Stores face ban on loss leaders

Cheap bread gets shoppers through the doors

Don't you ever wonder how supermarkets can sell bread for as little as 19p a loaf?

It's amazing that bakers can produce it so cheaply.

But of course they can't. In fact, an average loaf will cost between 22p and 26p to make.

The stores sell staples like bread and milk cheaply to get us into their shops buying other, more expensive, goods.

But that practice is now being examined closely by the European Commission.

Spending billions

Bakers say they're being put out of business

One of its options is to decide that shops should be charging at least as much as they pay their suppliers.

Loss leaders are already banned in France and Germany, so the Commission might want to harmonise policy throughout the EU.

Supermarkets are worried by the plan. Stores such as Tesco and Asda spend billions on loss leaders to get shoppers through the door.

But some retail experts argue that any legislation which increases prices is not in the best interests of the consumer.

The move comes as bakers are calling for an investigation into the cheap prices being charged for bread.

'Devalues product'

The UK Federation of Bakers says selling bread at below cost price devalues the product and is against the public interest.

It has commissioned a study to find out what impact the practice has had on smaller businesses.

"A small shop in a rural area is unable to compete on the price of bread and will lose customers to the supermarkets," the federation's director, John White, told Working Lunch.

"Once they disappear, sales of other products, not just bread, will also disappear and in some circumstances the shop will close, causing the loss of an amenity to the rural area."

Ireland is another country where action has been taken to clamp down on loss leaders.

The Groceries Order was brought in 15 years ago to stop supermarkets selling any products for less than cost price.

It was introduced after a price war sent one supermarket chain out of business. Between 1978 and 1988, 2,000 small grocers also went to the wall.

There have recently been calls to end the ban because it's argued that the state should not intervene in the marketplace.

But proponents say abolishing it would reduce choice and consumers would suffer.