2

I was discussing the bailing out of Lloyd’s Bank (a large U.K. bank) with a friend. I raised the point that Tesco (a large supermarket) is also continuing to struggle after their accounting scandal, and associated large debts. It also recently had a large drop in the values of its shares, partly due to the difficulty for retailers.

We both agreed that there’s a high likelihood that the government would be forced to bail out Tesco in the event of bankruptcy, in a similar vein to the Lloyds Bank bailout.

It’s unlikely that the remaining supermarkets would be able to absorb the increased demand, and there would be huge food shortages while Tesco’s suppliers negotiated new contracts to supply the remaining supermarkets. It would also be a challenge to get customers through the checkouts quickly enough, or restock the shelves with the current staffing levels.

It would also cause a large number of local monopolies; locations where there were two separate supermarkets, but, after the closure of the Tesco store, are now only serviced by one company.

For these reasons, or perhaps others, has any government, anywhere had to bail out a supermarket (or similar large food supplier)?

| improve this question | | | | |
  • Are we talking just about the UK, or the entire world? – Machavity Oct 5 '18 at 15:22
  • @Machavity I guess the OECD would be a sensible bounding area; I’m certainly not aware of it happening in the U.K. and would be interested in the more general answer. An answer saying “no, this is why they didn’t” would also be interesting- perhaps the concerns I’ve listed wouldn’t be nearly as severe as I’ve hypothesised. – Tim Oct 5 '18 at 15:33
  • 7
    (1) "there’s a high likelihood that the government would be forced to bail out Tesco". (2) "It’s unlikely that the remaining supermarkets would be able to absorb the increased demand". (3) "there would be huge food shortages". Obviously there is some interdependence between these, but I'd like to see some evidence to support any of them. (Despite that, the question in the title is an interesting one.) – Steve Melnikoff Oct 5 '18 at 15:43
  • 2
    Also, there's an alternative option: if a large company fails, it's not unusual for another company to buy it. – Steve Melnikoff Oct 5 '18 at 15:44
  • 1
    Let us continue this discussion in chat. – Steve Melnikoff Oct 5 '18 at 16:10
5

While I am not aware of a supermarket bailout in Europe or North America, the Uchumi supermarket chain in Kenya apparently received bailout loans in 2017

It is possible consider why supermarkets haven't needed bailouts. A bank has a central office that can make most of the turnover of the bank by making major investment and loan decisions. The small scale business done in the branches may not be a major part of the bank's bottom line. So the bank can get into financial trouble when the one central office takes large losses. This is roughly what happened to RBS and Lloyds.

I contrast, each branch of a supermarket generates its own cash, there is no central office that generates most of the bottom line. If the supermarket brand gets into trouble, it can be liquidated, and the profitable stores can be bought up by other supermarkets. The unprofitable stores get closed, but there is unlikely to be food shortage, as the reason that a store is unprofitable is that has lost in competition with other local supermarkets. Thus there must be a local alternative.

| improve this answer | | | | |
  • Nice answer, but about the last point, the process to declare bankruptcy and liquidate assets and pay debts can take some time and -depending on lots of factors-, operations during this time can be difficult (suppliers do not want to send goods because they do not know if they will be paid, people renting the buildings may want to evict the stores to rent to someone who pays...) – SJuan76 Oct 5 '18 at 20:30

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .