Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 114 - 119)

TUESDAY 31 OCTOBER 2000

MR MARK BRADSHAW AND MS BRIDGET ROSEWELL

Chairman

  114. Good morning. Ms Rosewell, perhaps you can introduce yourself and your colleague and we will begin?

  (Ms Rosewell) I am Bridget Rosewell. I am Chief Economic Advisor to the British Retail Consortium. My colleague, Mark Bradshaw, is going to kick us off this morning.

  115. Thank you. I think what we would like to do is, rather than have an introductory statement, get right into the questions and take it from there. I think you have been able to assess the tenor of what we are trying to do here. Obviously, of necessity, we have to look at the events of September, but equally importantly we want to try and gauge the impact across the broad sweep of industry and those particular areas of the British economy which are, you might say, most distribution transport dependent. We have identified your's as one of the most significantly dependent. However, having said that, one then has to ask the question: You are dependent on transport, is there any evidence that the retail industry is suffering as a consequence of the current levels of motor fuel taxation?
  (Mr Bradshaw) I think that we are suffering from a range of operating costs which we have seen increase over the last five or six years now. As you say, we are dependent almost entirely on road transport. There are various projects going around, largely experimental, looking at the use of rail freight and so on, but most of our goods from our members' centres to their stores are borne by road. However, it has been difficult for us—and we have tried to rise to the challenge that you have set us—to strip out those elements which relate to road transport and those costs that we incur, and particularly the impact that that has on our competitiveness as an industry. That has been difficult for us to do because we are subject to a whole raft of costs. We are a property intensive industry, we are a major employer, we face a whole raft of costs. It is very difficult to strip out the transport element alone.

  116. I appreciate that you have made a stab at it, shall we say, quoting the data from the ONS where you quote that in 1998 it was about £2 billion? (Mr Bradshaw) That is right.

  117. Then you get a wee bit more specific—and we are not asking you to name names or anything like that—but you did say that one of the retailers says that there was an increase of £1 million due to increasing fuel duty. How significant is that in percentage terms? A figure of £1 million we can just about handle, but how do you place that in the general costings of that company?
  (Mr Bradshaw) I do not know the costings of that company in depth. What I do know is that it hit them as a significant one-off cost that they faced immediately. There was no planning for it. There was no phasing in of that cost. That was a cost that had to be met from day one. Therefore, it has a direct impact on that company. On the scale of things, in most of our member companies, certainly the multiple retailers that we have as members transport and distribution costs are normally in the top five, and for some it is in the top two.
  (Ms Rosewell) I think the real issue here is the significance of these costs and also, secondly, the ability to mitigate them in any way. In other words, transport and distribution costs are obviously significant to retailers, so if there are additional charges, is there fat to absorb them, if you like? Also, can you adjust to them by changing the way that you do things regularly, easily? The difficulty for retailers at the moment is that neither of these things is easy. It is a competitive industry. You only have to open the Financial Times and look at the way that retailing is treated as a sector to see that it is under considerable pressure as far as margins are concerned and as far as share-holding is concerned. So, that is difficult. We see that prices are falling in shops. Both our own surveys of prices and the ONS figures for shop prices, as distinct from the Retail Price Index, all show that prices are falling. That means that you cannot simply take an additional cost that hits you and pass it on. Can you, therefore, replace those costs in some way by reducing costs elsewhere in the system? That too is extremely difficult. It is difficult in a number of ways. It is difficult because the logistics of delivering to shops is very complex and, therefore, replacing a freight with rail or something like that is almost certainly impossible in the short-term and very difficult in the longer term because of the mixes of deliveries that you need to make. Equally, many retailers are extremely constrained as to times of delivery and, indeed, becoming increasingly constrained by times of delivery with the introduction of more restrictions on parking and delivery times and when you are allowed to stop a van or a lorry or whatever. Many stores often do not have off-street delivery facilities, particularly in high streets or town centres, so there are great limitations. So by the time you have taken all the constraints into account; when you can deliver, what you need to deliver, the perishability of what you need to deliver, your ability to mix and match a particular delivery system is extremely limited, so the cost just has to be taken on the nose, if you like. That makes it not just important in financial terms of, "How big is this sum of money?, but also extremely important in terms of margin and in terms of your ability to handle and respond to any particular change in prices. I think it is that that is as important as how many zeros there are after the one.

Mr Butterfill

  118. You are saying that you cannot be expected to charge similar prices to other countries when your costs are so much higher, and you are telling us here that the costs are higher to a significant extent because of the increased transport and delivery costs. Can you give us some indication of how much higher your costs have been made by the increases in fuel?
  (Ms Rosewell) We do have figures, and we have provided figures in the submission, for the difference that duty makes in comparison between this country and other countries. We can mitigate that to some extent by doing fewer miles, for example, or trying to be more efficient in our use of fuel. However, we would dispute in any case that prices are necessarily higher in this country than in other countries. Obviously, the pressures on pricing are greater because of these differences in cost, but that does not necessarily mean that we are charging more, because it is such a competitive industry.

  119. It is difficult for you to assess because the needs of your members are so very different. Some people are delivering with small vans, relatively infrequently to fashion stores or something like that, and others of your members are delivering every day perishable products by huge refrigerated vehicles. There must be some indication you can give me overall as to how much you think prices in various sectors have gone up because of the changes over the last few years?
  (Mr Bradshaw) What we have seen in the industry is a general move towards even greater efficiency and an attempt to absorb as many costs as can be done. We are a pretty lean, fit and efficient industry.


 
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