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Comment by petercooper | Hacker News Reader

British politicians have been very keen to say this isn't the fault of Brexit because a) energy costs, and b) weather issues affecting production. But those things still don't necessarily lead to shortages if retailers can rapidly move produce around or make temporary orders with different suppliers to plug the gaps, like they can on the continent. That's what Brexit has made a lot harder. So it can be "Brexit's fault" or not "Brexit's fault" depending on what side of the fence you sit on.

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Brexit won't have helped, but I'm sure supermarkets price gouging through inflation is a worse contributor to this. When they're stonewalling farmers with low ball pricing, there's no incentive to produce.

That as well! It boggled my mind when I learnt about how a lot of agricultural output is priced. You'd expect the folks producing milk or selling eggs to, well, determine the prices, but no, no no..

It's what happens when there is a de facto monopsony. Farmers can sell goods for whatever the supermarkets demand, or their produce can rot.

Is there a monopsony in the UK? It seems like there are at least 6 or 7 supermarket companies in the UK, presumably they are not all buying from farmers as 1 entity?

https://en.wikipedia.org/wiki/List_of_supermarket_chains_in_...

I don't know about UK, but in mainland Europe our supermarket chain created Alidis (ex-Agecore). And are in a monopsony situation, effectively, and strongarmed Nestlé into accepting their demands.

I don't know why it isn't regulated yet.

Unfortunately it's often both - farmers have to grow way more than they need to make sure there's enough to meet supermarket demand after adverse weather, pests etc.

Tesco profit margin is 1.51%.

https://markets.ft.com/data/equities/tearsheet/financials?s=...

The publicly listed supermarkets all have pitiful profit margins:

https://markets.ft.com/data/equities/tearsheet/profile?s=SBR...

How can a business be price gouging and barely making money at the same time?

I think you need Finance 101. A supermarket turns over its inventory 50 times a year. And the items suitable for gouging are probably less than 1% of their volume.

Are you suggesting that there is a maximum allowable profit margin per item after which a business can be described to be price gouging? If so, what is that profit margin?

What does inventory turnover have to do with price gouging?

I would think that the reason a grocery store increases prices, regardless of which items and by how much, is that they themselves are experiencing increasing costs, hence the lack of substantial increase in profit margins.

you said:

>How can a business be price gouging and barely making money at the same time?

and I explained it. The profit margin of the store is driven by (1) gross margins, and (2) inventory turnover.

no one's alleging that they're gouging on every item. So gouging on a few produce items has almost zero effect on the overall margin.

I see. I would not describe increased profit margins on some items as an indication that a business is price gouging. Having different profit margins on different items has long been an accepted business model across the world.

The business needs to earn a profit to survive, and one that is earning 1% to 2% profit margins is already on the edge. If the profit margin on items that are moving need to be increased to maintain the 1% to 2% profit margins, then that is just a business trying to survive.

I don't actually know if Tesco or any supermarket chain is "on the edge." The inventory-turns thing is relevant because if you have $1M in capital but you gross 1% on it every week, that can still be pretty good annually. If you're an appliance dealer that turns over its inventory once a month, a 1% gross margin would mean you're out of business.

By definition, I would think 1% to 2% profit (net) margin is doing business on the edge, regardless of gross figures. 0% is a charity.

The slightest changes in your costs or revenue can be devastating if not immediately made up for with price increases and cost cutting. Grocery stores can usually do this, which is why they continue to survive at single low digit profit margins.

Are there businesses that reliably operate on less than that?

From what I can tell, the big reason that supermarkets in mainland Europe can work around this by ordering from different suppliers is that they're willing to pay their suppliers more and pass the cost increase on to their customers, whereas UK supermarkets aren't so willing to do this. That is, the main contributing factor seems to be precisely our supermarkets' unwillingness to engage in "price gouging" - and if they had put prices up, you can bet that would've been blamed on Brexit as well.

I don't think that raising your price because your cost increase is price gouging. Gouging occurs when the price increase do not relate to the cost increase and the difference is being pocketed by the intermediary, here the supermarket.

What you describe mainland european supermarket doing is just what happens in a free market. Not price gouging at all.

Charging more because your costs are higher is not really gouging. Obviously there's no precise definition -- it's a social judgement -- but generally it's taking more profit than is "fair" for a situation, like tripling the price of your bottled water after a natural disaster.

If any UK politician openly admits that Brexit has had any adverse effect on anything at all, it is effectively game over for them.

I think you missed a word out. If any UK Conservative politician openly admits that Brexit has had adverse effects...

Although Labour are earning their title of "Red Tories" by continuing to support Brexit too. Keir Starmer is basically the same as Boris Johnson but with better hair products.

meanwhile Ireland has the same problem

It's similarly detached from the continent, and while there are now more boats making the direct trip, Brexit has had an impact on supply chains between Ireland and the continent (though not the level of trade – just how long it takes to move stuff around since a lot of stuff used to flow seamlessly by truck through the UK).

and Denmark

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