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  4. > Supermarket Price Wars: A response to the rise of discount retailers

Introduction

Grocery retail in the UK is dominated by four competitors. Recently there has been a surge of popularity in discount retailers, Aldi and Lidl, who are being seen as a threat to the 'big four' supermarkets. The big four are attempting to fend off this competition with price wars. This case study examines the structure of the UK market, the rise of Aldi and Lidl, and the response of the big four.

Features and benefits

* This case study details the development of the food and grocery retail market in the UK, and examines the structure of the market over time.
* This case study looks at the rise of Aldi and Lidl in the market, and the impact they are having on the big four supermarket chains.
* This case study looks at the response of the big four to the rise of Aldi and Lidl, and examines how price wars are impacting their businesses.

Highlights

Grocery retailers in the UK have been experiencing the effects of a noticeable shift in consumer behavior. The recession, and the accompanying squeeze on incomes, has led to many consumers becoming shrewd in their purchases and increasingly searching out the cheapest option. This has led to a climate in which discounters have been able to thrive.
The impact of the rise of Aldi and Lidl in the UK is evident. The market shares of the big four are declining, and they are facing struggling UK sales. Share prices have also taken a hit.
The big four supermarkets have responded by cutting prices. Traditional price wars have tended to be beneficial to the dominant companies, with price cuts on certain products being offset by price increases on other merchandise. However, there is evidence that this most recent round of price cutting and price matching is creating a true price war.

Your key questions answered

* How has the structure of the UK grocery retail market changed over the years?
* What impact has the recession had on the structure of the market?
* What market conditions have led to discounters being able to thrive?
* What impact is the growth of Aldi and Lidl having on the dominant companies in this market?
* How are the dominant companies responding to the increased competition from discounters?

Table Of Contents

Supermarket Price Wars: A response to the rise of discount retailers
OVERVIEW
Catalyst
Summary
GROCERY RETAIL HAS DEVELOPED INTO AN OLIGOPOLY IN THE UK
End of rationing in the 1950s enabled growth of UK supermarkets
Market has become increasingly consolidated
Sainsbury's spent many years as the market leader in the UK
Tesco dominates the UK grocery retail market
Asda overtook Sainsbury's in 2003 to become the second largest grocery retailer
Morrison's 2004 acquisition of Safeway led to it becoming one of the 'big four'
Market share of the big four has grown, while independents have declined
RISE OF DISCOUNTERS IMPACTING THE 'BIG FOUR'
Recession has led to a shift in consumer behavior
Market share of Aldi and Lidl has risen in recent years
The impact on the big four is evident
THE BIG FOUR RESPONDING WITH PRICE WARS
Price wars have traditionally been beneficial for the big four
New round of price wars are having a detrimental impact on the big four
CONCLUSIONS
The big four enabled the rise of discounters by focusing on price
Focus is going to have to shift from price
APPENDIX
Sources
Further Reading
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