A longitudinal study of competition and performance in the UK grocery retail industry
thesisposted on 22.02.2011, 10:59 by Arvind Yadav
The grocery retailing industry is a key sector of the UK economy, accounting for 16% of consumer expenditure. As such developments in this sector will have an important effect on UK economic and social welfare. Arguably, competition in the sector has intensified in the last two decades. Yet significant consolidation in the sector has put it under the spotlight of the UK competition authorities. Previous research analysing factors affecting the performance and positioning of UK grocery retailers has tended to be restricted to a limited time period and a small sample size. This study extends this research by investigating industry evolution and factors affecting performance and industry structure with longitudinal panel data, covering a two-decade time period. The sample used covers a wide variety of grocery retailers with a range of different attributes over a significant period in the development of the industry, running from 1985 through to 2003. Strategic group theory is employed to study industry evolution and examine the effects of strategic positioning on performance. Specifically, fixed-effect panel econometric models are estimated at different levels of aggregation to analyse firm, industry and strategic group effects on the performance of retailers. Also, stochastic frontier models, in the form of Cobb-Douglas and Transcendental Logarithmic functions, are estimated at different levels of aggregation to analyse the efficiency of retailers in the sector. The results from cluster analysis on strategic groups suggest that industry structure is likely to become more concentrated, and the size of retailers will be a significant mobility barrier in the industry. The profitability analysis finds industry level factors and strategic group composition to be crucial in explaining performance differences. The efficiency analysis finds large retailers exhibiting economies of scale through operating large store formats to be significantly better positioned from smaller-format retailers with fewer outlets. Consistent and significant time dummies demonstrate the favourable macro environment enjoyed by the retailers for much of the 1990s. The analysis reveals potentially useful insights for retail managers, especially concerning the importance of positioning in the industry and the choice of strategic orientation. More generally, the study opens up further possibilities for future studies of performance and efficiency measurement over an even longer time as the sector continues to develop and shape the way consumers shop in the UK.
- Business and Economics