Under proposed European Union legislation, supermarkets could be forced to charge customers as much for all products as they pay their suppliers, putting an end to the practice of selling bread, milk and other staples as loss leaders to get customers through the door.
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This could undermine the strategy of several UK retailers, notably Wal-Mart’s Asda, Tesco and Iceland, which have pursued a strategy of EDLP (everyday low prices). The legislation, which was first proposed in October last year, is intended to clamp down on sales promotions and BOGOFs (buy one get one free).
Some suppliers, not least the Federation of Bakers, have welcomed the move. Since bread is the archetype loss leader product, with some retailers selling a loaf for as little as £0.09 (US$0.13) at times over the last three years, bakers have arguably been the worst hit by the EDLP strategy adopted by many major retailers. The Federation has called for a new investigation by the Office of Fair Trading, and has also commissioned research to find out how many bakers have been forced out of the trade by supermarkets selling bread below cost.
While the legislation may offer support to suppliers, consumers may feel they are paying the price of involvement in the EU if prices rise. However, as Labour MEP David Bowe is reported as commenting in the Observer, selling below cost eventually forces so many suppliers out of business that new monopolies force up prices anyway. While prices may rise in the short term, in the long term the legislation is in consumers’ interest, he argues.
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By GlobalData
