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Oligopoly nature of grocery stores in UK - Essay Example

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Oligopoly is defined as the situation where few participants are able to collectively exert control over demand and supply prices. Attempts to explain why grocery shops are oligopoly in nature have led to several theories for example the domination of small stores by the large Grocery Retailers…
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Oligopoly nature of grocery stores in UK
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Download file to see previous pages Grocery stores are influenced by several factors for example the existence of LGRs, distribution channels and different planning strategies. Large regional distribution systems are needed for efficiency. However, the small companies do not enjoy sufficient distribution channels as opposed to the big companies. This is due to the fact that large companies normally sophisticated distribution systems to improve their products availability, reduce wastage and collect direct from suppliers. Many of the large companies usually negotiate favorable terms with suppliers for instance the case of Tesco and Asda. Planning strategies usually restricts out of town centre developments of grocery stores therefore restricting development of new larger stores. These also act as barrier to the entry of new firms increasing the costs of developing new stores which again discourages potential new investors.
Factors positively influencing grocery stores
The success of grocery stores depends on several factors for example market trends in the industry. There are some market trends for example decreasing numbers of specialist stores, increasing share of sales from large stores and few large firms taking an increasing market share. There has been a steep decline in the number of specialist stores....
Apparently, it is clear that sales from convenient stores are growing more quickly than grocery stores however, they only account for a small share of the sales (Sellers, 93). Grocery stores record the highest number of sales and increasingly, a huge percentage of the market is dominated by sales. Grocery stores usually offset the advantages of large stores because of easy consumer access to them for top up shopping. Grocery stores have links with wholesalers who give them the benefits of large buying power as well as access to other facilities and advice. Grocery stores have managed to survive also because of diversification for example distributing newspapers and operating other small businesses beside them like alcohol outlet. Consumers who meet up in a warm social place enjoy satisfaction hence loyalty. Groceries also enjoy low cost of operating businesses. In addition to this, they also receive assistance from family members. The groceries also sell their products at cheap prices. This is because they enjoy a buying power of large continental European groups. They enjoy low labor costs in their operations as well as low cot of buildings in which they operate their businesses. The owners of groceries are also able to adapt well under difficult economic circumstances. Subsequently, one major factor that boosts the groceries is the fact that main competitors tend to move up the market depending on the success of the firm. Reasons for Asda increasing their market shares Asda operates as a large store with wide range of products and relatively low prices. As a large store, it has some particular advantages for example marketing and efficiency Schaffer & August & Earle, ...Download file to see next pagesRead More
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