UK Supermarket Industry Flashcards
(23 cards)
How has demand changed in the UK supermarket industry due to the cost-of-living crisis?
75% of UK consumers changed habits
Shifted to cheaper supermarkets (e.g. Aldi)
Switched to own-label goods
Cut back on luxuries
Reduced overall quantity demanded
What supply-side pressures have affected supermarkets?
Rising costs: wages, energy, taxes (e.g. packaging levies)
Extreme weather: 26.5% fall in UK wheat harvest forecast vs 2023
What is the PED for food products in UK supermarkets?
Inelastic: -0.2 to -0.5
Food = necessity → demand does not fall much as price rises
What is the PES for supermarket goods in the short run?
Inelastic
Limited by production cycles and logistics
Hard to increase supply quickly in response to price rises
How does YED vary across supermarket goods?
Inferior goods (e.g. tinned food): YED negative
Normal necessities (e.g. milk): YED ~ +0.1 to +0.5
Luxury food items: YED high and positive
Give an example of XED in the UK supermarket industry.
Own-brand vs branded goods → substitutes
Value-tier own-label sales ↑ 14.2%; branded sales ↓ 5.6% → positive XED
Bread & butter = complements → negative XED
How is the supermarket sector affected by indirect taxes?
Sugar tax extension (April 2025): includes milkshakes/lattes
Expected benefits: £4.2bn over 25 years; £200m NHS savings
What subsidies have supermarkets received?
£1.9bn business rates relief (2020–2021) for Tesco, Sainsbury’s, Asda, etc.
Supported them during pandemic while fuel and supply costs surged
What negative externality is associated with supermarket packaging?
29.8bn avoidable plastic pieces per year
Tax on plastic would shift MPC rightwards → reduces quantity used
What is a positive externality in the industry?
Tesco’s “Better Baskets” campaign
↑ 12% sales of healthy/sustainable items
MPB shifts upwards → closer to MSB
Healthier population → reduces NHS pressure
How has the government intervened in pricing transparency?
CMA pushed for clearer unit pricing (July 2023)
Requested updates to legislation to help consumer comparisons
Give one example of blocked horizontal integration.
Sainsbury’s–Asda £7bn merger (2018–19) blocked by CMA
Concerns: less competition, higher prices, reduced choice
How has Asda vertically integrated?
Took full ownership of suppliers Forza and Kober
Gained control over supply chain and product quality
What business objective have Tesco and Sainsbury’s recently pursued?
Revenue maximisation via loyalty schemes
Tesco Clubcard and Nectar Card → drive repeat spending
Builds market share through non-price competition
What is the 5-firm concentration ratio in Jan 2025?
Tesco: 28.5%
Sainsbury’s: 15.9%
Asda: 12.6%
Morrisons: 8.6%
Aldi: 10.2%
Total: 74.2% → oligopoly and Tesco = working monopoly
Give examples of sunk costs and recoverable costs in this market.
Sunk: branding, planning licences, store layout
Recoverable: property, vehicles, stock
How efficient are UK supermarkets?
Productively efficient (MC = AC) via economies of scale
Not allocatively efficient (P > MC)
Dynamically efficient (use SNP)
Low X-inefficiency due to competition and scale
What is the market structure of the UK supermarket industry?
Oligopoly: 74.2% 5-firm CR → interdependence, non-price competition
Monopolistic competition: corner shops like Londis
Monopsony: supermarkets dominate buying from farmers
What is the role of the Groceries Code Adjudicator (GCA)?
Regulates how supermarkets treat suppliers
Prevents abuse of monopsony power
Is the market contestable?
Low contestability: high sunk costs (branding, logistics)
Higher contestability for small interdependent stores (e.g. Premier)
What is the elasticity of demand for labour in supermarkets?
Low-skilled: high elasticity (e.g. cashiers)
Medium-skilled: moderate
High-skilled: low elasticity (e.g. supply chain managers)
What trends affect labour supply in the supermarket industry?
Brexit ↓ migrant workers
Cost-of-living crisis ↑ part-time applicants (e.g. students)
Ageing population ↓ overall supply
Elastic supply for low-skilled; inelastic for specialists
How does the government intervene in the supermarket labour market?
National Minimum Wage → excess labour supply
Brexit rules ↓ geographic mobility
Working Time Regulations → limits on hours and shifts
