The supermarket industry in the UK
Today, the supermarket industry in the UK has been shared by the four big brands. Which are Asda, Sainsbury, Morrison and Tesco. (Researchandmarkets, 2010) Therefore, the supermarket is one of the most important roles in British life because almost everything can be bought in the supermarket. An oligopoly market is the market a few independent firms compete with each other. The market of supermarket in UK is dominated by only a few firms which are interdependent. There are barrier to entry into the industry and exit the market, such as capital and so on. Hence, this market is an oligopoly. The aim of this essay is find out what strategy these supermarkets are using to compete with competitors, and to discuss whether this market structure brings consumers a candy or poison.
Consumer can get the benefit from supermarket. From this show four brands have more than 75% market share, especially Tesco has the biggest market share in the UK market. In consumer market, make every 8 pounds from supermarket will has nearly 1 pound is earn for Tesco. In the other hand, this four firms lead to restrain competition because of they own the oligopoly supermarket. However, those firms also make practical or substantial benefit for consumers. Actually, the consumers are pleased by the services and convenient so that the firms can make larger. Oligopoly contains monopoly and competitive factors; it is also close to complete monopoly of a market structure. The market is control by a few companies; they supply goods which has the biggest market share. First is decision of oligopoly by certain products production and technical characteristics. In the UK, the supermarket giants can get the preferential policy receive from the government so they have price advantage, which means they can unfairly compete which any small retailers, thus formed an oligopoly market situation.
2 (Tesco Annual Review, 2005): Tesco's Number of Stores and Selling Space.2001-2005
Graph showing Tesco's number of stores, 2001-2005 Graph showing Tesco's selling space, 2001-2005
Number of stores
Selling space (000 sq ft)
According to 2 (Tesco Annual Review, 2005), Tecso has the number of stores increase fast in 2001 to 2005. It can make consumers shopping more convenient and more space to choose. The oligopoly advantage is obvious.
First, because the market supply of several manufacturers all demand, production scale is generally larger so it can obtain the economies of scale. The economies of scale not only can make full use of investment, but the variable costs low on the advanced technology, and reflect in the manufacturer has the ability to use and development potential of existing production elements and management of product. So that consumers can not only get low price and more products, but also can get more and more abundant and advanced products.
Second, the oligopoly market need the large manufacturer, therefore, the strong technical strength and financial strength is engaged in technical innovation and product innovation. In the competition and monopolistic competition market, because each manufacturer smaller, and competitive pressure is too great, the manufacturer will focus on short-term profit, but less confidence and ability to formulate and implement the strategy of long-term technical innovation. For that reason, the consumers can get the new technical products in the big supermarket in long-term, such as the Cup. This new product can make the children at over six mouth use more conveniently. (Ciao, 2010)
Third, large manufacturer has the ability to resist risks. This ability to resist risks can show in various aspects. Manufacturer can own the product from outsourcing into production itself and make investment, which can supply problems to prevent the internalization of supply fluctuation, to put the normal production manufacturers. The price of the products is not change too much, it has a relatively stable prices. Therefore, the customers can avoid supplies quality or price fluctuations of instability. According to 2 (Tesco Annual Review, 2005)
However, disadvantage is also equally prominent. Major is sometimes competition is inadequate, the manufacturers is dependent on each other. If the manufacturer is not the relationship between mutual promotion, the manufacturer will often make the price relatively fixed, so that the oligarchs is often the collusion between higher prices, which damage the interests of consumers.
In the other hand, because of the supermarket giants can receive the preferential policy from the government, so there are less the retailers. It is means that the consumer has less choice in the market.
In conclusion, the oligopoly market can bring more benefits for consumers, such as shopping has more convenient way and product in low price, however, consumers will pay more costs in practice. As far as I'm concerned, the government needs market intervention and proper control of market failure, in order to prevent large fluctuation. Therefore, the UK supermarket has more benefits than disadvantage to consumers.
BBC (2005) [Online] Is Tesco too big? http://news.bbc.co.uk/2/hi/business/4422065.stm (Accessed February 13th 2010)
Ciao, (2010) [Online] Tesco Own Feeding Cup http://www.ciao.co.uk/Productinformation/Tesco_s_Own_Feeding_Cup__5359325 (Accessed 29th January, 2010)
Bized, (2010) [Online] Tesco - Activity http://www.bized.co.uk/educators/16-19/business/strategy/activity/strategic1.htm (Accessed 29th January, 2010)
Researchandmarket,(2010) [Online]UK Supermarket Analysis(2007-2010) http://www.researchandmarket.com/reports/466097 (Accessed 30th January, 2010)