Protecting Market Share Through Politics

The Saint ReportNIMBY, Planning and Zoning, saintblog, Thought Leadership

From NIMBY Wars: The Politics of Land Use

ballotBy P. Michael Saint, Chairman and CEO &
Patrick Fox, President, The Saint Consulting Group

In Western democracies, anyone and everyone has a right to advocate for a position on an issue. Sometimes, people do it personally in a direct democracy sort of way. Other times, they hire lawyers, accountants, PR consultants, traffic engineers, or lobbyists to present their case. Whatever method they use, the right to advocate a position is a basic right of democracy and free speech, whether the motivation is pure or suspect.

Similarly, the right of free enterprise affords anyone the right (in compliance with appropriate laws) to start and nurture a business, develop it, and protect what has been created. This latter point has raised some eyebrows on both sides of the Atlantic, particularly among traditionalists for whom it is ungentlemanly to protect or advance a business by opposing someone else’s. In the traditionalists’ minds, it just isn’t done, or perhaps it just isn’t done publicly.

There is no cause for concern, of course, so long as there is enough business to go around or as long as one merchant can specialize in areas that the others don’t pursue. Jewelers gather together in one building or on one street in many cities, some specializing in gems, others in gold, and others in watches. They do compete with one another, but not to the death, and sometimes they share profits in a cooperative manner so any sale made in the Jewelers’ Building benefits all. Shopping centers are full of clothing stores, each limited by the terms of its lease as to what types of clothing—women’s, children’s, casual wear, and so forth—it can offer. Each store wants to protect its niche and won’t become a tenant if others are selling the same goods. It therefore negotiates exclusivity reservations in its lease, which amount to restrictions in the terms of other tenants’ leases, to protect its turf. Likewise, pharmacies and department stores in strip malls are barred from selling certain kinds of food if there is a supermarket anchor in the same shopping center.

Is it ethical to limit a tenant’s business so that it doesn’t compete with another tenant? Is it proper to oppose another merchant’s application to obtain the same government-issued license you have been granted? The issue isn’t about ethics, but rather economics. Unless the mall management agrees to protect the anchor tenant, that anchor will not locate in the mall. Unless a merchant is provided with some form of exclusivity or protection for the goods she offers—unless her market share is shielded—she will perceive her situation as untenable. Whether an action is fair or ethical depends in large part on one’s point of view.

Even in rural villages, the owners of a liquor store in the center of town will vehemently oppose the granting of a beer and wine license to another merchant, even to a grocery store whose alcohol sales would be a casual sideline, for fear of losing market share. The liquor store owner will try to appear high-minded, arguing that there’s no need for another liquor outlet in such a small town, that alcoholics have enough temptation, that another outlet will give teenagers more ways to procure alcohol, that drunk driving will get out of hand, and so forth. His real but unexpressed plea is for market share protection: since he doesn’t sell bread, the grocer shouldn’t sell beer. He sees this as a fair and equitable posture.

Public officials cannot openly protect one merchant at the expense of another. However, their decision about whether to grant another license is discretionary and based on the standard set by the state statute, which generally rests on the board members’ determination of whether the “public convenience” (or some similar test) would be best served by granting the license. As with all discretionary land use decisions, both the process and the decision will be political.

The imaginative grocer will ask his customers to sign a petition in favor of the license, and will prevail on some to write letters to the newspaper and the board urging that the license be granted. A few will accuse the liquor store owner of trying to maintain a monopoly. The liquor store owner, in turn, will ask his customers to sign an opposing petition and may recruit influential local traditionalists (a clergyman, the police chief, a retired school principal) to write letters expressing the high-moral-ground arguments. Both sides, if they are wise, will recruit respected citizens to attend the hearing and speak on their behalf. As in all land use political fights, the person who devises and executes the most effective political campaign will win.

The nostalgic Victorian image of competing business tycoons enjoying a fraternal glass of sherry while adhering to the highest ethical and moral behavior is not only false, but also never was real. Businesses, like countries, have been protecting their turf for millennia. Today this means working to block a competitor from building across the street in order to protect one’s market share. Publicly, business leaders will say things like “We welcome competition” or “Competition is good for the consumer.” Privately, they are acting to protect their businesses in every legal way they can. Only merchants willing to risk destroying their livelihood would welcome a big-box competitor to the neighborhood and do nothing to stop it.

It is this latter effort—working to stop a competitor from locating nearby—that has so provoked the traditional business establishment, no less in the United States and Canada than in the United Kingdom. Working to prevent a competitor from moving into the area, and thereby essentially creating some sort of monopoly, seems unbecoming and distasteful. Even more upsetting to traditionalists is that the perpetrators of this unseemly conduct often carry out their plots anonymously, handing out anonymous broadside flyers attacking their well-intentioned adversary and even secretly funding opposition citizen groups that otherwise would not have the resources to impugn the competitor’s project.

If the opponent perceives that he is fighting for survival, then he may do things that might be frowned upon in polite society. But all land use decisions are political, and the traditionalist business establishment opposes these methods because these business leaders are accustomed to winning political fights with a quiet word or two, and they don’t like to lose.

Mike Saint is chairman and CEO of The Saint Consulting Group, email: msaint@tscg.biz.
Patrick Fox is president of The Saint Consulting Group, email:
fox@tscg.biz