I don’t remember exactly when I realised quite how important competition - and the innovation that comes with it - are to the way that societies get richer. And I don’t remember exactly when I realised that Greggs showed me this in a stark example. I do, however, remember very clearly when I first started going to Greggs.
I was working in Otley, a small market town in West Yorkshire, and my lunch breaks were important to me. I needed to get out of the community arts centre where I worked and have some time to myself, and I took to visiting one or other of Otley’s charming cafés. This went on for quite a while, probably the first year or so that I worked there, and it was a joyous way to spend lunchtime: in a buzzing café, with a coffee, a bacon and chilli jam panini (or something similar, depending on the café) and a good book. At some point, though, I realised that I just couldn’t afford to do this. I worked in a community charity, so the salary wasn’t high. And I had a commute. And, although I wasn’t extravagant, I wanted my lifestyle to include at least some of the luxuries of being alive in 21st Century Britain: perhaps the theatre, or the pub, or travel, in the UK and abroad. Things needed to give, and I realised that £7 a day on those café lunches was one of them. The cheapest option for me was a Sainsbury’s sandwich: that would save me more than £5 a day, not a small amount when you feel stretched. But I would lose the joy of the ambience, the fresh food and the coffee.
A couple of days later I walked across the market square in Otley and passed Greggs, a staple of (particularly) Northern towns and cities. And on the sign outside they were advertising a meal deal. I may be romanticising the prices seven years on, but I think it was £2 for a sandwich, a packet of crisps and any hot drink. I gave it a try. I found a tasty sandwich in a freshly baked baguette, and a more than passable latte. And a habit was born, which has carried me through those last seven years to the point that I’m now practically on first name terms with the staff in Greggs on the Strand, who greet me with a big smile and often start making me my black coffee (I’m counting calories more than pennies now) while I’m still in the queue.
Greggs made me richer, right from that first meal deal. And in two ways: I saved money, allowing me access to all those other riches of the modern world, but that wasn’t all. I could have saved the same money with a slightly joyless Sainsbury’s sandwich eaten in my car. More than just the money, I was richer because I could continue to eat really tasty food and drink nice coffee, even when I was struggling for money, and if I wanted I could do this surrounded by a buzzing little café. And it isn’t just me who benefitted from this, who was made richer by Greggs, it was and is the thousands of people who have freshly baked sandwiches, pastries, coffee and other goodies as part of their weekly routines.
I didn’t understand all this at the time, but as I learnt more and more about how capitalism and free markets work, my affection for Greggs, its friendly staff and its community values has changed into a respect for one of the great bits of free market magic. Because in the story of Greggs, and high street bakeries and coffee shops, you can see the amazing power of the market: how competition and innovation make us all richer, every day, in ways we don’t even notice.
Here’s what happens: let’s say there are four bakeries in a small town, it could be Otley, or it could be elsewhere. All the bakers are the same, and in this example, let’s say they’re just ‘ok’. If none of the bakers try to improve things, then everyone continues to get ‘ok’ baked goods at roughly the same prices in each. But, if one of them innovates, we suddenly get richer. Let’s say the innovating bakery put a meal deal in: you get your pasty and a cake there for only a tiny bit more money than you get your pasty in the other three. If the quality is good enough, then people like me with a sweet tooth will likely be persuaded, and that will become our bakery of choice. We get richer because we get more (of what we want) for more-or-less the same price. But only if the quality is good enough: if the pasties are bland or the cake is dry, then the balance of the factors which play a part in our choices will be tipped in favour of somewhere else.
So one bakery innovates and suddenly we’re richer. Everyone who takes advantage of their innovation is richer, getting more for less. But with the magic of human creativity, and of the competition in the market (town), we know it doesn’t end there. At least one of the other three bakers is thinking to herself, ‘Ooh, those guys are doing a meal deal, and we’re losing customers. We can’t beat them on price and make ends meet. What can we do? Well, my bread is better than theirs will ever be, and I’m going to make it even better...’ And suddenly we’re richer again: the second baker raises her game; she stops wasting her time with cakes (which perhaps she isn’t great at) and spends it making even more delicious bread, styled in different shapes, sizes and flavours. We can now have great value in a meal deal in one baker, or we can have even more delicious bread in the other. Perhaps the third baker converts their store room into a big seating area with sofas and occasional live music from his daughter and her acoustic guitar, and the fourth one has the best brownies in the county. And before we know it we have four distinct coffee shops, all giving us different benefits, all making us richer through choice, allowing each of us with our different preferences to get even more of what we want. But also through price, because they all know – instinctively or consciously – that price is a big part of our decision on where we go.
There’s one more part of the story: the bakeries that don’t innovate, the ones that stay ‘ok’, or don’t compete on price, they won’t last long. Maybe the fourth one actually can’t make better brownies. If somewhere else nearby offers the same thing for cheaper, and somewhere else nearby offers something much better for the same price or only a little more, then we stop going to the fourth bakery, and the fourth bakery may go out of business. At this there is a very real loss for the people whose businesses or jobs disappear. But for everyone who isn’t directly involved in the most average café in the town, the competition makes them richer. They get things for as cheap as they can in some places, and they get specialists in excellence in others. No one has to suffer a bakery that is just ‘ok’ any more.
On the macro scale the impact is even bigger. One of the cafés hits a sweet spot (a metaphorical one). Let’s say it’s a sweet spot of value vs quality. Perhaps it enables them to have fresh bread baked really well on the premises, with no artificial colours or flavourings, making it is sandwiches infinitely preferable to a pre-packaged supermarket equivalent. But despite this, the sandwiches are good value for money, maybe even cheap. And the business is run well, staff are looked after, and so they enjoy their work and serve the customers with a smile and a chat. The business owner is doing well, and opens another café in another town, and then another, and another. As long as the business is providing something that people want - either competitively priced or of higher quality than anyone else nearby - then people keep coming to it.
And there are benefits to having a big chain: staff can be trained in a particular way, economies of scale are developed, so in fact the café becomes even cheaper. It’s almost impossible for something independent to be cheaper than a chain. For customers, this means that a chain makes us richer. And what of the other cafés? Well, if they are just ‘ok’, then they can’t compete with this chain.
Unless they innovate. Unless their coffee is spectacular (and their prices not too much more). Unless their customer service is fantastic (and their prices not too much more). Unless their location is inspiring, a home from home (and their prices not too much more).
Greggs means there’s no space in the market for bakers or coffee shops that are only ‘ok’. There are no crap bakers left. Why would we go to them when we can get nicer, cheaper things from Greggs? And can you see how brilliant this is for us, for the customers? All that is left is Greggs (and a few other similar chains), and the brilliant bakers and coffee shops. We have a choice between good and cheap (at Greggs) and less cheap and truly brilliant (elsewhere). We are either richer through having better, cheaper sandwiches in Greggs, or richer by having the best coffee the world has ever seen, served by charming baristas in buzzing, rustic coffee shops.
And then the race starts again. I’m not in Greggs in Otley right now. I’m in La Moka on Battersea High Street. There is great coffee, great service, and a wonderful Saturday morning buzz. And my coffee and breakfast muffin cost less than £6, which seems cheap to me for a place like this. All the coffee shops with great coffee, great service and great environments are competing. Driving prices down, innovating more, making me richer again: in choice, in experience and in money. And they’re making you richer, too.
This piece was written in February 2017 as a competition entry for a politics and economics website that I have learnt a lot from over the years. Because of the snap General Election, the competition was never judged, but as I reflected recently on the Lost Relics of our Art I realised that it needed to see the light of day.