD is a partnership between 34 countries that work together on economic issues. In the European Union Mbizi et al (2013, 370) argues that small businesses are inextricably linked to economic empowerment, job creation, and employment within disadvantaged communities. Jackson & Longlands (2008) from the Manchester School of Management have argued that there may not be a single independent food store left in England by 2050. Supermarkets are continuously working to increase their share of the market. There is a limit to the amount of retail any one town can consume. At a certain point there becomes saturation, which leads to businesses closing. Supermarkets sell everything under one roof from bread, clothes, books, and even financial services. It is no longer simply the food business that is affected by supermarkets. No business is safe.

Then what happens?
Boyle (2002) argues that when the number of local retailers falls below a critical amount, it seems, the amount of money circulating within the local economy will suddenly plummet. If only half the population does a small amount of shopping at a new superstore it can be enough to bankrupt the town centre. This is because very little supermarket revenue stays circulating in the local economy.

Where do the profits go?
When all these individuals or independent businesses work on a product they each add value to it and gain money from their work. This pays wages. A local economy is built on this premise. In a supermarket production line the profits leave the local economy and go back to the supermarket shareholders. Their profits are massive. According to Forbes, Wal-Mart was the largest corporation in the world in 2013. According to Deloitte (2010) Tesco is the second biggest retailer in the world behind Wal-Mart.
Rowell (2005, pg 55) points out that in 2004 Wal-Mart made $18 billon in profits. This is more than the total of the Kenyan economy. They reached sales of $260 billon, which was larger than the economies of Argentina, Greece, Denmark or Ireland. Simms (2007, pg 90) argues that if Tesco were compared to countries in terms of economies it would come 55th in the ranking. This is ahead of Bangladesh the worlds 8th most populated country with 141 million people. It equals roughly Bolivia, Barbados, Bulgaria, Bahrain, Bosnia, Botswana, and Bhutan’s economies combined. I believe that the main aim of a state is supposed to be to look after the welfare of the people living in that country; a supermarket’s main aim is to make profit. A country’s economy pays for hospitals, schools, and infrastructure whereas a supermarket’s profit goes to their shareholders. If we want to work towards the development of a society, we need to discover what type of society we wish to live in? I believe there are two clear choices, one where a society looks after its people and where everyone has enough to live on, or one where corporations have more money and power than nation states at the expense of people’s livelihoods?

Paradox of thrift:
A lot of families are struggling to make the bread line and I do not under-estimate this, however another economic principle is the paradox of thrift. The paradox of thrift explains that by trying to save, more people can end up saving less. We have seen the damaging effects of thrift in the current downturn, in which people try to save money in the name of frugality but this has reduced employment in the retail sector, thus deepening the downturn. If we employ this way of thinking and use supermarkets as an example – people shop in these places because they believe them to be a cheaper alternative, however in the long run it could be costing money to the local economy because they are costing jobs. A family may shop in Tesco or Lidl because they need to save money and believe them to be cheaper, but because these stores are located in the town many local independent stores close because they cannot compete. This means Mammy or Daddy loses their job in the local delicatessen or butchers. In this instance surely the family or the town are not really saving anything?

Much of the literature points towards small locally independent business as a positive way of creating jobs. It is up to each individual and family to take the money away from big corporations and make it work better for the people and their own community.

Boyle, D. (2005). Making it work: why localism is the key to public services. Available: Last accessed 26/08/2013.
Dundalk Democrat. (2011). Delight as Tesco gets green light. Available: Last accessed 04/07/2013.
Fine Gael (2012). Action Plan for jobs 2012. Dublin: Irish Government. 13.
Forbes. (2013). The World Biggest Public Companies. Available: Last accessed 03/09/2013.
Goldsmith, E, Mander, J. (2001). The case against the global economy: and for a turn towards localization. In: Goldsmith, E, Mander, J The case against the global economy: and for a turn towards localization. London: Earthscan Publications Ltd. 79-80.
Jackson, M & Longlands, S (2008). The role of independent food retailers, markets and community food initiatives in local centres. Manchester : Centre for Local Economic Strategies.
Mateev, M. (2010). Determinants of small and medium sized fast growing enterprises in central and Eastern Europe: a panel data analysis. Financial Theory and Practice. 34 (3), 269-295.
Mbizi, R, Hove, L, Thondhlana, A, Kakava, N . (2013). Innovation in SMEs: A review of its role to organisational performance and SMEs operations sustainability. Interdisciplinary journal of contemporary research in business. 4 (11), 370-389.
Nijkamp, P, Van Hemert, P. (2007). Going for Growth; a Theoretical and Policy Framework. Economic and Social Research Institute series Papers. DYNREG14, 392.
Rowell, A. (2001). The Wal-martians have landed. In: Goldsmith, E, Mander, J The case against the global economy: and for a turn towards localization. London: Earthscan Publications Ltd. 55-56.
Simm, A (2007). Tescopoly. London: Constable ad Robinson . 6,10,11

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