Since supermarkets move into convenience stores, the gradually annihilation of small retailers is also expected. As follows that concentration in market still tends to grow. As for example in 2000 five supermarkets controlled 75.5 per cent of grocery market, now only four companies control 76.4 per cents. (OFT)
To summarise the British grocery market is widely recognised as oligopolistic industry. It has few dominated firms, barriers to entry , strong brands, and maintains customers’ demand for low prices.
Q2.Outline the origins and growth of Wal-Mart. What is the business strategy of Wal-Mart?
As being the largest multinational corporation, Wal-Mart started its business from the small chain of various shops in Bentonville in 1962. His founder Sam Walton had perfect vision of successful discount retailer, and leaded company to the acme of today’s world market.
While corporation faced the competition from regional discounters, it developed new strategy to conquer with them. The main tactic was to sell products for very low prices, which was accessible to everyone. It was achieved by cutting the cost of labour and squeezing its suppliers. Wal-Mart was more concentrated on the local market than city dominion. It protected company from powerful competitors.
The early acceptance of technology accelerated Wal-Mart’s precedence among retailers. Although in 1992 the situation became fairly difficult.
The intensive assault of press under Wal-Mart declined company’s profit. In response corporation made hazardous investments in distribution, technology and construction and lifted company to a new eminence.
Wal-Mart created and image of ambitious predator. It is famous in union- busting, gender discrimination, exploitation of employees and use of bargaining power over its suppliers. Notwithstanding it became the most successful retailer in the world, which has nearly 6,500 stores and more than 1.8 million associates worldwide.
Q3.Use separate demand & supply diagrams to show the impact on the price of chicken sold in competitive supermarkets if;
a) Wal-Mart enters the market, taking over Asda supermarkets and setting up new stores
The establishment of new stores will raise supply in the competitive market .Hence supply curve shifts rightwards and reduces the price of chicken, as well as increases demand.
b) The prices of beef, pork and lamb rise
If the price of alternative goods (beef, lamb and pork) rises, people switch to chicken. In response it will raise its demand and its prices.
c) Pressure from supermarkets on poultry farmers to only supplying free range chicken.
Suppliers will then have only limited amount of chicken to supply. So it will reduce the supply and demand, but increase the price of the chicken.
d) Government health warning about dangers of salmonella in chicken.
If there is salmonella scare, people will demand less for health reasons. It will result the fall in price. The demand curve will then shift leftwards.
Q4. How could Tesco increase the inelasticity of demand for its products? Why would it want to do this?
Demand is one of the relevant factors stipulating firm’s existence in the market. Company needs to keep high level of demand to maintain greater profit margins. Although for the firm as Tesco it is exceptionally difficult to sustain in the highly competitive environment. In this case company stimulates the inelasticity of demand.
Inelasticity of demand for products means that the percentage change in price results the insignificant change in demand.
While demand is price dependant, Tesco has an interest in keeping low prices of its products. Hence it becomes dominant retailer in the UK. But it is not enough to keep low prices in the market where rivals follow the similar strategy. Tesco needs to distinguish its production from abundance of existing ones.
Market’s giant puts huge exertions in research of consumers’ behaviour and wants. So it can make product accessible to different customer groups. Tesco intensively introduce own-branded products. The high quality goods, as Tesco’s Finest and organic food brought the grow of 30 per cent in sales on a year ago (The Guardian Wed October 4, 2006). At the same time company remains selling value-for-money items which are still the ‘most powerful drivers’ in the grocery market (IGD Value for money, 2005). What is more, it finds new market niches and launches products such as cholesterol-lowering milk and Reducol-based yogurt drink under its own label. A brand is one of the factors increasing the inelasticity.
Advertising and other promotion creates indestructible brand image and inform about its existence. Customer tends to believe that the commodity is the best and there is no substitute for it. Naturally if the price suddenly raises consumer stays loyal to the product.
Another way to attract consumer is to propose the high quality service. Tesco offers Club cards, online shopping, insurance, and the great quantity of different food and non-food products as well as other services.
The market leader expands into new markets and into new areas overtaking small traders, so people might be left without any choice to choose other retailer than Tesco.
If the demand for products is insensitive, company is powerful to maintain its market share, and feel secure from its rivals’ strategies. What is more, it can increase the prices and still experience enhancement in sales.
Q5.How does Wal-Mart cut its cost? What might be happening to the long run average cost curve for this industry? Draw a diagram to illustrate answer.
Wal-Mart is a unique company which formation was very successful. While discount retailing becomes the main trading strategy in the world, Wal-Mart rewards its costumers offering low prices.
Firstly the cuts are made on its supply chain. Since corporation is large in size it can use its bargaining power to attain better deals from suppliers. Most of the companies are dependant on Wal-Mart and has no choice to keep high prices. The diminution in production cost reduces price of the product. Besides, firm has direct access to Chinese suppliers.
The other way, which exists from the birth of the company, is to pay lower wages to its employees and increase labour productivity. What is more Wal-Mart is an active opponent of workers’ unions and is accused for large number of law suits.
Company is also benefiting from government subsidies, such as tax breaks, cash grants and free land. For the reason that increased productivity and deflation in food prices helps freeze inflation. (The Myth of choice, 2004)
As the company is benefiting from economies of scale it regularly cuts its short run costs. So the average cost in the long run will slightly move to zero.
Reference
DUNNET, A. (1992) Understanding the market 2nd ed. London, New York: Longman Group UK Limited
SLOMAN, J./SUTCLIFFE,M. Economics for Business 2nd ed. Harlow: Personal Education Limited
LAWRENCE, F. (2004) The myth of choice, The Guardian [Online] 15 June 2004. Available from: [Accessed 14 December 2006]
Key Note Publications Ltd(2006) Own Brands Market Report 2006 [Online] June 2006. Available from: [Accessed 14 December 2006]
GATES, A. (2005) The New York Times [Online] 4 November 2005. Available from: [Accessed 14 December 2006]
WONG, T. (2005) Toronto Star [Online] 17 November 2005. Available from:
[Accessed 14 December 2006]
MILLER, H. (2006) Tesco's U.K. Sales Growth Slows as Sainsbury Rebounds (Update7 )[Online] 5December 2006. Available from:
[Online] [Accessed 14 December 2006]
[Online] [Accessed 14 December 2006]
UK Grocery Retailing [Online] 16 June 2006. Available from:
[Accessed 14 December 2006]
Major Events That Have Shaped UK Grocery Retailing [Online] 10 October 2004. Available from:
[Accessed 14 December 2006]
WOLVERTON, T. Wal-Mart May Be Planning a British Excursion [Online] Available from : [Accessed 14 December 2006]
GROSS, D.(2006) First, the Beatles. Now, Tesco. THE BRITISH INVADER THAT THINKS IT CAN BEAT WAL-MART [Online] 1 March 2006 Available from: http://www.slate.com/id/2137211/ [Accessed 14 December 2006]
The "Fresh Phenomena" drives supermarket sales up 7% [Online] 15 November 2006. Available from:
[Accessed 14 December 2006]
Tesco PLC interim Results 2006/7. Strong first half progress as more customers vote for Tesco[Online] 26 August 2006. Available from:
