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Modern businesses are seeking opportunities to satisfy their consumers, and the existing markets cover as many customers’ needs as possible. One example of density and demand coverage is the UK grocery market with its numerous contributors and high competition. Although such an amount of the latter is beneficial for consumers, the grocery segment concentration creates a gap among the distributors, and the Sainsbury’s-ASDA merger can deepen the production asymmetry further.
The Trends and Composition of the UK Grocery Market
The UK grocery market composition demonstrates several specific and diverse trends. The retailers cooperate with foreign suppliers, and the market contestants rely on their conditions and prices. Also, the grocery market is a segment of considerable depth, with its approximate spending account being nearly equal to half of the UK retail spend (Wilshaw 2018). While the market unites various grocery retailers, the dominant market share belongs to the “Big Four” – Tesco, Sainsbury’s, ASDA, and Morrison –, that control a total of 67% of the market (Wilshaw 2018).
Moreover, several studies acknowledge the intensification of price competition among UK grocery retailers in recent years (Chakraborty et al. 2014). At the same time, the authors have also observed high market concentration because of several mergers, such as the 2004 Safeway-Morisson merger (Chakraborty et al. 2014). Within the severe competition, the major producers implement such maneuvers as a takeover of independent brands, price dumping, and creation of own-labeled production to reduce costs (Wilshaw 2018). The data demonstrate a high level of concentration in the UK grocery market, which can be destructive for some entities and beneficial for others.
The Opportunities and Threats in the Sector
In the given situation, the sector can maintain both opportunities and threats for consumers and producers. For instance, if the market advances with its concentration, consumers will receive the most acceptable price and quality of products as a result. The opportunities for medium retailers, such as Aldi, are that they can cover a larger market share and thus grow the consumer base (Wilshaw 2018).
The major producers, such as Sainsbury’s, may expect to keep their current positions and also expand overseas. On the contrary, the threats that the market contains for retailers are decreased quality, losses related to altering the price competition, and the possibility of bankruptcy. Therefore, the current market composition may lead bigger companies to benefit and the smaller ones to surrender, which can lead to a larger production gap in the sector.
The Ongoing ASDA Sainsbury’s Merger
The latest merger process between the major companies may also contribute to the grocery market structure in the future. In May 2018, a takeover of ASDA by Sainsbury’s was announced, and the negotiation has been going on until the present (Wilshaw 2018). As the current leader owns approximately 28% of the market today, Sainsbury’s and ASDA own 15% and 14% respectively, the merger can benefit from their 29% share in the sector (Wilshaw 2018, p. 20). Thus, if the companies agree on merging, the created enterprise will become a market leader and probably will have more opportunities for price competition. In either outcome, the risk that the sector’s competition will be affected is high.
To summarize, the UK grocery market demonstrates a specific structure and composition with its high concentration. The “Big Four” companies own a significant share and have more capability to compete than the independent brands. Moreover, price dumping is high in the sector because the companies alter price levels constantly. While a considerable retail gap exists, the possible merger of two major companies can deepen it even more.
Chakraborty, R, Dobson, P, Seaton, J & Waterson, M 2014, ‘Market consolidation and pricing developments in grocery retailing: a case study’ The Analysis of Competition Policy and Sectoral Regulation, pp. 3-29.
Wilshaw, R 2018, UK supermarket supply chains: ending the human suffering behind our food, Oxfam GB. Web.