The Business Environment and the Nature of Competition in the UK Food Retail Industry.

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University Degree Business and Administrative studies

01 April 2003

The Business Environment and the Nature of

Competition in the UK Food Retail Industry

Introduction

The story of the supermarkets has been changing accordingly to the changes in the Economy and especially it has been reacting closely to the changes in our lifestyles.  Since the industrialization, that brought people into cities, to the incorporation of women to work, food and supermarkets have been responding to every one of those transformations in their environment along the recent British history, accommodating to the new needs and shopping

habits.

Buying power

The needs and lifestyles of UK consumers underwent a major transformation between 1950 and 1980. The post-war austerity of the 1950s was transmuted into the free-wheeling consumption of the 1960s and, to a lesser extent, the 1970s.

During the 1970s the UK economy experienced considerable problems, with occasional short booms brought to an end by high inflation and currency crises. During that time price became an important consideration for consumers.

To reduce costs supermarkets started to open self-service stores (originally started in USA) Sainsbury’s was widely credited with the opening of the UK’s first self-service store in Croydon, in July 1950 (although Tesco claims its first self-service outlet opened in 1948). Croydon store was soon Sainsbury’s busiest outlet and by 1960 supermarkets, low price, high-volume, self-service stores carrying a wide variety of food, were common.

Competitive

Tesco opened its first superstore in 1967, and ten years later there were 150 UK superstores, most of them outside town centres. By 1998, superstores typically occupy 2,000-4,000 square metres and sell everything from baked beans to fine wines. In 1960 the average size of a new store opened by Sainsbury’s was 5,800 sq. ft., by 1980 in increased to 14,800 sq. ft.

Entrants

The increase in average outlet size resulted in a decline in the number of outlets needed to serve the community. In order to survive, the small stores adapted themselves into convenience stores carrying limited range of foods such as essential groceries, toiletries, cigarettes and newspapers and keeping longer hours than larger outlets. In order to compete with the branding and purchasing power of larger chains, they would sometimes join affinity groups such as Spar and Londis.

In having larger outlets, the bigger grocery firms found other advantages over their smaller rivals in the years following the Second World War. Flanking the obvious costs saving from volume discounts and faster stock turnover, there were more slight benefits that developed over time. They could experiment store layouts and pass from store to store the results – for example, that low-value staples like milk should be put at the rear so that, en route to these products, shoppers would see the rest of the merchandise.

Supplier

        Until 1964, manufacturers had enjoyed ‘retail price maintenance’: the right to set the prices at which retailers could sell their products. The owners of strong brands also were able to obtain favourable terms for the amount of space dedicated to their products and offer retailers participation in their promotional campaigns. Grocers unable to offer discount on manufacturers brands, resorted instead to offering rebates based on consumers total purchase or trading stamps. However, after pressure from leading retailers, retail price maintenance was abolished n 1964 and retailers were able to compete directly on price.

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The UK retailing environment - (PEST)

Tesco was founded in 1924 by Jack Cohen. The chain grew rapidly, accelerating in the 1960s and thereafter as the concept of the supermarket became increasingly popular. In a couple of decades, Tesco has developed from its original pile 'em high, sell 'em cheap model into the UK's pre-eminent food retailer, with a little over 15% of the UK grocery market. This performance was capped in April last year when the company announced, rather nervously, that it had made more than £1 billion in annual profits.

Tesco has become increasingly aggressive in the ...

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The Business Environment and the Nature of Competition in the UK Food Retail Industry.
Document Details
  • Word Count
    2437
  • Page Count
    10
  • Level
    University Degree
  • Subject
    Business and Administrative studies
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