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What form of market structure best describes the supermarket chain in the UK Explain your answer using examples - Essay Example

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Supermarkets are discernible due to their propensity to operate self-service retailing structured in distinct departments for all major consumer products, mostly grocery food items and other household goods while providing a discount pricing structure, high value supply chain,…
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What form of market structure best describes the supermarket chain in the UK Explain your answer using examples
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Download file to see previous pages These have led to many analysts accusing them of taking advantage of their market power to evolve an unfair advantage. The Competition Commission (CC) confirmed this indicating that they indeed enjoyed higher gross profits as compared to similar firms in other countries, though their return on capital employed (ROCE) was substantially lower (Smithy, 2002).
The total UK grocery stores sales in 2005 generated total sales volume of approximately £120 billion, which was an increment of 4.2 percent from the previous year. In this category, grocery items contributed 95, which accounts for almost half of all retail sales and 13 percent in household spending. The Office of Fair Trading (OFT) reported that by 2005, the five largest supermarket chains had a market share of grocery items of approximately 75 percent (OFT, 2006). The OFT reports that the expansion of the large supermarket chains into the convenience store sector (those below 280 sq metres) had considerably expanded this market segment, from 54 stores in 2000 to 1306 by 2005 within the UK market.
According to IGAD Research (2009), there are 92,796 grocery stores located in Britain by end of 2008. This are divided into four main segments including: convenience stores; traditional retail; hypermarkets; supermarkets and superstores; and online channel [See Figure: 1]. IGAD Research reports that by 2008, the UK grocery market had grown to £146.3bn, a 4.8 percent rise from 2007. Clarke (2001) reports that the big five supermarket chains account for half of all food retail sales within the UK market while the two largest (Tesco and Sainsbury) command a market share of third of the market share. Due to their predominance, these supermarkets have evolved monopolistic tactics since they control the downstream market or the retail level hence are able to fix prices to generate higher profits by using their market power ...Download file to see next pagesRead More
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