Entries Tagged 'retail' ↓

There was a time when the market leader in UK supermarkets was Sainsburys but in the past few years Tesco has shot ahead. Some of the reasons for Tescos dominance

Clever Marketing. I am always impressed by how Tesco’s knows exactly how to get me to go shopping there again. If I haven’t been shopping for a  few weeks, they will send vouchers giving me £5 off my next £30 shop. The really clever thing is that usually I spend £20-£25 on a shop at Tesco. Not only do they get me to go shopping, but I spend an extra £5. (My house always has piles of food boxes, I need to buy to get some minimum order delivery )

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Statistics from Interactive Media in Retail Group (IMRG) show that online retail spending increased by 75% in 2007. Disappointing retail sales on the high street have been offset by bumper online sales. IMRG predict that by 2018, internet sales could reach 50% of all retail spending.

In particular the internet has squeezed profit margins of low cost retailers. If you want to succeed on the high street, there is a need to offer something different, a niche, highly valued product. Therefore, brand names like Marks and Spencers may continue to do well - they don’t compete just on price. However, electronic goods will increasingly be dependent on cost factors. Continue reading →

Is tesco’s power a net benefit or a cost to the wider economy?

In the UK, Tesco’s have over 32% of market share for supermarkets. It is a similar situation as the US, where supermarkets are dominated by:

It is an emotive issues whether Tesco’s is Good or bad for society and consumers.

Benefits of Tesco’s

1. Economies of Scale.

The large size of the firm means that it can benefit from economies of scale in areas such as bulk buying, transportation, distribution, marketing and technology. Economies of scale mean higher output leads to lower average costs.

2. Diversification

The large size and financial resources of Tesco’s means that it has been able to diversify into other products such as Mobile Phones, insurance, credit cards and banking. In these areas, Tesco’s has helped to increase competition, provide more choice and help lower prices for consumers.

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The Future?

Tesco’s is the UK’s leading supermarket, with an estimated market share of 31.5%.Yesterday, the competition commission suggested that the Supermarket’s dominance was not due to unfair trading practices. After a long investigation of the  British supermarket industry, the Competition Commission have concluded:

1. Supermarkets are not competiting unfairly
2. The dominance of big supermarkets does not preclude smaller grocery shops  from competing
3. The planning process for new supermarkets is too restrictive - What is needed is for a streamlined procedure to enable the building of more supermarkets, and not just on the edge of towns.
4. The one area of concern was the practise of buying up land close to the existing supermarket. It is alleged that supermarkets often buy up land in close proximity to their new stores. This is to prevent new firms from competing.

Criticisms of the Competition Commission Report include:

• They have focused on the benefits of cheap food, but have ignored other factors such as social responsibility and diversity.
• The Report didn’t adress the issue of Monopsony power. - This is the way supermarkets have allegedly been ‘bullying’ suppliers such as farmers. Farmers claim their profit margins have been squeezed by the combined market power of the Big Four.
• Does the UK really need more supermarkets? - Supermarkets in the centre of town would make life more difficult for specialist shops.

Friends of the Earth, one of the groups which called for an inquiry by the Competition Commission in the first place, said:

“Today’s report is a totally inadequate response to the growing power of the big four supermarkets. The commission acknowledges that supermarkets bully suppliers and reduce consumer choice, but then bizarrely recommends making it easier for them to expand.”

• Fury and disbelief greet Supermarket report at Independent
• Read latest news at Competition Commission site