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Why supermarkets make less sense – even to their investors

23rd February 2013

The horsemeat scandal has been very good for one thing – the humble pun. A Tesco burger walks into a bar. “Pint please”. “I can’t hear you” says the barman. “Sorry” replies the burger. “I’m a little bit horse”.

There are many shocking aspects to the scandal. One being the cynical handling of the situation, the CEO Philip Clarke lying low, refusing to be interviewed as he waits for a bigger story to come along.

But one important reality emerges that will have investors thinking about the bigger picture. The “divide and rule” approach to relationships with their suppliers means that they cannot expect loyalty. Local farmers have been brutalised for years by shrinking margins, farm gate pricing, open-book costing, last-minute cancelled orders and produce rejected on cosmetic grounds, while being asked to follow more and more stringent guidelines.

And now the shopper understands what the supply chain looks like and how flawed it really is. When the meat passes through so many hands and the margins are squeezed so hard then bad things will happen.

People will understand that they need to pay a bit more for food to be what it say it is. Less customers is bad for investors.

“Some people might like Tesco burgers as part of their evening meal, and some may not. It’s basically horses for courses”.

Indeed, and increasingly farmers and suppliers do not like doing business with Tesco. And customers understand the implications of cheaper pricing.

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