The Economist UK - 21.03.2020

The EconomistMarch 21st 2020 Britain 25

O

vercrowding ontrains, normally the

biggest gripe of the British commuter,

is no longer a problem. According to people

in the industry, since the government

recommended on March 16th that Britons

should stay away from the office and avoid

social contacts, some commuter lines have

since seen their passenger numbers fall by

30%. The train operating companies are

asking the government to keep them afloat.

“We’re working with them all to see what it

is we’d need to do to sustain them,” says

Grant Shapps, the transport secretary.

Despite widespread grumbling among

consumers about ticket prices, British rail

firms operate on relatively thin profit mar-

gins. In 2018-19 the sector actually made a

loss. With a high fixed-cost base and con-

tractual obligations to the government to

meet service requirements, even a few

weeks of disruption, let alone months,

would be enough to tip the entire sector

much deeper into the red. FirstGroup, the

only listed British operator of rail fran-

chises, has seen its share price fall by 75%

in the past month. Rail commuters tend to

be better off than the average British em-

ployee, and to do jobs which offer more

scope than most for working from home.

Transport for London (tfl), the public-

sector body which runs London’s public

transport network, said that in the week to

March 15th, Tube journeys were down by

19% year on year and bus trips by 10%. If

London is locked down, the Tube and the

buses will presumably stop.

The industry fears that Whitehall’s

bandwith is being consumed by the wider

virus response and that the acute problems

in the airline industry will delay govern-

ment action. This week the government

announced it was holding sector round ta-

bles with a airlines, retailers, manufactur-

ers and a half dozen other industries. Rail

was notable for its absence. Yet while the

civil service may not have the resources to

consider a new package for rail, there may

be one almost ready to go. The long-await-

ed, but much-delayed, Williams Review of

the structure of the rail industry was ex-

pected to report this month, although that

is now likely to be put off further.

Keith Williams, the former airline-in-

dustry boss heading the review, had been

expected to recommend a move from the

current franchise model to a concession

system. Under that framework, common

in other rich countries, private companies

manage the trains, but the model is differ-

ent from the one operating in Britain. Rath-

er than carrying the costs and reaping the

rewards, rail companies get a fee from the

state for the service they provide. The gov-

ernment gets the income from fares, and

taxpayers bear the risk in case of losses.

That’s how London Overground, a well-run

network, operates.

Train operators have been somewhat

wary of a concession model, preferring the

potential financial upside of the current

franchise arrangements. But with losses

mounting, the sector is now keen for the

government to take back control. A once

controversial package of reforms has sud-

denly found unlikely friends. 7

Train companies will probably end up

under state control

Trains

Bailing out the

railways

E

yeing a newwave of hoarders advanc-

ing towards already half-empty shelves,

a supermarket employee says that in nor-

mal times the shop sells only ten of its most

expensive sirloin steaks in two weeks.

“Now 30 go in a day!” Other parts of the

store—a branch of Sainsbury’s in east Lon-

don—resemble a battleground. Those

tasked with replenishing toilet rolls look

especially flushed. “They are just grabbing

them off the boards,” grumbles one worker.

“I’m just handing them out one by one.”

Six in ten Britons reckon stockpiling is

an unacceptable response to the spread of

covid-19, according to Ipsos mori, a poll-

ster. Yet my prudence is your stockpiling.

As customers strip shelves bare, most Brit-

ish supermarkets have implemented some

form of rationing. Some chains are limiting

purchases of the most popular items, like

loo roll, pasta and rice. Others have banned

customers from buying more than a few of

each product line. Emergency plans, many

of which were drawn up to cope with a no-

deal Brexit, are being dusted down and put

into action.

“We’re seeing Christmas-type levels of

demand at the moment but usually you

have months to stock up and staff up be-

forehand,” says one supermarket’s supply-

chain boss. Grocers’ depots typically hold

enough food to last a week and only a few

days’ worth of perishable goods and bulky

items, such as loo roll. At the store in east

London, the manager remains calm. “The

supply chain is doing fine, the depots ha-

ven’t run out of stock,” he says. “All I can do

is put out what they send me.”

For now, the problems are caused by

surging demand rather than disrupted sup-

plies. That could soon change. Bruno Mon-

teyne, a former supply-chain director who

now works for Bernstein, a financial-re-

search firm, says Tesco, Britain’s largest su-

permarket chain, regularly war-gamed

pandemics when he worked there. In a note

for clients this month, he noted that supply

disruptions are likely to become wide-

spread if unexpected staff absences reach

5-10% of the workforce. At that point “it

would only take a few weeks to generate

major shortages across the store estate.”

Stores will probably narrow the range of

goods they sell in order to ease bottlenecks.

As Mr Monteyne puts it, “who needs 35

types of ketchup in a pandemic?”

One difficulty is that supermarkets have

been engaged in a multi-year price war to

maintain market share with two German

discounters, Aldi and Lidl, and online ser-

vices like Ocado and Amazon. Profit mar-

gins in the retail sector fell from 6.4% in

2007 to 2.7% in 2018. One of the main re-

sponses has been to make their supply

chains more efficient—and thus vulner-

able to disruption. “We’ve been rationalis-

ing supply chains for years and that’s great

news for consumers who have ever lower

prices, but we don’t have much spare ca-

pacity,” says an industry insider.

Italy has managed to maintain food

supplies despite a more severe outbreak of

covid-19 and a much tighter lockdown. The

British supermarket industry is confident

it can do the same, but in the weeks ahead

disruption is likely and the range of goods

offered to consumers will probably narrow

still further.

Shelf-stackers in east London are not

convinced rationing will put an end to pan-

ic buying, however. “First it was toilet roll,”

one explains, “then it was pasta, then it was

tinned tomatoes, then it was bread, and

now it’s fruit and veg.” Her colleague adds

that “it will be beer next.” 7

Retailers battle to restock shelves

faster than they are emptying

Panic buying

Supermarket

sweep