A retailing puzzle

Normally, when dealing with different retailers that operate in the same sector of the retail business, it is obvious which are better run. For instance, there are three major chains of Starbucks clone in the UK: Coffee Republic, Caffe Nero, and Costa Coffee. (I will exclude discussing Starbucks themselves here. Their rules are different, as they have a parent company with deep pockets). A couple of years ago all three had similar numbers of stores, but I found quickly that my preference was for Caffe Nero. Their prices were a little cheaper, their coffee was better, and somehow they just understood the little details of their business better than their competition. This made going there for a coffee simpy more comfortable, and in this particular business, comfort is everything. More than anything else what they are selling is a comfortable place to sit down.

And this has been reflected in subsequent events. Caffe Nero have since outperformed their competition in terms of profitability, they have gone on an expansion boom and have opened lots of new stores, and their stock price has gone through the roof. Coffee Republic have gone down the tubes, and Costa Coffee (who aren't quite in the same business, for reasons that are too lengthy to explain right here) have stood still. (Starbucks have also been expanding rapidly).

And this is fairly normal. Well run businesses have a certain vibe about them. Usually I can just feel it. (A few years back, it was clear from the vibe that Woolworths in Australia was a better run supermarket business than Coles, and this eventually filtered its way through to the stock price, too). But there is an odd exception, which is supermarkets in the UK.

Tesco have long been a stockmarket darling, and have expanded massively and rapidly due to their superb understanding of the market, and their superbly designed computer systems and logistics. Their competitor Sainsbury's have done far less well at these types of things, and are thus in decline.

At least , that is the conventional view held by most market analysts, and that is the view reflected in the stock prices of the two companies. However, I find counter-intuitive, because I like shopping in Sainsbury's more than I do in Tesco. Sainsbury's shops seem better designed and the goods better arranged. And they are full of all manner of really yummy things that I don't find in Tescos.

As it happened, after having a coffee with Brian Micklethwait in the new Pimlico Caffe Nero (once again, I think the market is right on that one) I popped into the new big Sainsbury's in Pimlico, and as is always the case when I go into that Sainsbury's, I found myself coming out with bags of groceries: in this case a freshly made pizza, a piece of smoked cheddar cheese (although they did not have the unpasteurised brie that I have bought there in the past today) and a few other things. This is a really nice supermarket, and I find it hard to believe that the parent company is in decline. Some would say that Tesco wins in computers, logistics and supply chains rather than store design, but I am not so sure. Stocking a supermarket as well as this one is stocked requires good logistics and supply chains.

But that is conventional wisdom. Perhaps there will be a shift back to Sainsbury's and my intuition is right. Or perhaps I just have weird tastes in groceries.