. Nov 2002 – T and S takeover by Tesco
. January 2004 – Adminstore takeover by Tesco
. February 2004 – Bells Stores takeover by J Sainsbury
. August 2004 – Jacksons Stores Takeover by J Sainsbury
Firms compete with each other by trying to be the most profitable. To achieve this profitability they try to have the most competitive prices and quality of goods to attract customers.
The big supermarkets are doing all they can to be the strongest, by buying out their competitors and trying to grow bigger and stronger.
The supermarket market is an oligopoly. An oligopoly is a market structure where just a few companies control a high percentage of the total market. Because the monopolies commission stopped the bigger companies buying Safeways the supermarket market is still an oligopoly because all the giants have a near equal share of the market (except Tesco’s who have much more). But, for example if Tesco’s bought Safeways the supermarket market would basically be a monopoly, with one company controlling way over a quarter of the shares, whereby leaving no room for competition and giving one company all the power.
Firms seek to grow larger for many different reasons, some of these reasons will benefit the firm and others will benefit the consumers. The first reason is they want to secure the most market share in whatever product they are selling preferably over 25%. They want to own this amount of market share (market segment) because this makes them the ability to make big profits. This would also enable cheaper prices using economies of scale. The advantages of a monopoly are the company can enjoy economies of scale, which means cost savings. Because of size, if you buy more you can negotiate better prices. This is shown by Tesco’s, who are the biggest supermarket, have the lowest prices, which proves that statement. The worry about firms becoming too large is they become a monopoly, which is good for that firm but not good for customers. If a firm becomes a monopoly it will mean that they will have no competition. As such, it could do more or less what it pleases, so service could become poor and the customers would have a good choice, because either the shop owns the whole market or they have the lowest prices around.
In the supermarket market I don’t think there will be a fear of this because the government is keeping a close eye on firms becoming too big, like when they stopped the bigger supermarkets buying Safeway.
Research
Over the period of 6 – 8 months there was a big competition to see who is the supermarket that was going to buy a stake in Safeway or take over it. There were bids from all supermarkets to buy percentage of Safeway. At the end it was Morrisons, with market share value of 6%. The reason why many giant supermarkets were interested was that Safeway was strong in the northwest. Safeway had accepted a bid from Morrison for approximately £3.2billion. The reason why Safeway had decided to sell their business or sell a percentage of they business was that they did not make enough profit but instead they profit had declined as the store sales in the 12 weeks to 3 January fell by 4.1%.
At first glance it seems absolutely bizarre. Tesco's potential bid for Safeway looks like it doesn't have chance.
Tesco already is the UK's biggest supermarket, and with 27% of our grocery shopping in its basket, it's nudging the limit that sets off the alarm bells at the competition watchdog.
The fair trade authorities don't like it when one firm corners more than a quarter of its industry because it is not in the public’s best interest - and a takeover deal that gives a company more than that will get pulled in for inspection.
Add Safeway's 10% of the grocery market to Tesco's share, and you're well over that limit.
Analysis of data
In the pie chart shown in the research section, Morrison now owns more than double what it owned before now owning 16% of the market meaning that it has gained 10% of the market share, which is huge percentage that they are gaining. If that 10% is used well Morrison’s could hugely benefit gaining more than double of their previous profit and becoming more powerful and may be able to try and buy over smaller competition such as “One Stop” or “Londis” which could make them even more powerful.
Safeway was doing very badly which is why they got taken over. Being taken over for Safeway was a good thing. It was losing profits and customers so by being bought over the shareholders can look forward to receiving dividends and workers could feel more secure because Morrison’s is now bigger than Safeway was on its own. They only downside to Morrison buying out Safeways is that some Safeways workers may lose their jobs.
According to my questionnaire there hasn’t been any noticeable improvement and in some cases service seems to have become worse due to less staff in shops. Prices have come down in the former Safeways shops but in the original Morrison’s shops prices seem the to be the same. Prices overall are the same and the same amount of people are shopping in Morrison’s shops but at the former Safeways shops the business of some shops seem to have gone down. The lack of workers shows that Morrison’s is either trying to save money or that they are loosing money. Also in news reports Morrison’s is forcing its workers to move to new areas or be fired so it looks like Morrison’s is losing out to bigger competition
So far it looks like Morrison’s haven’t made any drastic change to the way they run their business, so thus far people aren’t seeing the benefits the of economies of scale, but Morrison’s may have become victim to diseconomies of scale. Morrison’s may have become so big that they have too many shops, and not enough customers so the size may increase but the cost will increase as well, which, is diseconomies of scale.
Also some of Safeways old customers think this about Morrison’s:
“I have just moved from a town where we had a 24-hour Tesco and Asda, amongst other supermarkets. The main supermarket here is Morrison's and I must agree with the views above; the shop has a terrible layout, the car park's a nightmare and the quality of the food is abysmal. They need to clean up their act if they want to be as successful as the 'big' retailers. I hate shopping there so much I now do my grocery shopping at Tesco.com!”
Conclusion
In conclusion I think that both companies have benefited from the takeover. Safeways, who were losing profit and customers, got a huge amount of money and now do not have to worry about their business going into debt. Morrison more than doubled their market share and have a huge opportunity to keep growing and make more profit. So I do not think only one company benefited, I think that they both have an opportunity to benefit from the takeover.
It seems that Morrison’s aren’t using the full strength of the new ownership. They haven’t lowered their prices or tried any new marketing techniques and that to me makes it look as if they are struggling to keep all of Safeways original customers and therefore need to work on getting them back before trying anything new.
Safeways shareholders look like they got a good deal, because now that Morrison’s are much bigger they could receive a better dividend. But some Safeways workers are losing their jobs because customers have moved to different shops since the takeover. So even though Morrison’s had an opportunity to do well it doesn’t look like they are achieving it so far, and at the moment look to be worse off then they were before which is bad for all stake holders; internal or external. Internal stakeholders will lose jobs and sources of income where as external stakeholders may lose local places to shop and the government (being an external stakeholder) will lose out on the taxes it will gain from the two huge companies. So even though both companies had an opportunity to do well is doesn’t look like Morrison’s seized its chance so therefore I think no company got a better deal but I think Safeways got a safer deal which has benefited them more than Morrison’s risky deal has benefited them.