A Mintel report (2005), shows that the demand for food over the last five years is limited and the grocery market is growing very slowly compared with other sectors. It appears that people tend to switch to higher quality food rather than buying more of the same quality. Also, due to the high competition and price-cutting strategy that the top four supermarkets have adopted, food price inflation has been very low over the same period of time. Thus, as we can see from the graph 2, the expenditure on food has decreased since 2000 and it has a downward trend.
Another important economical trend that can affect this market is the unemployment rate. National Statistics (2006) has confirmed that the unemployment rate has increased to 5%, the highest peak over the last two years. This rise is primarily due to an increase in unemployed women. As stated in Siegle (The Observer, 2006) article, trends about food products keep changing over time. In the past, people started to use more ready-made food due to working condition, especially with the increase of working women, and multicultural food, such as Italian, Chinese, Indian, Japanese, etc.
For both trends, the entire supermarket sector has adapted to the demand by creating an adequate supply. However, the recent trends for this sector are changing. People seem to have become more aware of the health problems that ready-made foods can cause in the long term due to the preservatives or high quantity of salt that they contain. The same applies for food called junk-food, which is food with high sugar, salt, fat and calories but is limited in nutrition content such as vitamins, proteins or carbohydrates.
(Larsen, 2003)
Evidence suggests that old and new technology helped to improve the service in supermarkets, offering a more efficient pricing system and expanding the payment methods, including debit and credit cards which provided faster and more secure payment. Both customers and employees are gaining big advantages from technology which is becoming faster and more efficient. (FMI, 2006) There are also new automatic tills where customers can scan their goods and pay without help from a cashier. It also appears from the BBC (C, 2005) that more people are using online shopping to purchase grocery, especially over the holidays.
In 2005 most of the big supermarkets were not been able to cope with the demand of online grocery shopping. Evidence from the BBC news (A 2006) suggests that customers have benefited from the high competition in the industry which kept driving down prices over the last 6 years. However, the 4 largest chains has built an industry were, due to the large amount of customer that they reach on regular basis, the power of consumers is very limited. It will not make any difference to them if one single person or a small group of people would switch to another competitor. (Guardian, 2006)
From Monbiot debate (The Guardian, 2006) it appears that big supermarket chains have total control over the suppliers forcing them to operate under their conditions. The power of the suppliers in this sector is very limited and almost nil because the four top supermarket chains do not leave any alternative but to work for them. The suppliers of small shops have already reached the tipping point and many of them are going out of business. Furthermore, the big stores are imposing very difficult conditions on suppliers including discounts on products already bought, compensations and contributions.
However, bigger supplier chains have been able to cope with the increasing demanding conditions of the big superstores. (BBC, B, 2006)A document from the OFT (FT, 2005) states how high the barriers are for new entrants to the UK superstore market. Furthermore, a BBC article (B, 2006) notes that because of the large amount of money required to invest in this market to open a new shop and obtain planning approval it is extremely difficult for a new competitors to open a new big supermarket store and enter the market.
Nevertheless, since 1995 the German company Lidl was able to enter the market and now has a few stores in the UK. (Fooddeserts, 2005) Although the market share of Lidl has steadily increased since its establishment ten years ago, its proportion of the market is 1. 8% and it is too small to constitute a threat to Tesco. The substitutes for big supermarkets are grocery, corner and high street shops. However, from the article of Monbiot (The Guardian,2006) the big chain stores have been competing by lowering prices for more than 10 years which has been driving a lot of grocery shops out of business.
This is particularly the case with bakery products, such as bread, that were sold for less than the cost of production. A report from the OFT (2006) shows that over the last 5 years the number of independent shops has declined by 22%. Obviously, small shops cannot compete against big supermarket store and thus the threat of substitute products is very limited and low. However, as specified in a report of Mintel (2005), online shopping is steadily increasing over the past few years, including the grocery market. Nevertheless, all the big supermarkets are already offering this new type of service.
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