Supermarket Concentration

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Supermarket concentration: A comparison between 1995 and 2012 


This page examines UK supermarkets, and food retailing, in 1995.  It then makes a comparison with 2012. Arguably, people shop in supermarkets because of cheap prices, convenient shopping and quality and choice of products.  However, a report from 1995, summarised below, questioned these arguments.  

There are other concerns too, which are outlined below.

Price


Supermarkets are cheap for a small range of goods such as bread and milk. These items are described as “Known Value Items” (KVI’s).  On the other products they sell; they are more expensive.  Consumers save money on the KVI’s but they pay more for the other products.  It was argued that fruit and vegetables were cheaper in street markets than supermarkets. It would be possible to shop at both but many people do not; so the supermarkets gains if people do their ‘whole shop’ at the supermarket. 


Convenience 


In 1995, 33% of people did not have a car.  Also, up to the 1990’s there was an increase in the time that people spent getting to a large, often out-of town supermarket.  With road congestion it was not convenient travelling to a supermarket by car. 


Quality and Choice


The authors argued that supermarkets’ ‘buying power’ was leading to a trade-off.  There may have been more choice of food on the supermarket shelf but there a smaller range of foods being grown in the countryside; e.g. types of potatoes. 


Food Deserts and the Decline of Town Centres 


The ‘food desert’ problem was discussed in 1995 as was the decline in town centres; which has now become firmly established. 


The Local Economy


It was argued that many supermarket trucks are unnecessary as produce could be sold locally.   


Market Share


In 1995, it was reported none of the supermarkets were at 25% of the national grocery market. However, Tesco has, or had, 30% of the market nationally. However, as the authors point out “shopping is a local, not national, activity”. In 1995, supermarkets dominated particular post codes.  This is still the case. 


1995: The Authors Policy Suggestions


They suggested sate intervention to tackle the supermarkets; and that Britain needed smaller shops, the ability to buy local produce and more covered markets.

1995: The Supermarket Response to the 1995 Report 

Sainsbury's criticised the report as they believed that the report was too negative.  They argued that supermarkets are successful as they give customers what they want. 


2012:  Recent Developments


There has been no major state intervention to curtail the activities of the supermarkets.  However, a number of factors have undermined the case for out-of-town shopping.  First, the emergence of the internet has meant that shoppers can buy from home using the supermarkets’ pioneering home delivery schemes.  This leads to a model of consumers buying bulky items, such as fruit juice, online while purchasing fresh food locally on a day-to-day basis.  Internet shopping could be attractive to older people with relatively high incomes.  These customers may have given up driving but have the income to be able to afford the delivery charges involved with internet shopping.

There has been market failure as consumer spending has not fully reflected the trends outlined above.  Consumers are still willing to travel large distances for overpriced food.  The major supermarkets are still dominant.

However, there have been changes which reflect the emerging trends.  For example, major supermarkets, such as Morrison’s do not appear to be keen on hypermarkets.  Discount supermarkets, such as Lidl and Aldi may better meet the needs of lower income consumers.  In comparison, the ‘big 4', supermarkets could be inconvenient in terms of large travelling distances.  Also they could be seen as ‘warehouse operations’, with industrial bright lighting, and which can take too long to use. 

Asda’s acquisition of Netto could be a response to people wanting to shop closer to home.  While the authors of the 1995 report bemoan the lack of small shops and markets; the competition between the top 10 UK supermarkets has intensified.  There has been market failure but the food retail market has not failed completely.


Other recent concerns


Arguably, large and successful companies can become complacent as they try to maximise profit.  Making money in the short-term does not necessarily mean that you are managing a good business long-term business.  

The concern for consumers is that messages about price reductions appear to be contradicted by anecdotal evidence of prices remaining high.  

Also there have been concerns about opening up too many shops, in too many locations, regardless of public opinions that there is too much supermarket control over various localities.

 

Issues for the future


It is interesting when supermarkets criticise each other as this provides some support for some of the criticisms outlined above.  For example, one chief executive criticised another major supermarket chain for having larger stores which were not attractive to customers.  Perhaps, the intense competition between the supermarkets will lead to more inter-supermarket criticism.

 

Sources


T. Lang and H. Raven, Off our Trolley, (1995), Institute for Public Policy Research.

For an alternative view see the Institute for Economic Affairs’ Report: Trouble in Store (1995).  This presents a business or economic view associated with the political right. 

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