Market Structure Analysis Essay Example

are to offer excellent services and products to their customers and maximize shareholder wealth. In recent years, they have successfully achieved these goals, with the online segment of grocery stores playing a significant role in their success.

The rise of e-commerce has been recognized globally for its ability to enhance customer service, decrease costs for retailers, improve business transactions, facilitate international trade, connect buyers and sellers directly, and facilitate digital information exchange between buyers and sellers (Quader & Quader, 2008, p177). As previously mentioned, pricing decisions in the market are heavily influenced by competitors. If one competitor changes their price, others are likely to follow suit.

The Internet grocery market can be understood through the non-collusive oligopoly market theory, specifically the kinked demand theory. This theory explains how prices can stay stable without any collusion among oligopolists. The demand for online sales has been consistently increasing, resulting in more companies catering to this demand. This trend is seen not only in the Internet grocery market but also in other markets. Recent studies forecast that online grocery sales will double within five years. By 2012, it is estimated that one out of every ten shoppers will no longer visit physical supermarkets.

' (Butler, 2007) If this forecast is accurate, the sale will reach ?5 billion in four years. Despite this amount being significant, it will only make up 3% of the projected ?156 billion total grocery market.'Expansion of the Internet grocery market depends on various factors such as household computer ownership levels, household Internet access rates, duration spent online by households, and the prevalence of broadband usage.' (Key Note, 2007, p14)

According to a report released by the Office for

National Statistics (2008) in August 2008, 16.46 million households in the UK had Internet access, which represents 65% of all households. The increasing accessibility to the Internet among individuals is the main driver behind the growth of the Internet grocery market. The demand for products from this market such as food and essential items will always exist. With the growing popularity of online transactions and perceived safety measures associated with conducting business over the Internet, there will likely be continued growth in demand for internet grocery services in future years.

Various factors, such as oil prices and transportation costs, can impact the demand for this market. Certain individuals may opt to have their goods delivered to their residences instead of utilizing personal vehicles or public transport. To meet this demand and guarantee customer contentment, businesses will expand their delivery services. In 2007, Tesco reached nearly 98% of UK postcodes, Sainsbury's covered roughly 83%, and ASDA served approximately 60%.

(Key Note, 2007) Tesco intends to increase its online sales by establishing dedicated online stores that will function as delivery hubs for Internet orders. Although smaller players may enter the market, it will be difficult for them to compete against established giants like Tesco, Sainsbury's, and ASDA. Nevertheless, niche and specialist suppliers should have relatively less difficulty entering the market due to their lack of comparable market dominance held by major supermarkets.

The global economy has been in crisis since 2007 due to sub-prime mortgages in the USA. This has led to major institutions like Lehman Brothers collapsing and many countries facing bankruptcy. The headlines constantly remind us of these challenges, including the impact on the British economy.

Experts have cautioned

that Britain is on the brink of a "technical recession," which is characterized by two or more consecutive quarters of declining gross domestic product. The National Institute of Economic and Social Research (2008) has released a press statement titled "The great crash of 2008" on October 22, 2008, warning that the British economy will experience the greatest negative impact among G7 countries in the coming year. The report indicates a significant reduction in consumer spending, with an estimated decline of 3.4% in 2009, which is the largest decrease compared to other G7 nations. As a result, this economic downturn will not only affect the online grocery market but also various other industries.

Due to the fact that the Internet grocery market deals with essential goods such as food, it is expected to be less impacted by market fluctuations compared to other industries. Nonetheless, due to reduced disposable income, consumers are likely to decrease their consumption of convenience products provided by various internet grocery companies. Consequently, these companies may experience a decline in revenue and resort to cost-cutting measures, which could potentially involve employee layoffs.

Despite the recession in the British economy, consumer demand for online sales is predicted to fuel market growth in the future. Although not at the originally projected rate, there is still expected advancement. This expansion will be supported by broadband technology improvements that enable quicker and more convenient access to Internet sites. Consequently, grocery retailers will have the opportunity to improve their online sales facilities.

There is a possibility of market growth, and it is probable that new players will enter the market. However, these new entrants are more likely to be niche and

specialist grocery stores. There have been rumors about Marks and Spencer considering entering the online grocery market, but they have always denied it. With the economic recession looming, some big companies are likely to attempt horizontal expansion by merging with or acquiring niche and specialist grocery stores. It is evident that exciting times lie ahead in the UK's internet grocery market.