Here are four reasons UK cities would benefit if supermarkets were more like Wetherspoons

Mmmm, beer. Image: Getty.

One of the best things written about local economies last year looked at the price of curries in Wetherspoons. The Financial Times’ Alphaville blog investigated how the pub giant’s prices change across the country, and collected some great data showing that Wetherspoons varies its prices dramatically according to local conditions – and therefore local incomes and costs.

This process is called ‘price flexing’, and it’s what causes pubs to be more expensive in cities like Brighton than in cities like Barnsley. By contrast, grocery prices remain unchanged in the same stores in different cities. That’s because price flexing in supermarkets is frowned upon by UK competition regulators as being anti-competitive.

As a result, the same basket in Tesco Express costs the same in every city, regardless of the local economic conditions. This is known as ‘uniform pricing’.

It got us thinking – what are the implications of uniform pricing in supermarkets for local economies across the UK? And what would happen if British supermarkets were allowed to vary their prices in each store as Wetherspoons does?

Here are four reasons why all cities would benefit if supermarkets adopted Wetherspoon’s approach to price-flexing.

1. Uniform pricing makes low-income areas poorer

recent paper on American chain stores by Stefano DellaVigna (University of California, Berkeley) and Matthew Gentzkow (Stanford) offers some insight into the impact of uniform pricing on local economies.

They fond that even though US regulators allow price flexing, most US supermarkets and drugstores practice uniform or near-uniform pricing across all of America. More importantly, their research suggests that both businesses and consumers lose out as a result.

For a start, the data shows that the average chain store in the US could increase its profits by 7 per cent if it introduced price flexing by neighbourhood.

Perhaps more surprisingly, they also find that people in low-income places lose out from uniform pricing. Stores in poorer neighbourhoods and cities should face lower costs, because their rent and their wages costs are usually lower. In theory this should result in lower prices for people in poorer neighbourhoods (who are more price-sensitive than richer households), the same way Wetherspoons pubs are cheaper in poorer areas.

But uniform pricing means that people in poor neighbourhoods have to pay the same prices as the people in rich areas, who enjoy much better amenities and services. In order for stores to keep prices uniform nationally, poor people have to pay a little more for groceries and rich people get to pay a little less.

2. Price flexing would make supermarkets prices fairer and more responsive to local conditions – just as devolution does for policy

Aside from regulatory concerns, supermarkets in the UK also say that one of the reasons they don’t engage in price flexing is that it would “damage their brand and reputation” and be “commercial suicide”. But this does not seem to square with the popularity of Wetherspoons. And it is hard to argue that charging poorer customers less and richer customers more would be unfair.

Moreover, DellaVigna and Gentzkow also argue that uniform pricing means cities cannot respond to local economic shocks. To apply this logic to Britain, when the Teesside steelworks in Redcar shut down in 2015, supermarkets such as Morrisons were not able to respond to the reduced local demand by lowering their prices. Local consumers in Redcar face the same high grocery bills as before, even though they now have less money to spend.

US chain stores maintain uniform pricing – even though they’re not required to by regulators – because setting individual local prices across hundreds of different goods in each store would take supermarket managers a lot of time, effort, and skill. By contrast, managers in businesses like Wetherspoons are in charge of setting their outlet’s prices. This is the logic of devolution – top-down, centralised policies penalise different places, while the results of devolved decision-making better fit local conditions.

3. Price flexing could also help ease the housing crisis in high-demand cities

But the impact of uniform pricing goes beyond the cost of your weekly food shop – it also has implications for housing markets in different cities. The supply of housing in the UK is very inelastic, which means that when consumers have more income or more money to spend on housing, the number of homes built locally does not really change – the price goes up instead.

So, for example, if an identical basket of groceries costs the same in Wakefield (where average weekly wages are £463) as it does in Bristol (where weekly wages are £525), people in Bristol are able to spend more of their money on other goods. As a result, uniform pricing in supermarkets means Bristolians have more change left over after their weekly shop, but it also increases house prices slightly in the city (as well as in other high-demand cities).

Price flexing by supermarkets would make groceries more expensive in high income neighbourhoods – but this would be eased by bringing down housing costs in growing cities.


4. Automation will force supermarkets to become more responsive to local economic conditions

As retail increasingly shifts online, shoppers are spending more and more on goods and services which have prices that are automatically changed by algorithms multiple times a day.

This could have two possible effects. The first is that well-designed algorithms could recognise how local economies shape local incomes and spending. As a result, online retail could provide cheaper baskets to people in poorer cities and neighbourhoods than uniform pricing does now.

The second is that the price flexing in online retail will increasingly force conventional retail to adapt. As competition from online retailers grows in part due to price flexing, supermarkets may conclude they need to adopt similar strategies to achieve those 7 per cent higher profits.

This would likely involve the loss of low-skilled jobs in retail. But would also demand increasingly skilled and trained management, capable of using new technology and data to respond to local economic conditions. (Amazon’s new grocery store – which doesn’t have checkouts, but relies on cameras and sensors to track what shoppers remove from the shelves – could be a sign of things to come.)

This process, where automation drives both the disappearance of some low-skilled jobs and the creation of new higher-skilled roles across the economy, will affect cities differently depending on their skills base and their productivity. (Our recent Cities Outlook 2018 report examined these trends in more depth).

As such, cities and firms will have to respond in order to both manage the costs of automation, and to benefit from the new jobs and lower prices it will create. Searching for ways to do this will underpin our research this year on the future of work. But the end result of this particular story may be that over the coming decades supermarkets will have to end up operating a lot more like Wetherspoons in order to survive.

Anthony Breach is an economic analyst at the Centre for Cities, on whose blog this post first appeared. 

 
 
 
 

America's cities can't police their way out of this crisis

Police deployed tear gas during anti-racism demonstrations in Los Angeles over the weekend. (Mario Tama/Getty Images)

As protesters took to the streets across the United States over the weekend to express their anger at police killings of unarmed black Americans, it was hard to miss the hypocrisy coming from local authorities – including the otherwise progressive, left-leaning officials who are in power in most major American cities. 

Many US mayors and their police chiefs had issued public statements over the past week that seemed – only briefly, as it turned out – to signal a meaningful shift in the extent to which the Black Lives Matters movement is being taken seriously by those who are in a position to enact reforms. 

The sheer depravity of the most recent high-profile killing had left little room for equivocation. George Floyd, 46, died last Monday under the knee of white Minneapolis police officer Derek Chauvin, while three additional officers helped to hold Floyd down, doing nothing to aid him as he begged for them to stop and eventually lost consciousness. The officers had been attempting to arrest Floyd on suspicion of having used a counterfeit $20 bill at a deli. All four have since been fired, and Chauvin was arrested Friday on charges of third-degree murder and second-degree manslaughter. 

“The lack of compassion, use of excessive force, or going beyond the scope of the law, doesn’t just tarnish our badge—it tears at the very fabric of race relations in this country,” Los Angeles Police Chief Michel Moore told the Washington Post in response to the Floyd case. Meanwhile Moore’s boss, Los Angeles Mayor Eric Garcetti, on Friday claimed that he understood why his city, which is no stranger to police brutality, was protesting. “We absolutely need as a nation, certainly as a city, to voice our outrage, it’s our patriotic duty to not only stand up for George Floyd but for everybody who has been killed unnecessarily, who’s been murdered for the structural racism that we have in our country,” Garcetti said. 

Normally, US police chiefs and mayors tend to ask citizens to withhold judgment on these types of cases until full investigations can be completed. But a 10-minute video recording of Floyd’s killing had made what happened plain. Police chiefs across the country – and even the nation’s largest police union, which is notorious for defending officer abuses – similarly condemned the actions of the Minneapolis officers, in a rare show of moral clarity that, combined with the arrest of Chauvin, offered at least a glimmer of hope that this time things might be different. 

As the events of the weekend have since shown, that glimmer was all too fleeting. 

In city after city over the past three days, US mayors and their police chiefs made a series of the same decisions – starting with the deployment of large, heavily armed riot units – that ultimately escalated violent confrontations between officers and protesters. Images widely shared on social media Saturday and Sunday nights made it clear that members of law enforcement were often initiating the worst of the violence, and appeared to treat protesters as enemy combatants, rather than citizens they were sworn to protect. 


In New York City, two police SUVs were seen plowing into a crowd of protesters, while elsewhere an officer was recorded pulling down a young protester’s coronavirus mask in order to pepper spray his face

In Louisville, the city where Breonna Taylor, a 26-year-old black woman was fatally shot by police on 13 March, state police in riot gear were captured confiscating and destroying protesters’ supplies

In Minneapolis, forces opened fire with nonlethal rounds on residential streets, much to the shock of homeowners standing on their own front porches. 

Images of police pushing or shoving peaceful protesters were almost too numerous to count, including, in Salt Lake City, an elderly man with a cane

In many places, police also targeted journalists who were covering the protests, firing at clearly identifiable media crews with rubber bullets, injuring and even arresting reporters

Some protesters did commit acts of vandalism and looting, and the leaders of cities where that happened generally responded in the same ways. 

First, they blamed “outside agitators” for the worst protester behaviour, a claim that harkens all the way back to the civil rights era and for which the evidence is murky at best

Next, they enacted sudden curfews with little to no warning, which gave law enforcement an excuse to make mass arrests, in some cases violently. 

In a pair of widely criticized moves, Garcetti of Los Angeles closed the city’s Covid-19 testing centers and suspended the entire mass transit system Saturday evening, stranding essential workers on their way home from daytime shifts. Late Sunday night in Chicago, the city’s public school system halted its free meal distribution service for low-income children, citing “the evolving nature of activity across the city”.  

Governors in at least 12 US states, in coordination with city leaders, have since called in National Guard troops to “help”. 

At this point it’s clear that the leaders of America’s cities are in desperate need of a radically different playbook to respond to these protests. A heavily armed, militarised response to long-simmering anger toward the heavily armed, militarised approach to American policing is more than ironic – it’s ineffective. Granting police officers wider latitude to make arrests via curfews also seems destined to increase the chances of precisely the tragic, racially biased outcomes to which the protesters are reacting. 

There are other options. In places such as Flint, Michigan, and Camden, New Jersey – both poor cities home to large black populations – local law enforcement officials chose to put down their weapons and march alongside protesters, rather than face off against them. In the case of Camden, that the city was able to avoid violent clashes is in no small part related to the fact that it took the drastic step of disbanding its former police department altogether several years ago, replacing it with an entirely new structure. 

America’s cities are in crisis, in more ways than one. It’s not a coincidence that the country has tipped into chaos following months of emotionally draining stay-at-home orders and job losses that now top 40 million. Low-income Americans of colour have borne a disproportionate share of the pandemic’s ravages, and public health officials are already worried about the potential for protests to become Covid-19 super-spreading events.

All of this has of course been spurred on by the US president, who in addition to calling Sunday for mayors and governors to “get tough” on protesters, has made emboldening white nationalists his signature. Notably, Trump didn’t call on officials to get tough on the heavily armed white protesters who stormed the Michigan Capitol building over coronavirus stay-at-home orders just a few weeks ago. 

US mayors and their police chiefs have publicly claimed that they do understand – agree with, even – the anger currently spilling out onto their streets. But as long as they continue to respond to that anger by deploying large numbers of armed and armored law enforcement personnel who do not actually live in the cities they serve, who appear to be more outraged by property damage and verbal insults than by the killings of black Americans at the hands of their peers, and who are enmeshed in a dangerously violent and racist policing culture that perceives itself to be the real victim, it is hard to see how this crisis will improve anytime soon. 

Sommer Mathis is the editor of CityMetric.