Characteristics of the Grocery Retail Industry and the Market Essay Example
Characteristics of the Grocery Retail Industry and the Market Essay Example

Characteristics of the Grocery Retail Industry and the Market Essay Example

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  • Pages: 11 (2886 words)
  • Published: December 31, 2017
  • Type: Research Paper
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In order to understand more about retail competition, this article will be critically analyzing the competition within UK's grocery industry. The market for Groceries in the UK is a mature industry, with growth rates below that of GDP and spending. This lack of growth is promoting competition, as the businesses within the industry strive to retain their own customers.

The industry is now living in a goldfish bowl, with both consumers and regulators far more aware of potential abuses within the sector, and as such, companies must be far more aware of any areas of their business practices that would not stand up to outside analysis. This article will also be looking at the biggest supermarkets in the UK, such as Sainsburys, Tesco and Asda, to see how they differentiate themselves to gain the consumers and market share.

Major Characteristics of the Industry and the Mark



The UK Grocery Retail Industry can be identified as those companies who retail groceries with in the United Kingdom. The major characteristics of the UK grocery retail industry are as following:

  • First of all, the industry is essentially an oligopoly. In the UK, four biggest supermarkets (Sainsburys, Tesco, Safeway and Asda) dominate the grocery retailing industry, control over 60% of market. There has been a decline in small and medium sized retail businesses within the industry, and an increasing trend from town centre to out of town shopping. Supermarkets now have offered added value to their customers by stocking electrical goods, books, CDs, and other non-traditional stocks to increase their market share and profit margins.
  • Secondly, the industry is characterised by largely homogenous product, and as a result is extremely competitive. Th
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main groups differentiate themselves by spending huge money on advertising and branding.

There are also some main characteristics of grocery market:

  • Firstly, every member of the public can be called consumer in the Grocery Retail Industry. Everyone has to eat, therefore has to buy what they need from groceries.
  • Secondly, consumers are unlikely to have their loyalty to individual companies with in the industry. This is because the industry is selling homogenous product and is extremely price sensitive.
  • The other major factor of the market is the changing needs and wants of the market. Since people's income has increased, the people's needs and wants have changed. People want more different goods. The demand of variety, quality has increased. This is also because of people nowadays become more aware about health issues.

Influences of Grocery Market

The nature of competition is affected by environment, supply and demand factors.

Macro environment Factors

  • First is about information technology innovations. As Internet technology development, it is widely used within the Grocery Industry. It influences the industry by three areas. The first is the use of Loyalty Cards, which is aimed for winning consumers' loyalty. It delivers right information about discounts and special offers to consumer to attract consumers.
  • The second is the use of Internet operations and strategies. This is aimed again to gain loyalty to a company. Every group wants to provide a value added service to differentiate itself from their competitors.
  • The last is about supply chain innovations, which have been growing over the last two decades, but the opportunity to take advantage of substantial cost savings has been growing recently.

Asda, for example, has started to introduce a network based, automatic

JIT inventory system modelled on their parent company, Wal-Mart, which promises to reduce inventory costs by significant amounts when it becomes fully operational.

  • Second is about Organic and Health Foods. The public has been becoming more aware of the food that they eat due to recent food scares, such as BSE, Salmonella and FMD. This leads to a growing demand for organic food. The consumer is willing to pay more for better quality, health food.
  • Finally is about changes in consumer characteristics. Consumers play a very important role in the retail industry. Their choice and behaviour influence the retail industry. Nowadays, people's wealth increases, with the decrease in time for shopping. Besides, people enjoy a busier lifestyle, fewer people cook everyday for themselves. Therefore, the ready meals have become welcome by consumers.

Demand side factors

There are also some key trends helping to shape the future retail environment. On the demand side, changes in consumers' characteristics have been affecting the grocery retail industry. The increase of consumer's mobility has led to an increasing number of bar-based journeys. It is also the factor that led the trend of out of town shopping. Besides, the expenditure doesn't show to follow the increase of people's income. There has been reported that a decline in the percentage share of expenditure on food, fuel and power and clothing and footwear. People today are spending relatively more on household goods, travel and general retail and leisure services. In addition, there are other changes, the changing household size and the changing age profiles, affects the Grocery retail industry.

Supply side factors

On the supply side, there has been some changes which affect the way in which

the activity of shopping. Consumers are faced with a smaller number of players in each market. Increasingly, there are global retailers bringing a similar range of products to customers all around the world. There are a massive amount of suppliers of goods and services to the grocery retail industry and plays a significant influence role in the industry.

  • First is about food producers. As the majority of sales made by the industry are food, clearly the major supplier, directly or indirectly, to the industry are food producers. Food producers will supply to the grocery retail industry in two main ways, depending on their individual sizes. Large producers will supply directly to the retailer via a contract, and small producers will supply indirectly, either via collective organisations set up for the purpose, or by selling to wholesalers, who sell on to the retailer. Generally this relationship can be categorised as one in which the grocery retail industry has dominance over, due to the huge buying power that the industry, and the largest players within it, have over the food producers and wholesalers.
  • Second is about manufacturers of household cleaning products. Manufacturers of household products such as washing up liquid, etc are in a very different position to that faced by food producers, due to the size of the companies involved. For example, Proctor and Gamble have a market capitalisation of �66,121 million, significantly larger than any of the UK supermarket groups. This difference in size allows companies such as Proctor and Gamble to have a much stronger bargaining power than other suppliers to the Grocery retail industry.

Key competitive dimensions in the Grocery Industry

Key competitive dimensions are

the aspects of firm strategy with key importance in the industry. In retailing, two key competitive dimensions are price and merchandise offering.

As consumers plays the lifeblood role in Grocery Retail industry, groceries try to attract consumers by lower price strategy, such as Tesco's "Every Day Low Prices". However, groceries' purpose is maximising profit. To do so, they need to knowledge of their costs, and this involves an examination of supply factors.

There are non-price criterias, such as having prices clearly labelled, friendly checkout clerks and fresh product, which could differentiate groceries from their peers. Supermarkets' merchandise offerings must be judged by the freshness and quality of meats and produce and by the selection of branded grocery items. In fact, retailers who differentiate themselves by using non-price factors will make higher profit than those using price competition.

Nevertheless, to gain the competitive position, retailers are introducing new channels in order to satisfy the growing requirements of the customers more conveniently. Consumers' loyalty is not easy to achieve, and consumers are very easily to change their choice buy the factors such as price, quality and service.

Types of Grocery competition

Intra-type competition occurs when two or more retailers of the same type, as defined by NAICS (North American Industrial Classification System) in the Census of Retail Trade, compete directly with each other for the same households. This is the most common type of retail competition:

Due to the changing nature of the retailing environment, retailers are often forced to change their strategies as competition changes. In the British grocery industry, we use the example of the competition between, Tesco, J. Sainsbury, ASDA.

Sainsbury's are currently perusing a strategy of "differentiation Focus". Sainsbury's whilst

receiving custom from the whole range of social group. This group is foucusing on the South East England. Differentiation is achieved by concentration on selling quality products, both form brand name producers, and more importantly from their own name food and household products. This differentiation is heavily supported by the marketing and advertising policies of the company, which emphasise the premium nature of the products sold, rather than the costs.

Today, after doing its own SWOT analysis and concluding that consumers do not like to push shopping carts through malls, where most of its stores are located, it re-positioned itself against the middle-of-the-road merchants JCPenney and May Department Stores by appealing to women and emphasizing apparel.

Also many retailers have been competing by using a scrambled merchandising strategy. Scrambled merchandising is when a retailer carries many different unrelated product lines as a means of enhancing the one-stop shopping convenience for its customers. Supermarkets have taken market share away from fast-food restaurants with their Home Meal Replacements (HMRs). In additional, their banks and pharmacies have also changed the competitive landscape.

Every time different types of retail outlets sell the same lines of merchandise and compete for the same limited consumer dollars. Intertype competition occurs when two or more retailers of a different type, as defined by NAICS codes in the Census of Retail Trade, compete directly by attempting to sell the same merchandise lines to the same households.

Tesco appears to be following a "Stuck in the Middle" strategy. It has perhaps the widest following from all social groups, indicating that the company is following a strategy with a broad competitive scope, with no specific targeting taking place, either geographically

or socially. Tesco is, successfully, aiming to be all things to all people, with product ranges appealing to all market segments, and a portfolio of stores that are spread through the UK.

Furthermore, new retailers are always entering the marketplace creating greater intertype and intertype competition. As our E-tailing box describes, the Internet and e-bay have made it possible for anyone to be an E-tailer.

Another concept that helps to explain the nature of competition in retailing is divertive competition. This occurs when retailers intercept or divert customers for competing retailers. For example, an individual may recognize that she needs to get a birthday card for a relative and will probably do this the next time she visits the local shopping mall, which has a very well stocked card store.

Another divertive ploy in use today is when a retailer adds a gas station on its property to catch those customers who have already stopped at the store and do not want to make another stop to get gas once they get on the highway to return home.

To comprehend the significance of divertive competition, which can be intertype or intratype competition, one needs to recognize that most retailers operate very close to the break-even point, but are not really aware of this fact. For instance, supermarkets, with their extremely low gross margin return on sale, tend to have high break-even points, ranging from 94 to 96 percent of current sales. In either case, a modest drop in sales volume could make these retailers unprofitable and fuel the growth of scrambled merchandising. Retailers should attempt to operate at a sales volume of 20 percent above their break-even point because

this will allow them to weather major competitive assaults and thus be able to achieve a higher profit over the long term.

Asda seems to be following the strategy of Cost Focus. The company is following a policy of low prices for the consumer, powered by cost savings from within the industry. Company advertising and promotion further promotes this image, with slogans such as "Every Day Low Prices".

Future Changes in Grocery Industry

Several retail analysts predict that, as a result of several key forces at work today, non-store sales will experience significant growth during the next decade. With accelerated communication technology and changing consumer lifestyle, the growth potential for non-store retailing, such as direct sellers, which establishments are primarily engaged in the retail sale of products on an in-person basis, through party plans or one-on-one in the home or workplace, away from a fixed place of business. The major attributes of direct selling remains the same: support for the independent contractor, knowledge and demonstration of the products by the salesperson, excellent warranties and guarantees, and the person-to-person component.

Catalogue sales are mail-order retailers sell products by catalogue and mail order. Catalogue sales included are book and music blubs, jewellery firms, novelty merchandise firms, and specialty merchandisers such as sporting goods. Most mail-orders begun to offer their catalogue products on-line. As the Internet grows to allow real time, fully immersive three-dimensional video, customers will spend more of their time in cyberspace. However, the E-tailers should consider several key facts: the Internet will not increase overall consumer demand.

Click ; mortar strategies that integrate a single message will be more powerful that a pure E-tailing strategy. E-tailers must pay better attention

to customer service.

Innovation in retailing is the result of constant pressure to improve service. The pressure to improve service has also resulted in a shortened life cycle for retail formats. For example, in the late 980s, most retail experts agreed that hypermarkets (which are one and a half times the size of a supercenter) would be retailing's success story of the 1990s. However, despite their overwhelming success these stores were instead retailing's biggest failure for the 1990s.

There are three formats brought about in part by the poor economic conditions of the early 1990s are expected to continue their success: super-centres, stores focusing on the recycling of usable merchandise that is in good condition, and liquidators.

The supercenter offers the customer one-stop shopping and lower the customer's total cost of purchasing in term of time and miles travelled without sacrificing service and variety, this is exactly what today's time-pressed consumer needs.

Recycled merchandise retailers are establishments that sell used and reconditioned products. Due to their very small numbers just a decade ago, recycled merchandisers have experienced the fastest growth of any retail format over the past five years. With more than 15,000 retailers seeking the protection of the bankruptcy courts annually, a new growth industry has developed: liquidators. Often called retailing's undertakers or vultures, this small and all-but-invisible retail format comes in and liquidates leftover merchandise when an established retailer shuts down or downsizes.

One of the most significant trends occurring in retailing involves technological innovations. Technology is having and will continue to have a dramatic influence on retailing.

Technological innovations can be viewed under three areas: supply chain management, customer management, and customer satisfaction. As technology continues to penetrate

the retail marketplace, advancements in customer service and convenience will continue to be made.

As retailing continues to change, the improved use of private labels has again come to the forefront as a key business asset in developing a differential advantage for retailers. Private labels can set the retailer apart from the competition, and they can get customer into the store and bring them back. Retailers are shifting their emphasis on the development of private label brands into high gear by suing a variety of strategies to build the image of their brands, expand their brand recognition, and raise their brand images in the market place.

  • Some of the private label branding strategies currently being used by retailers include the following: developing a partnership with well-known celebrities, noted experts, and institutional authorities;
  • developing a partnership with traditionally higher-end suppliers to bring an exclusive variation on their highly regard brand name to market;
  • reintroducing products with strong name recognition that have fallen from the retail scene; branding an entire department or a business; not just a product line.


The trend of the grocery market in the future can be predicted by looking at the trends within the market in the past. Within UK, due to the tighter planning legislation of out of town development, grocery retailers will continue to open compact and metro stores in smaller or medium sized towns instead of opening superstore/hypermarket outside town centre. But, in light of the competition commission enquires, it may well be harder for supermarkets to gain planning permission for new store s.

The market of organic foods will continue to grow because of the higher expectations by customers of healthier foods.

In addition, E-commerce retailing will remain growing in the future. Grocery retailers must embrace the Internet as a cost-effective distribution channel and develop robust and effective web sites and strategies. This is especially important as a means of reducing the high fixed costs associated with the bricks and mortar side of the industry.

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