University of Westminster

Westminster Business School

Module code and title: BKEY 402 Business context

REPORT

The Problem Question

Have supermarkets become too big to the extent that they are damaging
competition, and does the dominance of the big four supermarkets in the
grocery market mean that there is an increased risk of consumers getting a
poor deal?

Student Name: Hussein Siam

Students name and ID:
Hussein Siam W1560361
Vlad Pandichi
Saffia Jarjuw1543258
Kimberley Bourke w1537947
Word Count: 1855

Introduction
background
After the Second World War, the first self-service food shop in the United
Kingdom was opened by the co-operative movement in 1947, with 10 selfservice shops, the first shop was opened in Streatham, South London. The
four largest supermarkets in the UK are ASDA, Tesco, Sainsburys and
Morrisons (opened in 1949, 1919, 1869, and 1899 respectively). By 2015
have supermarkets become too big to the extent that they are damaging
competition, and does the dominance of the big four supermarkets in the
grocery market mean that there is an increased risk of consumers getting a
poor deal?
1.1 Oligopoly and monopoly

2009
34%

4%
62%

Online

Supermarket

Convenience Stores

The research completed by the retail

consultancy, Verdict, points that UK consumers did 62.2 per cent of their
shopping in a traditional supermarket five years ago. In 2015, the figure has
dropped to 57.1 per cent, equating to a number of tens of billions of pounds.
Calculating on weekly shopping, analysts are estimating that the 4 giants,
Tesco, Asda, Sainsburys and Morrisons are losing 3 billion pounds worth of
weekly shopping.

2014
37%
57%
6%
Supermarket

Online

Convenience stores

The chief economist at IGD, the

food and grocery research company, James Walton, is calling the
phenomenon repertoire shopping because the changing in the habitual
way of buying, after the financial crash, the collapse of Northern Rock being
in top of the reasons why the habit of a big weekly shop fell out of favor.
Official figures show that the petrol price rise has determined people to drive
971 million miles fewer on a quarterly basis compared with 5 years ago.
Another reason which states that there is a need felt by consumers to
change their behavior is the result of the lower income people are having for
the last 5 years as a result of the credit crisis and decreased salaries which
create a desire for a bargain, says Walton.
This need coincided with the rise and continuous success of supermarkets
which has been around for a couple of decades and improved the quality of
products and number of items they are stocking. Aldi, Lidl, and even
Poundland all offered dramatically cheaper deals on a small number of
goods. This is a perfect example that the 4 giants are not dominating the
market to the extent that they are damaging competition.
In response to the situation, when consumers cannot afford to waste money
by throwing the expired food to the bin, the upermarkets like Lidl and Aldi are
adapting fast to their needs by offering them one of the easiest ways and
that is to shop small and shop often at a local store. The government agency
called Wrap, states that the amount of food people are throwing away has
fallen by 21 per cent over the past seven years.
As mentioned previously the four most dominant grocery stores in the
market are Tesco, Sainsburys, ASDA and Morrisons; accounting for around
74.1% of the total market (as shown in the pie chart adjacent). It has become
clear over the last few years the share which these four supermarket have
has gradually decreased and is set to follow this trend in future years. This is
partly due to sales slightly decreasing, but largely due to the rise and
expansion of smaller stores such as Aldi and Lidl.

Currently, it is widely suspected that the four largest supermarkets are

working together to stipulate similar pricing of their goods. This supports the
idea that consumers are not getting the best deal possible for their grocery
shopping. It has also been proven that the price of milk and cheese have
been increased at the same rate by all these stores. Mark Price, the
managing director of Waitrose expressed concern about the destination of
the profits caused by the price rise. He stated My issue is whether these
price rises went to farmers which is where they should have been going
or whether they went into the pockets of the big supermarkets. And if its
proved to happen with milk, is it also happening with cornflakes or anything
else? It is clear that this is therefore damaging potential competition.
1.2 Expansion
Customer sales of the four giant supermarkets have generally decreased on
average by around 1% in the 12 week period to the 4th January 2015.
Conversely, both Aldi and Lidl experienced a significant rise in sales of their
goods (22.60% and 15.10% respectively). Thus it is evident that the stores
are expanding at a rapid rate. Although this is positive for both these firms, it
may cause problems for the four main supermarkets and potentially for the
market as a whole. Currently the market is of an oligopoly structure with a

few firms competing in the market, however if this trend continues the
market structure is set to change into monopolistic competition.
With reference to the
diagram above, relating
back to the scenario this
is likely to cause
competition in the four
supermarkets for the
product rather than the
price of goods. This
could potentially see
individual profits for
each firm decrease. The
continuing expansion of
Aldi and Lidl (in particularly Aldi), will eventually see the companies gain a
larger share of the total market thus they will become increasingly dominant.
When the market changes from an oligopoly to a monopolistic competition
structure, it is likely that more new firms will enter the market due its low
barriers to entry. Again, this will also contribute to a rise in competition
within the market as there will be more firms (who are more willing to lower
prices than current leading companies).
1.3 Supplier
A supplier is the person that is the source for goods and services. food
suppliers have a code of practice called Sodexos which sets out the
minimum food and safety standards for food . The code lays down general
and electrical requirements as to be standards required for method of
production, environment standards required which is when food is produced,
and microbiological standards required for specific products. moreover, all
food suppliers will be subject to a periodic audit, requirement to undertake a
due diligence questionnaire or might be asked to provide proof of
certification to recognise food safety and quality standards( Sodexo). It is key
that there is a clear assessment trail and supplier traceability system in
place so that ingredients, including fully or partly prepared items, especially
high risk foods, can be traced back to place of origin. The suppliers must be
able to show this procedure to Sodexo. The receipt of good quality,
hygienically prepared foods and ingredients is essential to food safety. Thus,
suppliers must be tested and approved in a systematic way. However, the
frequency and type of assessment shall be based on risk. At some stage

however a visit will be required, taking into account past performance, level
of risk associated with the food supplied and the response received. All nonconformances identified must be followed up with the supplier and suitably
closed out( Sodexo). F urthermore, on arrival, all food and packaging must be
tested for signs of damage, infestation and compliance with the order and
agreed specification. With strict regulations products such as chilled or frozen
materials must be checked for compliance with agreed delivery
temperatures. These temperatures must be compliant with the relevant UK &
Ireland legal requirements( Sodexo). Further visual, analytical, physical and
organoleptic tests should be carried out as required, dependent upon the
product specification ( Sodexo). The Results is normally recorded in a format
to enable full traceability. for example meat Meat must be reared,
transported for slaughter, be slaughtered, and processed according to
relevant legislation. with all this good care of food and quality prices of
products at supermarkets has become a debate the four main supermarkets.
Teco and the other main supermarket are very competitive with the prices of
their products. as a results this determines whether you get higher priced
food or lower. in the past few years in the papers it has been recorded that
Aldi which is not one of the main four has put pressure on other
supermarkets due to having baskets of essentials up to 30% cheaper than
other rivals(Sayid). F rom a dozen free range eggs for 1.75 compared with
2.75 at Sainsburys and 45p for a 500g pack of pasta costing 89p at Tesco
to a 2.5kg bag of potatoes for 1.59 compared with 1.75 at Morrisons, Aldi
hammered the big guns on price.Its basket including big brands like Ferrero
Rocher chocolates and Mr Muscle Oven Cleaner along with essentials like
gammon steaks, cheese slices, tomatoes, soup and flour came to 42.15
while Sainsburys was the most expensive at 60.15.A sda fared the best out
of 'the Big Four' with a total of 50.11, Tescos till receipt as 53.97 and
Morrisons was 54.29.
1.4 Marketing
Advertising is a tool that the big four use to compete. Marketing tools such as
SWOT or PESTEL, can help enhance the big four market shares through
advertising. strategic marketing is necessary for the the big four to stay alive
in the current competitive market. (Wernerfelt, 1984)

Marketing mixed is a respected tool used by the big four to analyze and
understand the market The 4ps a mixture of the product, promotion, price,
and distribution are very essential in marketing. The aim of the marketing
mix is to define an image for the service or product According to Wernerfelt,
(1995) marketing mix is the set of marketing approaches that the company
applies to follow its marketing goals in the target market(Rust, Moorman
and Dickson, 2002).

References:
Harry Wallop. 2015. How we fell out of love with the big weekly supermarket
shop. [ONLINE] Available
at:http://www.telegraph.co.uk/news/earth/agriculture/supermarkets/1118018
1/How-we-fell-out-of-love-with-the-big-weekly-supermarket-shop.html.
[Accessed 16 December 15].
Robert Schenk. 2015. The Theory of Few Sellers. [ONLINE] Available at:
http://ingrimayne.com/econ/Monopoly/Oligopoly.html.
University of Surrey. 2015. The Rise of the Supermarket in Britain. [ONLINE]
Available at: http://businessschool.exeter.ac.uk/research/consumer_landscapes/shopping/rise.html.
Kantar World panel GB Market Share, 12 Weeks to 04 January 2015 (%)
(2015), Available from http://uk.businessinsider.com/kantar-christmas-2015supermarket-share-data-2015-1 [Accessed on 16th December 2015]
Kantar World Panel GB Total Till Roll, 12 weeks to 04 January 2015 (%)
(2015), Available from http://uk.businessinsider.com/kantar-christmas-2015supermarket-share-data-2015-1 [Accessed on 16th December 2015]
Harry Wallop, 2007 Available from:
http://www.telegraph.co.uk/news/uknews/1563663/UK-supermarkets-fixedmilk-and-cheese-prices.html
Sayid, Ruki. "A Price Comparison By Trade Magazine The Grocer Found The
Aldi Basket Was 18 Cheaper Than Sainsbury's, 12 Less Than Morrisons And
11.82 Cheaper Than Tesco Aldi Puts Price Pressure On Rivals With Basket Of
Essentials Up To 30% Cheaper". m irror . N.p., 2015. Web. 18 Dec. 2015.

Sodexo,. "Sodexo Quality Of Life Services". N.p., 2015. Web. 18 Dec. 2015.
Wernerfelt, Birger. (1984). A resource-based view of the firm. Strategic
Management Journal. 5 (April-June):171-180.
Rust, R.T., Moorman, C. and Dickson, P.R. (2002), Getting return on quality:
revenue expansion, cost reduction, or both?, Journal of Marketing, Vol. 66
No. 4, p. 7.
Wernerfelt, Birger. (1995). the resource-based view of the firm: Ten years
after. Strategic Management Journal. 16 (March): 171-174.