The supermarket sector

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Supermarkets

Increasing concentration

There is clear evidence that the UK grocery supermarket sector is increasingly dominated by a few firms, led by Tesco, Sainsbury and ASDA. The supermarket sector is oligopolistic and the pricing strategy of supermarkets can be understood using game theory approach.

It is also accepted that many farmers and growers are suffering as a result of the increasing monopsony power of the major supermarkets.

The pace of concentration accelerated until 2012, but, since then, the emergence of the low-cost retailers Aldi and Lidl has halted the rise of the big four, and reduced the 4-firm concentration ratio to 72.3% (down from 75% in 2011).

 (Sources: statista - 2014 and The Guardian

Tesco was prevented by the OFT from purchasing Safeway in 2002, but was allowed to buy 1200 convenience stores. By 2015, Tesco had acquired around 2000 convenience stores.

Update: Tesco buys grocery wholesaler, Booker

In a further development in the long march of Tesco towards supermarket dominance, it has purchased Booker, the grocery wholesaler, for £3.7bn.

More on 'Tesco buys Booker'

The decline of independent retailers

The rise of the large supermarket chains has, unsurprisingly, coincided with the decline in independent high street retailers.

Over the last 10 years the number of independent retailers has fallen by a half, from 35,000 to 18,500.*

*Source:  IGD Research and William Reed Business Media, 2015

See also:

Oligopoly

Regulation

Model agency price fixing


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