The retail grocery industry in the United Kingdom could be regarded as a perfect competition based on the existing forty labels that provide the grocery needs of those living throughout the United Kingdom. The perfectly competitive theory was first developed by Finn (1995). It crucially differs from more traditional perfectly competitive models such as Rasche and Tatom (1981) and Rotemberg and Woodford’s (1996) perfectly competitive theory by viewing capital utilization as the avenue through which energy enters into the model economy–energy is essential for the utilization of capital.
The reason why the said industry has a perfectly competitive milieu is because the disposition of its buyers, competition among each other, suppliers, substitute services and the industry’s new entrants. To illustrate, the industry’s buyers and primary customers are a characterized as a very powerful force in the industry. Powerful buyers drive down profitability because they bargain for lower prices, demand better product features for the same price, and play one competitor against another. Weak buyers are not likely to be as price-sensitive or to impose demands on companies in the industry. Similarly, the rivalry among competitors in the industry is considerably powerful. Competitors in the retail grocery industry could drive down industry profitability by cutting prices or offering more product features for the same price. When rivalry is most intense, competitors often compete head-to-head on price. When competition is disciplined and constrained by industry norms, rivalry is weak. On the other hand, the suppliers of the industry are a moderate force. Powerful suppliers drive down the profitability of companies in the industry because they can charge higher prices for the products and services they sell. Weak suppliers are not likely to bargain on price or impose demands on companies in the industry. The substitute services that serve as a threat to the players in the industry provides the same functionality but is not identical to potentially competitive services. Substitute products such as online grocery are a moderate force in the industry. Substitute products constrain industry profitability by limiting the selling price companies in the industry can charge. And lastly, the new entrants in this industry are potential competitors. New entrants are a powerful force in the industry considering they could easily get in and out of the industry. The easier it is for new companies to enter the industry the greater the competition in the industry. New entrants will often attempt to break into the industry with low prices, innovative products, or new features and benefits. When it is difficult to enter an industry, the threats of new entrants are low.
Based on the description of the retail grocery industry of UK, the major players of the industry targets future growth in market segments composed of small and midsize buyers. They are less likely to bargain on price and will often pay more for less. They have less leverage and fewer options than the large customers everyone is trying to attract. Moreover, the grocery owners also seek new ways to differentiate their service that have value to the customer. Even if their product is a commodity, there are ways to differentiate it in terms of the services that surround it. Differentiation can occur from the very first time customers becomes aware of your product to the time when they must dispose of it. Likewise, they also started to offer additional services or support to customers in exchange for a larger share of their total purchases. Develop services that make it easier for them to work with the company as a single source supplier. The grocery owners as well combines a reduction in the buyers’ overall cost of doing business with you with the creation of switching costs while focusing on new growth initiatives on customer segments with the best profit margins. This way each competitor is less likely to beat one down on price. Moreover, these owners are also seeking the creation of a new distribution channel in order to figure out ways to disintermediate those in the distribution channel thus, getting closer to the end user. Furthermore, the players in the retail grocery industry started to work with regulatory bodies to establish industry policies and procedures. They are seeking legislations that would make it hard for new entrants to be certified. The more stringent the requirements, the lower the likelihood of new companies entering the industry; the cost will be too high. This is one time that the owners consider industry regulations as good business. In addition, the existing players are now quitting their wimpy disposition by aggressively going after newbies in the industry. They make sure they are adding more value than the new entrants. This way, new entrants fight for every customer. Complacency and the assumption that there is enough business for everyone are considered as a taboo among the main players of the retail grocery industry.
In the preceding year, the manufacturing output of UK recorded a decline of 1% in the fourth quarter of last year. This left the average level of output for 2002 1.4% below the level for 1995. It was expected for manufacturing output to increase this year as world trade growth accelerates. Manufacturing output rose in both January and February this year. It is expected to grow of around ¼% in the first quarter of this year. The growth rate is forecast to improve throughout this year and next as the volume of UK exports increases, together with manufacturers’ increasing competitiveness in the domestic market in response to the depreciation of the effective exchange rate. Its expected growth per annum of around ½ and 2 ¼ % this year and next, rising to 2 ½% in 2005.
Moreover, growth in the distributive services sector reached 4 % last year. It is expected to be more moderate growth of 2.6 % per annum this year as household expenditure slows. Growth in the distribution sector in the last years has been sustained by strong growth in the wholesale and retail sector. By the fourth quarter of 2002 the volume of output in the wholesale and retail sector was 35.3 % above its 1995 level, while the hotels and restaurants sector was 4.7 % below its 1995 level. Similarly, growth in the average level of workforce jobs slowed to 0.2 % per annum last year, from 1.8 and 1 % per annum in 2000 and 2001. Much of this slowdown can be attributed to the deceleration in growth in the workforce, since the unemployment rate has simultaneously fallen. The claimant rate of unemployment has fallen from 3.6 % of the workforce in 2000 to 3.1 % of the workforce in 2002. However, the workforce is likely to be cyclical such that the deceleration in its growth over this period is partly explained by the slowdown in economic growth. Indeed, the population of working age has grown at broadly a constant rate per annum from 20002002 and the slowdown in economic growth has been associated with a small rise in inactivity. Nevertheless, the labor market has proved relatively resilient to the slowdown in economic growth. Growth in workforce jobs last year was supported by strong growth in self-employment. Employment in the public and distribution sectors expanded by 2.2 and 1.4 % year-on-year in the fourth quarter, respectively. Jobs growth in these sectors has helped to offset much of the decline in jobs in the production sector of the economy. The government expects growth in public sector employment to remain strong this year and next in line with our projections for public sector output. Jobs growth in the distribution sector is likely to be slightly weaker due to the anticipated slowdown in growth of distribution output. The government expects the rate of growth in workforce jobs to remain low this year and next as output growth is absorbed by the current level of employment, resulting in an increase in productivity growth.
Growth in manufacturing output will also be supported by the depreciation of the exchange rate. With this in mind, the buying power of the local currency shall be more potent compared to the preceding years. Moreover, the grocery retail sector will benefit from this considering the probable increase of sale of major commodities among the general public. However this is thwarted with the expected decrease on the rate of employment throughout the land.
Recently the United Kingdom has opted to join the monetary union. In doing this, it is perceived that adopting the euro eradicates exchange rate perils concerning the UK and Euroland. Similarly, it is also believed that an wearing away of public financial independence obvious in the acceptance of the euro. Moreover, it was also stated that if the UK joins the euro, failure to bend might have unfavorable corollaries. Similarly, joining the euro is believed to be expensive for many companies. Therefore, a common interest rate that may be suitable for Euroland as a whole will be the erroneous rate for a number of individual affiliates. In addition, the immediate interest rates, ownership of dwellings, and credit loans are comparatively more significant in the UK than in Euroland. Inside the euro, structural stringencies are more probable to multiply to the UK bearing in mind the superpower status of the said nation. Moreover, joining the union might have an effect on UK by Euroland’s enormous pension accountabilities. It is also believed that the euro will only mitigate the growth of UK’s economy through the growth and stability pact. This pact, which restrains the euro’s affiliates’ fiscal liberty, will be exceptionally damaging for the UK.
Adopting the euro means joining the monetary union for UK. For the retail grocery industry, this is a significant opportunity for growth. By escalating the dimension of the market, the single currency give confidence to specialization, making it easier for businesses to take advantage of economies of scale and function at lesser unit expenses. Augmented demands for specialization and price equalization will give a free rein to larger rivalry and vitality. Moreover, This will bring significant net investments to many UK businesses and individual entrepreneurs, but will get rid of a source of proceeds for banks and others concerned in converting money. Similarly, UK short-term rates are now only faintly elevated, while UK long-term rates are either equivalent or inferior than in Euroland. Even so, poorer short rates diminish business outlays, arouse ventures and inclined to create a more viable sterling exchange rate. However, poorer UK short-range rates could also have disagreeable outcomes, because they would enhance further unwarranted customer spending and draw attention to the disproportion in the economy.
References:
Finn, Mary G. (1995) “Variance Properties of Solow’s Productivity Residual and Their Cyclical Implications.” Journal of Economic Dynamics and Control 19 (July 1995), 1249-81.
Rasche, Robert, and John Tatom. (1981) “Energy Price Shocks, Aggregate Supply, and Monetary Policy: The Theory and The International Evidence.” Carnegie-Rochester Conference Series on Public Policy 14, 9-94.
Rotemberg, Julio J., and Michael Woodford. (1996) “Imperfect Competition and the Effects of Energy Price Increases on Economic Activity.” Journal of Money, Credit, and Banking 28, 549-77.
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