Research Proposal on Supermarkets
Whilst the four major supermarket chains (Tesco, Sainsbury's, Asda & Safeway) receive approximately 66% of the total market revenue in the UK, small grocery firms are still able to prosper. Identify what potential advantages these small firms are able utilise to enable their continuance.
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The big four supermarkets chains in the United Kingdom, dominate the food retail sector, yet many smaller, independent grocery firms still manage prosper under growing competition.
The main supermarkets have vastly grown over the last ten years using organic growth and few take-overs have occurred. The main take-over occurred in 1999 when Wal-Mart took over Asda. (Worthington and Britton, 2001, p226).
Wal-mart is well-established retailer in the United States, and is the worlds second biggest Multinational Corporation with an approximate Gross Domestic Product of $180 billion.
Small grocery firms have to operate very differently to the bigger supermarkets, due to their comparatively small power over the market.
Supermarkets can exploit economies of scale, therefore meaning that they can purchase their good at a cheaper cost per unit. Small grocers cannot do this as they are only selling goods on a comparatively smaller scale.
The smaller grocer could be considered to be a Sole Trader. The worrying statistic with sole traders is that 40% of all sole traders fail in the first 3 years (D. Orton, Lecture, 2001).
Smaller grocery firms have advantages over larger companies as they have the freedom to run their business as they want, without shareholder or stakeholder input, which might dictate which products they can sell and at which price. The big four supermarkets are Public Limited Companies (PLC's), which basically means that anyone can purchase shares in them, one condition of this PLC status is that the companies have to publish yearly reports. These yearly reports contain figures and accounts concerning profit or loss that maybe considered being highly confidential to a small grocery firm.
Smaller Grocery Firms can offer a more personal service to the customer. This is due to the fact that the smaller shop is not as busy as the supermarket, giving a greater ratio of customers to staff. This could even reach 1:1 in a smaller grocer but could reach 1:100 in a big supermarket.
In a smaller shop, the owner could record which products are bought on a regular basis by the same customers and set up a Just-in-time delivery system with his suppliers. This would avoid holding stock that would be hard for a small independent grocer with limited storage space. The four main supermarkets have tried to achieve this with loyalty cards, e.g. Tesco Clubcard, Safeway ABC, Sainsbury Loyalty Card. These reward systems have enabled the supermarkets to set up databases enabling them to know which products to stock and to noticed changing trends.
Smaller grocery firms can offer greater convenience than larger supermarkets due to them being closer to customers and not on a large, out of town developments like most supermarkets are.
Smaller grocers can specialise more into certain ranges of food products, offering a greater range of choice to the consumer than a bigger supermarket.
Profit Margins in the Food Retail Sector are frequently criticized and the four main supermarkets have been referred to the EU Competition Commission. This is due to the fact that the price of basic foodstuffs in the United Kingdom, compared to prices in the United States of America and the European Union, are up to 40% more expensive (Worthington and Britton, 2001, p226).
With these alleged high profit margins, the smaller grocer cannot be affected too much by price competition.
Therefore I conclude that small grocery firms have many advantages over the big four supermarkets, yet the big four have a much greater power over the market as a whole. I believe the main advantage is convenience to the customer, and that smaller grocers can offer a more personalized and friendly service.
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