Thursday, 26 February 2009

"All of time is squeeze margin down no profit"

I learn a lot by talking to those who run small businesses. By the way isn't "small businesses" a horrible term? It makes them sound unimportant when they are actually the backbone of the economy. But I digress, and that's not good when it happens in the second sentence of a piece, so I must return to topic double quick.

Yesterday evening was great fun. Being a day ending in Y, there was nothing on the telly so it seemed a good day to eat out and curry seemed just the ticket. It's a good stroll to the closest local curry houses. I say houses because there are two next door to each other. One has been there for as long as anyone can remember, the other started ten or so years ago, and both have always enjoyed excellent reputations. My custom always went to the longer established place for the simple reason that I went there before it's competitor set up in business. When the old couple who ran it decided to retire their restaurant was bought by the people next door. Not because they particularly wanted to expand but to ensure that a new and aggressive competitor would not enter the fray. Now they operate two different restaurants next door to each other but will convert into one large establishment when the time is right.

On the waddle home it was necessary to pop into the greengrocers to top up my stocks of vegetable and fruit based products, on this occasion cigarettes and cider. The owner was bemoaning the presence a few doors away of a new competitor who took over a small failing off-licence and stocked it well with a range of general grocery products (including cheap large tins of fruit in sticky syrup). The newcomer isn't doing a lot of trade, in fact I would be surprised if he lasts a year, but it is a worry nonetheless for the established shopkeeper. To seek to maintain his hold on the local market he has undercut his new competitor with special offers on beer and wines, cutting deep into his own modest profit margin.

Both the owners of the curryhouses and the owner of the greengrocery have seen their takings fall considerably over the last year. They both told me they cannot see enough business for more than one shop of their type in the immediate vicinity. Part of me thinks "they would say that, wouldn't they?" but I think there is actually more to it. These are people who know their market well, they talk to their customers and gauge the mood. When the greengrocers tells me, through his thick Turkish accent, "all of time is squeeze margin down no profit" I am inclined to believe him. When he tells me "1990 business stay good, 1980 business stay good, this time no, this time worst", I am inclined to believe him. When a restaurant proprietor who set up in business next to an established rival and saw both businesses do well tells me he cannot see enough trade for both to make a living in the medium to long term, I am inclined to believe him, particularly because he opened his shop just after the last recession.

This sort of anecdotal evidence doesn't prove anything concrete, but it does give a hint that real businessmen see something different about this recession. They see it as something that will change spending patterns for a long time to come. I suspect they are right and would certainly trust their judgment more than that of any number of academic economists who have never actually put a bank note in a till or paid a member of staff.

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