Learning aim C

VAT is an indirect tax on suppliers in a market. The standard rate of VAT in the UK is currently 20% although there are lower rates. A cut in VAT is an expansionary fiscal policy.

A fall in the standard rate of VAT to say 15% would effectively mean a fall in costs for many suppliers. They might choose to pass this on in reduced retail prices.

If prices of goods and services fall, then the real income of consumers will increase - people will have more discretionary income to spend and therefore AD will rise.

Some retailers might choose to take advantage of a lower % rate of VAT by keeping their prices constant and making higher profits.

Barriers to entry: Fast food is a low cost start up business which contains thousands of independent retailers as well as large multinationals such as McDonalds, Subway and KFC. Therefore, Greggs may struggle to achieve high market share in this industry due to low barriers to entry. 

Competition: Competition from supermarkets is high in the bread section of the business. Businesses such as Jenkins Bakery have had an impact on sales in some South Wales towns. Despite these challenges, it appears that the business is becoming more successful with 6.4% growth in sales due to expansion. 

Buyers: Buyers have power in the high street as there are alternatives such as Jenkins Bakery as well as independent food retailers. However, in motorway services these options may be limited. Therefore, the place strategy of Greggs seems to be successfully locating in an area which limits buyer power through a lack of choice. 

Substitutes: Of course there are many alternatives to the pastry based products produced by Greggs. New trends for healthier products made to order may become a threat to Greggs plans for continued growth. Should the trend for fresh items continue, the strength of substitutes will grow. 

Suppliers: Due to the increased sales in Greggs products and a growing number of stores, any supplier of Greggs will value them as a customer. Greggs will be a significant customer, this may encourage suppliers to reduce their prices due to the size of Greggs orders. Therefore, supplier power is likely to be weak.