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Why supermarkets are good, and what this has to do with the productivity paradox

A couple of weeks ago, non-resident Samizdatista Alice Bachini pointed to this Telegraph piece in praise of supermarkets in general and the Tesco chain in particular, which explains that supermarkets help us to save time and money, make life easier (particularly for women), and provide a tremendous range of stuff much easier to buy at all sorts of odd hours if necessary, that Tesco provide a fine online service for people who want it, and that all round these are really good things and should be applauded. (Oddly enough, my fellow Samizdatista Jonathan Pearce wrote a similar piece between my starting and finishing this piece). Now this is a good article – it even takes a brief time out to denounce the Common Agricultural policy as evil – and on the whole I couldn’t agree more. However, there is one important issue that the author (Alice Thomson) missed. Midway through the article, she says the following

Supermarkets are always accused of sacrificing quality for quantity. Actually, because they buy in bulk and have a rapid turnover, it often means that their fruit is fresher than their competitors’. At Tesco yesterday, I counted six varieties of autumn apples, four from Britain.

Because they have such huge buying power, they can also take a gamble on exotic produce. The old corner shops were great for a packet of cigarettes, but they’d never have sold fresh basil. Supermarkets have made us more rather than less adventurous.

The result is entirely true. Supermarkets today contain a great many more lines than was the case a couple of decades ago, particularly fresh foods. But she is wrong about the reason. The reason why supermarkets are able to provide so much better products is not about buying power. It is instead almost entirely about the benefits that have been obtained by supermarket chains developing complicated computer systems to handle their logistics.

I will return to this, but for now a digression into economics. Economists in recent decades have often talked about something called the productivity paradox. Essentially, this notes that in recent decades businesses have been spending more and more money on computer systems, and statistics that measure national and personal wealth have not shown any improvement due to this equipment. There have been various speculations as to why this is so, but as the computer revolution has become more and more pervasive in all aspects of life, the idea that we do not gain any economic benefits due to computers becomes steadily more ridiculous.

To be fair, some benefits have started to show up even in the statistics in the last five years or so, but still these seem way too small, given that the world actually has been revolutionised. It seems that the numbers are wrong, but the question is how.

So we get to how the statistics are actually calculated. Basically, the statistics show an increase in prosperity if one of two things happen: incomes go up or prices go down.

When they are measuing just how much better off people are this year compared to how they were last year, economists generally look at GDP per capita. Essentially they look at the average income per person this year, see how it has grown compared to last year, subtract the inflation rate, and what is left is real growth in GDP per capita. For real GDP per capita to grow, incomes have to increase faster than the inflation rate, and for this to happen, workers have to become more productive – that is, they have to produce more goods and services per hour. Therefore, figuring out how best to encourage productivity growth is in essence the key task of economic management. (By the way, one great cause for uncertainty in economic statistics comes from the measurement of the inflation rate. Do this incorrectly, and stated numbers for GDP growth can be and often are wrong. Most economists believe that this has been happening for the last couple of decades, which is one reason why claims that “real wages have stagnated for blue collar workers since 1970” and the like are largely bunkum. But I digress).

The key point is that where new technology causes prices to drop, the statistics are good at showing it. However, where new technology changes the nature of the product, but the price remains the same, the statistics have much more difficulty showing it. And yet, the benefits are still real.

And that is where we get back to supermarkets. What the computer revolution has done for supermarkets is to allow them to create much more complex supply and distribution chains. This means that they are able to use a far greater number of suppliers, and that their stores can carry a far greater number of different lines, and that transport from suppliers to warehouses to shops has become far more efficient. (This leads to the biggest change in supermarkets over the last 20 years. The number of different lines they carry has increased by a factor of ten or more). They can keep track of approximately how many of each item is on the shelves of the supermarket at any one time. It is not necessary for people to look at how long perishable foodstuffs have been on the shelves, because the computers can keep track of this, too. If there is sudden demand for any particular item, then the store can be restocked extremely quickly in this item. Thus the supermarket has a far better idea of what customers want to buy, and it can improve its offerings. It is possible to stock 12 different types of apricot because detailed facts are known about how fast each type moves off the shelves. Because they know this they can make sure that the produce all remains fresh. Tesco’s computer systems have allowed them to increase the complexity of their stores dramatically, to the benefits of customers.

However, what they have not done very much is drop their prices. They offer a product that is much more tailored to their customers wants, and they provide customers with products that they may never have been able to buy in supermarkets (or anywhere) before, and they provide an all in one shopping experience, and customers are willing to pay for these benefits by paying higher prices than they might be able to get elsewhere.

Now, when quantifying the economic benefits of this, traditional ways of measuring look for lower prices. Tesco don’t provide lower prices, they provide a more complex product. Because people are paying about the same amount (or more) on groceries, and because Tesco are using about the same number of staff to provide it, the economic statistics do not demonstrate that anyone is better off, when obviously they are. People are buying things of the same value that they did before, but are buying much more complicated combinations of things. The economic statistics do not pick this up. But if you can see the value, one aspect of the productivity paradox is explained.

(This is one instance of a general effect of the computer revolution: the presence of computers allows companies to runs systems that are more complex in lots of ways. Another place this is evident is in the realm of design. Products design contains a low more style, a lot more choice, and a lot more complexity than was the case in the past, again largely due to the presence of computers. Virginia Postrel noted this fact a couple of years ago, and found it so fascinating she ended up writing an entire book about it).

Another different model for running supermarkets is the low cost supermarket model, in which a company offers a small number of lines as before, and no fancy service, but simply uses the improved logistics due to the computer revolution to track down and purchase from really low cost suppliers. This is the model of the two German chains Aldi and Lidl. In this case, prices drop and this does show up in productivity statistics. This is also a successful model, but most people seem willing to pay more for the more complicated service of the likes of Tesco.

In recent years, the retailers with the best computer systems have been able to expand their businesses in a way that other retailers can’t, and have had their stockmarket value expand dramatically. Once you have a really complicated computer system keeping track of all aspects of your business, you can do a huge amount with it. For instance, Tesco’s highly successful internet grocery business was relatively easy for them to set up, as it just piggybacked on the existing system. Britain has peculiar Sunday trading laws that only allows stores to open for more than six hours if they have a floor area of less than 280 square metres. Tesco have been able to fit full service supermarkets on that floor area, but could not do so without their highly complex inventory and logistics systems. Supermarket chains with good computer systems have been able to buy stores from chains with bad computer systems and have been able to change unprofitable stores into profitable ones just by changing the logistics and supply chains. (The takeover in Australia of many of Franklins stores by Woolworths is a classic example).

In fact, Tesco are so good at this that it is almost frightening. The British government is threatening to introduce compulsory ID cards, which will threaten our privacy and civil liberties in a wide assortment of ways. However, this is only the government. The government lacks the competence of a really good private sector concern with profits on the line. If Tesco were running the national ID card scheme, that would really be scary.

Except, of course, Tesco do run such a scheme. They call it a loyalty scheme, and give me a card to track my purchases, create a large customer database of my preferences and supposedly make special offers specially catered to me. I don’t have one of these because I value my privacy. (On the other hand, Tesco could still no doubt track me if they really wanted to, because I usually pay with the same credit card). However, this does illustrate the central dilemma of this type of technology. The benefits are potentially great, but the privacy implications are potentially great also. (We are also starting to see trials of systems in which every item in a store carries an individual radio identification tag. Once again this will help make supermarkets more efficient, and will no doubt help them minimise theft, but once again the privacy implications are troubling).

And computer systems aren’t everything. Britain’s number 2 supermarket chain is Sainsbury’s. And I have to confess I like Sainsbury’s more than Tesco. This is because they do really well for nice gourmet stuff (great cheeses for instance) and their wine and beer sections are full of really interesting stuff. Tesco are constantly praised in the business press and Sainsbury’s constantly criticised for not getting their logistics right, but they are still actually not my favourite place to shop. In my mind, Sainsbury’s do slightly better with respect to human things like differentiating between a good wine and a really good wine. Tesco’s computer systems are wonderful with the large scale stuff, but sometimes fall down slightly on the very small scale stuff.

This is all relative though. Sainsbury’s actually do all the computer stuff very well too. It’s just that Tesco do it better. Or perhaps I am just a snob.

30 comments to Why supermarkets are good, and what this has to do with the productivity paradox

  • I heard a useful explanation of why I should occasionally use my “loyalty card”. I live in Upstate New York where the dominant grocery store is Wegman’s. The Wegman’s stores in Rochester and Syracuse are truely amazing — sometimes one has to drive to a Rochester store just to window shop!

    One of my friends points out that she ALWAYS uses her loyalty card (which tells the computer where she’s from) when she buys exotica in Rochester. She insists that in the last few years more and more of the exotica is now showing up on the shelves of our “little” Wegman’s because they know that folks from Geneva buy these things from them in Rochester and might buy them even in Geneva.

    Still, I never let them know what my normal weekly purchases are!

  • Kelli

    To appreciate the beauty of the modern supermarket you either need a time machine or a stint in the third world. Lacking the former I gained my insight by spending a year in India. The upside: you really know your chicken is fresh when a guy picks one up in front of you, slices its head clean off, then plucks it lightning fast and puts it (still warm) into a plastic bag for you. The downside: who has time to negotiate prices and exchange coins every few feet? On top of that, nothing in developing countries is processed, packaged or precooked (I believe in India it’s still under 10% of all food, here it’s approaching 50%). That may sound great in theory (everything’s FRESH) but sucks if you have to cook it all over an open cowdung brazier.

    What supermarkets lack in old fashioned charm they more than make up for in hygiene, convenience, and value. God bless Sainsbury’s!

  • Kelli

    There are still LITTLE Wegman’s? As a former upstater who always loved that place I gotta say–enough already. You need running shoes to get around in under an hour.

  • There is a very large Asda near where I live in South West London and it is continually out of stock of key lines and has half empty shelves. It is a picture of incompetence compared to the nearby Sainsbury’s, however it does have the virtue of being open 24 hours a day.

  • Michael: The purpose of a loyalty card is like any other aspect of their business. They want to find out information about you so that they can sell you more stuff. If that means that they make it easier for you to obtain stuff you like, then this is obviously good for you as well as them. The question is whether it is worth the tradeoff in terms of privacy, and that is not an easy question to answer.

    Paul: The interesting thing is that Asda are now owned by Wal-Mart of the US, who are legendary for getting this stuff right. It seems they are having trouble getting their business practices into a business they purchased off someone else. Actually much of the rest of the retail world might be consoled by this, as you would not believe how many companies are terrified by the thought of Wal-Mart entering their market and sending them out of business.

  • I think another factor that gets overlooked by many people (but not you Michael) is things these days that cost the same, and perform the same function, as things that existed years ago but are now better. Computers themselves are an obvious example – a “decent” PC now costs what a “decent” PC cost ten or fifteen years ago, but standards of what constitutes a “decent” PC are many times better. Other electronic stuff – I know nothing about high end hifi, but I’ve recently been upgrading my not-high-end system, and I have the impression that what you get these days for money that I’m willing to pay, is as good as stuff that used to cost a good deal more. Similarly cars – not cheaper but more reliable, more economical, cleaner.

    (As an aside, I was heavily involved in sales forecasting & replenishment software for [a major supermarket chain that has been mentioned here] about ten years ago. At that time they were in the process of shfiting from a regional to store-based logistics, where stores placed their own orders rather than getting whatever the region told them to sell. I wasn’t directly involved with the forecasting algorithms – pity, they were interesting – I was brought in to tune the code after they’d built it and it wasn’t fast enough. It was 5 or 6 times faster after I’d finished with it – one of my better efforts.)

  • Tom Robinson

    One thing I like about the supermarket chains is that they can all gain from each other’s innovations, yielding rapid growth in efficiency and convenience for rich and poor customers alike. In Britain we enjoy a 7-tier Food Service, now let’s embrace a 2-tier Health Service.

  • Kit Taylor

    I dunno. All this talk of computers doing clever things in massive, centrally planned collective institutions have frown-worthy echoes of Salvadoe Allende’s Project Cybersyn.”

    Didn’t someone say all communism needed was a big enough?

  • Kit Taylor

    That’s big enough COMPUTER, folks.

  • Sigivald

    I’m not sure about that, Alan.

    Seems to me that a decent PC now is not only orders of magnitude more powerful than a decent PC of 1988, but it costs less in real dollars.

    (Unless inflation has cut the value of the dollar in half in 15 years, which I don’t think it has, offhand. Not in these 15, at any rate.)

  • David

    This doesn’t only work for groceries. Two other obvious examples: cars and computers.

    Although the cost of cars has increased over the years, the product has changed. For example, forty years ago a basic family sedan would have cost a few thousand dollars at the most. Today, they cost over twenty thousand. However, cars today are so different that it is impossible to truly calculate the rate of inflation in their prices. How do you measure the value of an AM/FM/CD/cassette stereo with twelve preprogrammed channels, adjustable stearing wheel, adjustable three-point safety belts, airbags, fuel efficient engines, sound reduction, air conditioning, cruise control, etc, etc. I suspect that if a factory mass produced the same car as my parents bought forty years ago, the company couldn’t give them away. In other words, car prices have deflated over the years. They only appear to increase because manufacturs continue to make improvements, which increase their prices.

    The same takes place with computers. While a basic personal computer costs more today than it ten years ago, the quality of the product has increased even more. Five years ago I bought a CyberMax 233 AMD K6 with a 12xCD drive and 4 gigs of memory for just over two thousand dollars. Last year I bought a new Dell. It cost just over three thousand dollars, but it is so far beyond what I bought four years ago, that it is virtually impossible to compare. At the same time, my CyberMax depreciated to no value at all.

    This has given me some skepticism about both GDP and inflation figures. I suspect that industrialization brought a period of continuous deflation which economists fail to recognized because they assume that products which appear the same are actually so vastly different that price (versus value) comparisons are meaningless.

    Rather than measuring the current cost of a car, economists should present a range of people with a forty year old car and ask them what they would pay for it. Then we could actually measure the true rate of inflation or deflation.

  • The Wobbly Guy

    I had a sneaking suspicion the socialists/marxists think they might do better the next time round if they had better computers to crunch data for them…

  • Great observations! I never thought about the productivity measurement being absorbed by something like greater variety before. Makes loads of sense.

    I hate store cards. I have been known to cease shopping entirely at stores that use them. Yet I understand the point,

    Finally, this is the kind of post that would be a good submission for Carnival of the Capitalists.

  • If supermarkets have an edge over smaller stores not because of purchasing power but because of better computer systems, wouldn’t it be their purchasing power that allowed them to buy the better computer systems?

  • David Duff

    It’s always nice to see your own favourite observation, with which you have bored friends and enemies alike, repeated elsewhere.

    Every time I read some Leftie blog whining for yet more money for their rotten national health service, I keep urging them to go to their nearest Tesco, pause, look about them and THINK!

    They will find themselves surrounded by splendid, fresh, clean produce from all over the globe displayed attractively and tended by pleasant staff and polite management who will right any wrong without demur and this cornucopia will be open to them 24/7/365. Compare and contrast with your average accident and emergency department!

    I ask them to ask themselves, what is the missing link? The crucial factor? The one huge, whopping difference between the one institution and the other? The answer, of course, is that Tesco are in it for the money and are forced to compete with Sainsburys et al! I know this is a commonplace for readers of this blog but it still remains a mystery to me how anyone can fail to see anything so bleedin’ obvious.

    So, all hail to the supermarkets, the cathedrals of the 21st century.
    David Duff
    PS: Occasionally, in a fit of tepid ‘greenery’ I will go to a farmers’ market. The produce is never a patch on the supermarket and is double dear!

  • Dale Amon

    And not to mention one of the biggest deflations in price: software that cost hundreds of thousand if not millions two decades ago is now… free.

  • David Gillies

    Yeah, right, socialism would have worked better if the commies had had better computers. First point: this is crap. The measurement fallacy doesn’t go away no matter how much horsepower you have to throw at the problem. Second point: what better computers? If the commies couldn’t build them the first time round, why should they do any better in the future? My Bulgarian colleague has regaled me with stories of the lamentable knock-off rubbish he cut his teeth on as a programmer – 8086 level machines in the early nineties. There was no shortage of brilliant individuals working in the Eastern bloc, but the system doomed their collective efforts to failure. Technology of the level we have today is only possible in a free society.

    High technology has vastly enriched our lives. The range and quality of consumer electronics I possess is extraordinary: digital camera, DVD player, mobile phone, Palm Pilot, computer, high speed internet connection, and so on. Most of those things would have been pipe dreams 15 years ago, and those that were not were of a vastly inferior standard (in 1988, remember, a 100 MB hard disk was large – a device with 1000 times that capacity is entry level today). This increased utility is hard to quantify in money terms, but it’s very real.

  • Rossz

    I prefer shopping at the supermarkets here in California. In fact, the small mom-and-pop markets have virtually disappeared. Most smaller stores are Quickie Marts. Booze, sodas, candy bars, and chips (crispies to you British). The supermarket is rather convienient and quality of most items is very good.

    Most. A few things aren’t so good. Look at the tomatoes. They are absolutely beautiful. Large, red, unblemished. They are also quite tasteless.

    And bread. Lots of choices for the prepackaged, presliced “Wonder” breads. Again, tasteless. I want the bread we picked up fresh each day in Budapest. Now that was BREAD. It was big, unsliced, in a paper bag and you could make a meal of it. The local supermarket does bake bread each day, but it isn’t in the same class as the Hungarian bread, though it’s still an improvement from just a few years ago.

    At least we have cheese in an arosal can. That’s what makes America great!

  • I’m best acquainted with improved quality in low-circulation technical books and journals. Twenty-five years ago, they were typed out on an IBM Executive typewriter (where every letter has a slightly-different baseline) and the formulas were frequently scribbled in.

  • Better computers enable effective central planning? I don’t think so. I for one certainly never talked about “computers doing clever things in massive, centrally planned collective institutions”. On the contrary, as I mentioned earlier the big step forward for the supermarket chain I did the forecasting software for, was moving from forecasting & ordering at regional level to forecasting & ordering at store level. It’s a universally known fact in the software development world that big centrally planned software development projects to build big central planning systems almost always fail – rather like practically anything else involving big central planning.

    Sigivald – you’re right about the price of computers. There are a couple of ways of looking at that. My phone, which cost me 50 euros, is at least as powerful as a computer that would have cost a couple of thousand (euro equivalents) ten years ago. And my current techno-lust object, the latest Apple Mac, costs $3000 and is at least as powerful as supercomputers that cost millions ten or fifteen years ago; it’s also comparable to high end workstations that cost tens of thousands only a couple of years ago. (And that’s not just Apple Macs – you can get PCs that are close in terms of raw power for about the same money).

  • David Duff

    This side of the pond the supermarkets are selling tomatos on the vine which seems to help keep the flavour. Also, don’t keep them in the fridge, or at least, take them out 24 hours before eating and the flavour returns.
    David Duff

  • Richard Buckley

    Remember the first supermarkets?

    They said, “Ho, the supermarket!

    Got oranges, bananas, an’ mannas an’ sannas an’ coos…
    You go in.” Say, “Oh, yes!”
    “Whatta ya’ do?”
    “You get a cart.”
    “You do?”
    “Well, where’s the fruit?”
    “It’s over there.”
    “It is?”
    “Have you seen the ravi… ”
    “No, I don’t know anything about that.”

    And there you are pushin’ in the supermarket with the cart.
    You grab the cart and you go strolling up and down the aisles
    and you load up all your jazz
    and you’re working for them, see?

    But it’s alright.
    It’s alright, because you’re getting –
    this is the beginning –
    very, very, low, low, low, low prices.
    Saving, you see.
    So you don’t mind, you know, pushing a little bit.

    And then, a few swings of the…
    Same supermarket, same cart.
    Prices – whhhhooooo!

    And you’re still pushin’ the mother cart.
    Still workin’ for ’em.

    And you’ll even take carts and push them into other carts,
    to show that you’re… Right?
    It’s amazing.

    But it’s a charge, isn’t it? I love to go…

    I wish I had the nerve to be a great thief.

    I know a fellow that can put seventeen sirloin steaks
    in his britches and you can’t see ’em.
    Gets a little chill before he gets out of there.

    Just loves to steal.

    I can understand that. Can’t you? Course.

    Oh, it’s a hangup!

    Abe wouldn’t dig that jazz.
    Well, it’s a kick anyway, isn’t it?

    What a great thing it is to be alive.

    My Lords. My Ladies.

    Would it embarrass you very much if I were to tell you that I love ya?

    It embarrasses ya, doesn’t it?

  • Steve

    In my corner of NW London there is only one supermarket. It’s the most unpleasant place to shop imaginable. Empty shelves, massive queues and expensive. There’s just no damn *space* for someone else to set up shop so there’s no prospect ofcompetition. The only alternative is to have a car or go to the hassle (and expense) of going a few stops on the tube to the nearest decent supermarket – both of which are expensive. If you can’t afford the transport you’re stuck with empty shelved, overpriced Somerfield and have to buy their expensive goods. As happens so often, people living in wealthy areas, or able to afford to travel frequently, are able to choose from a wide range of reasonably proced goods whereas those who cannot pay more and have less choice. Poverty trap anyone?

  • Kit Taylor

    Aren’t Sommerfields about to be taken over by Morrisons? I’m sure they’ll put them to rights, Mr Morrison seems a real “man on a mission” type. In the grotty area I live, save for some iffy fresh vegetables the local Kwiksave (el cheapo supermarket) is very good, with a really fantastic meat counter.

    Good to hear we’re not about to be enslaved by a mighty electronic brain after all!

  • Mark L

    If anyone is really worried about the privacy implication of a loyalty card, simply provide bogus information in the application. Where I live (Texas), you get the card at the store in exchange for filling out the form. They do not check it against your driver’s licence or any other identification.

    So fill it out accordingly. Say you are Emma Nalias, and that you live on 123 Sesame Street.

  • Mark: The trouble with that is that they can still establish the shopping habits of a person, and then matching that to a real individual is not likely to be all that difficult. For instance, if you use a credit card to pay with, they then know your real name. And with the cooperation of your bank, they can then find out everything else about you. Similarly if you get things delivered, they find out your address. And… I rather doubt that Tesco will generally go to the trouble, but if anyone (eg the government) ever gets hold of the information for more sinister purposes. I doubt giving a false name is much protection.

    I am not sure this is ever going to happen because I doubt Tescos care enough – most of the uses of the loyaly card do not really require them to know your name – but I see little in the way of barriers to it if they did.

  • fnyser

    I wouldn’t worry too much about the preferred customer cards or whatever they call them where you are. I think they’re falling by the wayside. The biggest store here doesn’t have them, the others ask for your phone # when you can’t produce your card, and I have several fake numbers ready to give. When I don’t have a working account they never fail to swipe the cashiers card to give me my savings anyway.

  • Stephen Frost

    This is an interesting post, Michael, particularly the paragraph about computers and complex supply chains. I spend a lot of time looking at workplaces in Asia (China, Thailand, Vietnam, Cambodia, and others) across a number of sectors (toys, shoes, garments, electronics, and so on). And I think you’re right on the money: if you really want to see where the revolution in computer usage has taken place, look no farther than supply chains. Any of the large retailers in the UK probably source goods from upwards of 2,000 factories in China alone. Wal-Mart probably sources from around 5,000. Each one of those factories that, say, Tesco sources from also probably supplies 20-50 other buyers. Mulitiply those figures by the largest retailers across the globe, add in the nightmare of logistics (customs, warehousing, freighting, etc), and you start to get a picture of what computers have added to your local supermarket’s ability to provide thousands of products.

    The other side of the equation (and I’m not going to get into the complexities here) involves what happens on the ground in those supply chains. Wal-Mart, for instance, is in a very strong position to attract very competitive bids from suppliers. It is not unheard of, for instance, that suppliers in the toy sector in China (with around 6,000 toy factories) have accepted contracts from global buyers at less than cost (in the hope of maintaining good relations and thus picking up future – hopefully profitable – contracts). The knock on effects of this has some pretty disastrous consequences for certain segments of the population. This is too large an issue for me to deal with here, but it’s more complex than most make out.

    However, the electronics sector has taken the equation above to another level. Everybody is familiar with Hewlett-Packard and other large producers of electronic products (whether they be computer or not), but how many are familiar with names like Flextronics? Flextronics is one of a new breed of company specialising in controlling the entire production process (not simply supply chain management) for companies like HP. Large companies simply provide specs for a product: Flextronics arranges everything from that point on (from organising the entire production line through to shipping it to the market). How big is Flextronics? The company revenue for fiscal year ending 31 March this year was of US$13.4 billion.

    Another interesting example of this is the Hong Kong company Li & Fung. Li & Fung is essentially a trading company, but it manages production lines for thousands of clients using around 7,000 factories (most in Asia – many of which are in China). Say you want a garment produced: Li & Fung take your design and then source the raw material (say in India), organise the weaving (maybe Taiwan), arranges for dying (in Korea), sources buttons and zips (Japanese companies, but it deals direct with the factories in China that produce for the Japanese company), buys cotton thread (from Indonesia), contracts three garment factories in Thailand, Cambodia and Vietnam to make the final garrment, and then organises transport to the market.

    These are the new supply and production chains. The computer systems that ensure these work effectively are mind boggling. The changes from even five years ago are enormous. The 1980s looks like another world. I can’t imagine where it goes to from here.

  • Yes, whereas (as I pointed out) for things like groceries the pattern has been an improvement in quality and the complexity of what is on offer, the recent pattern with electronics has been different. For quite a few years the prices (for instance of a “good” computer) remained much the same or dropped slowly while the specifications improved. In the last two or three years the quality improvements have continued yet at the same time prives have seemed to absolutely plumet at the same time, particularly if you are willing to buy things from non-famous brands rather than well known brands. So you can now buy DVD players for £35, or similar. Yesterday in fact I received a 4 megapixel digital camera (that a purchased over the internet for less than I could have got it in a store – so there is another improvement) for £95 . It’s from a not very well known brand (it is a Trust 820 LCD POWERC@M Zoom if anyone is wondering) and we shall see how it goes in terms of reliability. However, it takes perfectly nice pictures, and I think it is staggering that I can get anything with its featureset for that price. Some of this may be fallout from overinvestment that took place in the tech boom, but I think most of it is due to the forces you describe.

  • vijay krkm shah


    KRA RULES forces KRA to run our supermarkets.

    Supermarkets are staffed by friendly, hardworking people and are open long hours.

    Most people are quite satisfied with their supermarkets.

    Clearly KRA and supermarkets are different.

    But imagine if we ran our supermarkets the way we run our KRA.

    Due to the importance of equality of opportunity to buy groceries and to protect Kenyans from starvation due to negligent and ignorant shoppers buying the wrong groceries, we have government provided supermarkets, financed by taxes, at which shoppers can get a basket of groceries for fixed fee only when they are Registered.

    Registered Kenyans are forced to shop at the supermarket in their suburb, and can only change to another government supermarket with permission, and subject to room at that supermarket.

    There are private supermarkets, but customers have to pay for their groceries there which may be more expensive because of duties and Taxes levied thereon.

    Entry of new supermarkets is heavily regulated especially by investment in Fiscal Electronic Registers.

    New supermarkets are not allowed and old ones closed down in areas of declining population.

    The public supermarkets in each State are run by huge Departments of Supermarkets.

    Pay, staffing and working conditions are centrally determined, by negotiations with the unions.

    Some regions find it difficult to attract staff so they will be supported by staff from the Capital with out of town and traveling allowances.

    Employment conditions are strictly regulated, with rigid job classifications (check-out operator, shelf-stacker, trolley retriever, price labeler, Toilet cleaner, loyalty manager, ).

    Hours worked and tasks are strictly mandated.

    The number of staff in each position in supermarkets is strictly regulated.

    Pay rises tend to be uniform across all classifications.

    Although the public supermarkets seem to be over manned, particularly when compared to the private sector, checkout queues are much longer and shelves are frequently empty.

    Managers find it difficult to order supplies on time, experiment with new suppliers, fix windows, get supermarkets painted or build new facilities as these will be strictly governed by procurement rules.

    All these decisions are overseen by central office and involve much bureaucracy.

    Most spending goes on salaries based on civil servants pay scales.

    Cuts in the equipment budget mean that IT could be obsolete, shopping trolleys are very old, most with three or four wobbly wheels.

    Home delivery has been abandoned as a cost-cutting measure.

    Many ideas introduced in the private sector, such as express checkouts, and checkout-scanning devices have not been adopted in the public sector due to union opposition however these would be compulsory at other private supermarket outlets.

    There are large differences in quality of supermarkets between suburbs; the rich areas seem to have the best supermarkets.

    Quality of supermarket is an important factor in determining where to live.

    There are many laments about the quality of public supermarkets.

    Independents and minor parties often raise election funds and support from the Checkout Operators Union with strident demands for more spending on public supermarkets, to reduce the enormous checkout queues.

    Bans on private supermarkets are periodically proposed, so that the rich will use their political influence to keep the quality of public supermarkets high, but many politicians, bureaucrats and public supermarket employees do their own shopping at the private markets.

    Media reporting of supermarket issues is usually based on `facts’ supplied by the well-organised public supermarket lobby group.

    What products are stocked on government supermarket shelves is a controversial political issue, and is subject to much special interest pressure. Public supermarkets stock Kenyan goods only .

    The Commonwealth Government is funding a campaign for a national shelf-stocking policy, which will outlaw all fatty foods and environmentally unfriendly products.

    Managers are appointed by a local board, on which the Checkout Operators Union has substantial representation.

    Hiring is done through the central department.

    High school leavers who want to be checkout operators must do a special course in the Faculty of Shopping.

    Firing staff is a complicated process.

    Pay depends mostly on seniority, but a master checkout operator allowance is available, mainly to those operators who acquire qualifications in product selection and show support for the government’s supermarket social justice aims.

    Gender equity requirements where married couples must share shopping duties are being introduced.

    Supermarket closures are a controversial political issue, and the subject of many government inquiries and customer demonstrations.

    No suburb wants to have its supermarket closed.

    Supermarket closures are resisted with violent demonstrations.

    Governments have been re-elected on promises not to close any public supermarkets.

    The option of selling ex-public supermarket buildings to be operated as private supermarkets is explicitly banned.

    There is much academic research into appropriate shelf stocking policies, optimal supermarket size and various measures of supermarket productivity.

    Very little of the research is used by those operating supermarkets.

    But there is much pressure to increase staff-customer ratios.

    A commonly used indicator of customer satisfaction is customer retention rates, those supermarkets whose customers spend the most time in obviously being the best.

    Supermarkets find it difficult to know what customers would prefer.

    Some managers have tried including customers on boards, but it turned out most customers did not want the chance to run the supermarkets themselves.

    Managers are never sure whether those customers on the Board are representative or are pushing a pet interest.

    In any case, many important decisions are made by those in central office, who have even less information on consumer desires and special needs and little incentive to promote consumer satisfaction.

    Issues are resolved on the basis of political clout, not consumers’ choices, and the producer interests dominate.

    Proposals made by senior opposition spokesmen that supermarkets be open weekends, public holidays and after 5 p.m., as some private supermarkets do, have been quashed by industry representatives, claiming most consumers do not want to shop at these times, and it too difficult to introduce because not all stores want to open these hours. Instead, more `customer free’ days have been proposed, where staff from different supermarkets can liaise and discuss product selection.

    Economists have proposed that supermarkets be allowed to organise themselves, that new supermarkets be free to open and that customers be given the right to choose which supermarket to shop at, giving supermarkets the incentive to cater to customer needs.

    Supermarkets would be accountable to customers rather than the central bureaucracy, those that offered what customers wanted at least cost would do best.

    Most find these ideas impossible to envisage. Producer interests have come out strongly against the proposals, arguing that untrained customers cannot possibly judge what is an appropriately stocked shelf and the poor would suffer the most.

    Groceries are too important to be left to the private sector they say.

    We should be thankful that politicians consider running shops trivial enough to leave to the private sector.

    Or is it too important to be left to the government?