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Retail’s German ‘alchemists’ are anything but pure gold

BY Rachel | 22 June, 2014 | no comments

Which supermarket was selling food most adulterated by horsemeat last year? If you answered Tesco or Asda, you would be wrong. It was Aldi, the German discount retailer, which admitted that two of its ready-meal ranges contained “up to 100 per cent horsemeat”. The level of adulteration in products sold by Tesco and Asda was much lower.

However, to judge by most media coverage at the time, Tesco and Asda were the baddies. Aldi’s role was noted much less, confirming that, along with its compatriot Lidl, it can do no wrong in the eyes of many retail commentators and correspondents.

This free pass for the German duo has gone on far too long. Consumer affairs correspondents who are normally tigers in trashing big banks, energy companies and, indeed, the other supermarkets for any suggestion that they are “ripping off” the public behave more like neutered tabbies when covering Aldi and Lidl. To read some of the coverage, one would believe that the pair were retail alchemists, able to sell fantastic products at unmatchable prices.

The latest example has been the gushing coverage of an advertising campaign showing middle-class shoppers cooing over the quality of food being sold at a street market and then gasping with astonishment when learning that it was supplied by Lidl.

Such reporting overlooks or ignores a basic rule: you cannot sell a Bentley for the price of a Ford. Competitors, stung by the loss of market share to the pair, know this and have their suspicions about how the pair achieve what appears to be such fantastic value. One of the more printable is a tactic of claiming to stock champagne at knockdown prices: the champagne is, indeed, available, but only at a handful of stores. Customers are attracted to the stores by such offers, only to be told that the champagne has sold out, even though it was probably never there in the first place.

Such ploys, along with adverts implying that Aldi and Lidl’s quality is as good as anyone else’s, have helped to create the myth, largely unchallenged, that Aldi and Lidl can offer such fantastic value because of their awesome buying power. One rival grocery chief executive — not Tesco’s or Asda’s — says of this suggestion: “Does anyone seriously believe that Aldi has superior buying power to that of Tesco or Asda? Of course they don’t. They sell this stuff more cheaply because they are selling produce the rest of us do not want.”

Another competitor, Dalton Philips, the Morrisons chief executive, argues that consumers will wise up: “We have range and provenance. They don’t have their own abattoirs, they don’t have their own fish factories — we do and we have got ten times the range they have.”

Other tactics deployed by the pair include producing cheap copycats of more established brands. Aldi even makes a virtue of this, using the advertising tagline “like brands, only cheaper”, although it may have overstepped the mark after the Grimsby-based Saucy Fish Co succeeded in winning an injunction against it selling “Saucy Salmon Fillets” that did not even carry the German retailer’s brand name on the packaging. It is sharp behaviour of a kind the established UK supermarkets abandoned years ago.

Equally curious, when the likes of Amazon, Google and Starbucks have been lambasted over the relatively small amount of tax they pay in the UK, is the way Aldi and Lidl have attracted relatively little opprobrium for a shocking lack of transparency over the taxes they pay.

Lidl has sought to counter this recently by insisting that it does not use tax avoidance methods and claimed that it paid £25 million in UK taxes last year. But this is meaningless because Lidl refuses to disclose its UK profits, without which it is impossible to know the effective tax rate it is paying. Its UK entity, Lidl Ltd, is only a branch of a German parent company and so the UK accounts it files contain sparse details. The German parent, meanwhile, publishes only a total global profit figure in its consolidated accounts. So it is possible, despite its protests to the contrary, that Lidl has been using the kind of “transfer pricing” used by Amazon and Starbucks.

That £25 million figure, meanwhile, was offered only recently. Lidl has not disclosed its UK taxes, its UK profits or its effective UK tax rate in any previous years. It is perfectly possible that, in an attempt to kill off criticism, it has followed the example of Starbucks, which, in December 2012, volunteered to pay £10 million in taxes in each of the next two years.

As yet, none of these issues has stopped the advance of the two German juggernauts.

However, when consumers start to have more money again, transparency over provenance and the wider contribution made by businesses to society may start to come into play.

Consumers do not make spending decisions on price alone. Just ask Ryanair.

Striking the right business balance

Reporting on the business aspect of the Scottish referendum has presented its own challenges. Broadcasters such as Sky News must adhere to Ofcom regulations, which, in the case of the Scottish referendum, are similar to the rules for a general election or by-elections.

The latter seldom poses much of a problem for business journalists since, during the run-up to a general election, most business leaders keep their heads down, The days when companies controlled by industrialists such as the late Lord Hanson wrote generous cheques for the Conservative party are over. However, as Roland Rudd, of Business for New Europe, noted in these pages last week, saying nothing during the Scottish referendum was not an option for business leaders. Many were prepared to speak out, especially after the publication of a YouGov poll for The Sunday Times that put the “yes” campaign ahead.

The problem for business broadcasters was providing the balance required by the regulator. While the likes of BP and the John Lewis Partnership spoke out freely for the “no” campaign, support among big business was much thinner on the ground for the “yes” campaign, whose supporters came largely from the ranks of small companies. One of the few household business names on the “yes” side were Ralph Topping, the recently retired former chief executive of William Hill, Sir George Mathewson, the former chairman of Royal Bank of Scotland, and Sir Brian Souter, the founder of Stagecoach.

Balancing the comments of a big hitter with an SME owner was, at times, the only option. On other occasions, the offer of interviews with top-rank business people had to be declined, because there were just so many of them wanting to say “no”. This is not to criticise the professional and energetic work done by “Yes Scotland”. It just highlights the way business divided during the campaign.

Ian King is Business Presenter for Sky News. His show Ian King Live is broadcast at 6.30pm Monday-Thursday

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