Tesco. "Every little helps, the advert says. Discuss the assertion that Tesco is good for us.

From statistics shown in November 2009, Tesco’s share of the grocery market has risen to 30.7%. Tesco shares the grocery market with other oligopolists, however has the most power, as it has the highest share. This means that Tesco has more power to abuse the grocery market, as it has the ability to manipulate prices more easily than the other supermarkets. This would be a very minor problem as there are many other supermarkets that would be close substitutes to Tesco, for example Sainsbury’s or Waitrose. However, even though it is minor problem, it is still significant in the fact that Tesco’s ability to abuse prices even in the slightest puts consumers at risk of being charged over-priced items.

A recent online publication by Channel 4 news stated that whilst “every little helps” is a good slogan for Tesco, but what happens when a little becomes a lot? Tesco stated to channel 4 that with only a 13% share of the UK retail market, that they could never be considered to be a monopoly, using this statistic Tesco also pointed out that all households have at least 3 different options of major supermarkets within 15 minutes drive from their residence. They also denied the fact that they have not been providing better deals for their suppliers since the beginning of the year. Tesco have stated that what they intend to do is to invest millions of pounds into local economies, which in turn helps to provide tens of thousands of jobs for the unemployed in the area. It has also been suggested that large supermarkets destroy the local wealth in towns across the UK, which in turn creates a style of economic vacuum where the money gets taken out of the houses and ends up back with the shareholders. Tesco denied this suggestion, saying that when the company invests in local communities, they are in fact creating genuine jobs for local people and that all the profits are spent in local shops and on local services.

Tesco is also soon to be facing a double blow from proposals put forward by the Conservative Party with the intent of disrupting the planning system. This new proposal states that the Tories will be introducing a new competition test which will make it compulsory for developers to prove that there is a demand for their product in the market (this test was scrapped by the Labor Government at the end of last year). This new test will help to raise the barriers of entry into a market where it is already becoming increasingly difficult for Tesco to expand. Due to the fact that Tesco has over 2,300 stores across the UK, they have campaigned fiercely against the competition test and have hoped that the Tories would scrap their idea. Tesco have also recently been accused of advertising too harshly against other major supermarkets. This have proven to be particularly evident in their recent adverts where direct price comparisons have been made against Morrisons and Asda.

Recently, Tesco has had a negative impact on their suppliers but particularly the farmers. In particular, recent allegations have been made that farmers have been subject to bear the burden of unfair trading practices imposed by supermarkets. In 2001, Tony Blair claimed that supermarkets had 80% of farmers in an arm-lock. The main problem with this is that farms are small, local businesses that do not have much say and if they choose to complain, the supermarkets can simply move their business elsewhere and such is the nature of the food industry, the farmers may not be able to find anyone else to sell their goods to.

Thousands of farmers are forced to leave the market each year because of the low prices that they receive for their products. Farmers’ organizations around the UK believe that it is because of the increasing buying power of supermarkets and the fact that they can squeeze the suppliers – and get away with it. According to the Competition Commission Report, the buying power of the major supermarkets means that the burden of costs increases in the supply chain has fallen heavily on small suppliers such as farmers.

Along with this theme of market power, we assume that all firms have the profit incentive. This is relevant because this means firms have the profit incentive to grow and eliminate rivals. As there is a declination of firms in a certain market (in this case grocery), there is less pressure to be efficient, or reduce costs. This will occur with the firms that have the greatest market power, which happens to be Tesco. Due to their being less pressure, prices won’t decrease, or there could be a positive increase, which would mean goods in Tesco’s would be more expensive. This means consumers gain less of a reward for the goods the buy, i.e. they can consume less with their disposable income than they did previously. This would have a knock on effect on the Government’s tax revenue. This is because, if consumers want to continue with their average consumption of necessities, their luxury consumption would have to be decreased, which would often include either alcohol or cigarettes. This causes a decrease in tax revenue. This would be a harsh result, as the Government is already on a tight budget, a decrease could have a large opportunity cost.

In conclusion, I don’t think that it can be easily classified as to whether Tesco is “good” or “bad” for us. In some ways it is good, the firms and consumers benefit from a healthy amount of competition within the market, resulting in better deals for the consumers. However, the high amount of competition reduces the prices of the goods that we buy, meaning that this money comes out of the amount of money that Tesco is giving to its suppliers. Overall, farmers come off the worst in the increasing struggle for power within the market. However, steps are being made to increase farmers’ rights and I personally feel that this is the right thing to do as without the farmers, we would not have many of the products in the first place.