Michael Porter was the first economist to become a business guru. He used economic concepts to illustrate issues of corporate strategy. One of his most cited conclusions was the need to avoid being “stuck in the middle”. Companies, he said, must either gain a cost advantage or emphasise product differentiation. It was fatal to fall between the two stools of cost leadership and superior quality.
This claim struck me as nonsense. Middle market positions were not only viable but the preferred stance of many successful companies. In debate with Prof Porter, the eponymous chairman[WHO? AND WHEN?] of Sainsbury’s supermarket defiantly displayed a model truck carrying the slogan “Good food costs less at Sainsbury’s” — a celebration of being stuck in the middle. And, when Tesco overtook Sainsbury’s in the UK market, it was not by following Prof Porter’s advice but by beating Sainsbury’s at its own game.
Yet if we look at the UK supermarket sector today, the consensus view is that Prof Porter was right after all. The most successful competitors are Waitrose, firmly at the top of the market, and German discounters Aldi and Lidl, which have placed themselves at the bottom. Tesco, the market leader, along with traditional rivals Asda and Morrisons are under pressure, apparently stuck in the middle. The transformation of fortunes is not confined to the food sector; a remarkable phenomenon in UK high street retailing is the rise of Primark, which sells clothes for less than a hotel charges to launder them. And the most valuable company in the world, Apple, charges premium prices for premium products.