The food industry in the United Kingdom and other European and western part has progressed rapidly since the end of the 2nd World war. Since then, advancement in technology and personal wealth and changes the societal norms to makes grocery store into big retailing industry by the end of 20th Century. (Exeter University, 2007). By 1965 supermarket store were raised by 2000 and today there are at least 4500 supermarket. (Competition commission, 2000).
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Most of the stores of the 1960s and 1970s would probably be unrecognisable by today’s standards. The free market of the Thatcher years fuelled development of large out of town stores that provided customers with a “one stop shop” that met their needs for convenience and choice (Competition Commission, 2000). In the 1980s and 1990s the widespread use of electronic inventory and supply chain management allowed supermarkets to offer a wider mix of products from around the world and benefit from economies of scale. The typical UK supermarket is now around 25,000 sq ft and carries over 8,000 different product lines (Competition Commission, 2000).
The UK Supermarket sector is dominated by Tesco, Asda, Sainsbury’s and Morrisons which are the only chain which operate on full scale supermarket of 40.000 Square feet or more. There are no regional supermarket chains left in the United Kingdom which operate supermarket, just a few small ones which operate smaller stores. The Big supermarket like Tesco, Asda, Sainsbury’s and Morrisons had a combined share of around 75% of UK grocery market according to retail analysts TNS Super panel.
To improve the product dimension in today’s world important to attract the customer towards the store through the product differentiation. So retailer has to collaborate with manufacturers to enhance product ranges. The emphasis upon a retail brand product range characterized by high quality, innovative products is a key feature to attract the consumers in British grocery retailing (Laaksonen and Reynolds, 1994). Many new products have been introduced to market under the retailer’s brand name rather than manufacture brand (de Chernatony, 1989).
In the UK grocery store the common strategy has been to enhance product ranges not just through the re-labelling of commodity products but by using the retail brand range to emphasize continued product development and innovation which differentiate from competitors (Burt, 2000). All supermarkets sell a very similar range of food products. So retailer has to create brand image and position became more critical competitive and differentiating factors and one that retailers have extended enormously, including into distinct added value consumer segment of the market (for instant children) and non-food product service areas (Burt and Sparks, 2002).
Tesco has more retail store space in the whole United Kingdom than any other grocery retailer. In 2006 Tesco added 1.7m sq ft of floor space to its chain through a combination of organic growth and acquisition. This rate of growth is not expected to continue, but considerable floor space expansion of 6% p.a. is expected during the next few years. This is significantly faster than any of their rivals in the sector (Verdict, 2006).
Barriers to entry of overseas competitors barriers to entry of overseas competitors exist by virtue of the ties domestic retailers have built up with retailers and wholesalers, which overseas retailers will find difficult to overcome (Scherer, 1999). Inorder to obtain a significant grip in the market for any new player would have to compete with large scale of operations (Hallsworth, 1997). Currently there is a restrictive planning regime in the UK related to new out of town development. It limits the growth of existing player in the market as well as prevents new entrants from finding the scale of growth (The Competition Commission, 2007). In UK Tesco is the leading competitors in the market and The Competition Commission are currently investigating how all the supermarket is effecting competition in the sector. Only one new player in market i.e. Wal-Mart able to enter the market through takeover of existing chain buying Asda in 1999.
Evidence demonstrates the importance of store development as a critical element in retail competition, with the level of concentration in many UK retail markets having increased substantially since the war. In the grocery sector where the major increase in concentration has been fuelled by the combination of internal store expansion, and acquisition and merger activity (Baden-Fuller, 1985; Sparks, 1993). Retail expansion and concentration over the last two decades has been extensively charted by Wrigley, for example, who emphasised the centrality of superstore development in retailer’s strategies of spatial market extension and capital accumulation (Wrigley, 1987, 1991). For instant, the role of store development in the drive towards highly concentrated patterns of retail provision in UK, a movement that substantially increasing their market share compared to co-operative and independents.
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The most leading fascia in the UK supermarket is Tesco. CACI found that it was the number one supermarket in terms of sales in 68% of UK postcode areas and that in six areas it took over 50% of the supermarket sales (BBC, 2006). Studies have also found that only four postcodes in the UK don’t fall into a Tesco catchment area and the only mainland one of those is in Harrogate (BBC, 2007). Expanding the network increase the volume of sales, buying power and economies of scale which maintain the barriers to entry.
The UK market have seen major grocery retailer pursuing a policy of brand extension into non-traditional product and service areas. Non-food ranges have increased, mostly in clothing and household product which has huge profit margins. These non-food products are not under the company brand name for example ASDA’s “George” range, Tesco’s “Items” brand and the Safeway “Kids Own” brand (Burt, 2000). More of these retailer giants have tie ups particularly financial service. Through tie ups with a range of financial institutions an array of financial services are now on offer or promised. Interest paying debit cards, credit cards, personal loans, life insurance, travel insurance, foreign currency services and even mortgages can now be obtained under a retail brand (Burt, 2000).
The UK retail market is determined by strong competitive retail pricing forces and gross profitability targets. Retailing pricing is a key element of the strength of its appeal to UK consumers. However, the competitiveness of a UK retailers prices will have a significant effect on its profitability too. As a result, some retailers may work on a price indexing system, which determines what level they will they price their products, versus their competitors. For example, Retailer A may decide to be at an Index of 101 versus their main competitor. (i.e. they will be 1% more expensive or 99% i.e. 1% cheaper.) (Bordbia.com).
UK grocers divide the pricing policy categories. The most common are Price-led value and Every Day Low prices (EDLP). In addition there are the premium food retailers such as Marks and Spencers and Waitrose and the deep discounters such as Netto and Aldi. Retailers such as Somerfield and Sainsbury have struggled to capture market share, due in part to an unclear pricing policy.
Overall, competition between the major supermarket retailers has led to a decline in real food prices in the UK of over 10% over the last decade. In their 2000 study of UK supermarkets The Competition Commission found that price competition is often restricted to certain frequently purchased products and that multiple grocers generally sell these lines below cost. They believed that this form of price competition acted against the public interest, despite the lower prices, as it may reduce the local competition a supermarket faces from independents and smaller chains. There was, however, no proposed solution to prevent the practice as the possible remedies were impractical and may have had undesirable side effects. The Competition Commission is now re-examining the issue following the expansion of Tesco and Sainsbury in more local convenience based markets and growing public concern over the issue.
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