SITUATION ANALYSIS
UK Supermarket Industry in the 1990s
The supermarket industry in UK was characterized by fierce competition and low profitability, with big players dominating the marketplace. Porter's five forces analysis (summarized in Exhibit 1) provides insights into the industry:
Rivalry: Since there was little product differentiation between the multiples, price was commonly used as the competitive weapon. While the demographic profile of the shoppers of each chain was different, with Sainsbury at the top end, and Kwik Save at the bottom, most chains had a sub-brand (eg. Sainsbury with Savacentre; Safeway, with Presto) which targeted their competitors' market. As a result, margins were razor thin in the industry.
Suppliers: Due to limited shelf space and the abundance of products to be displayed, supermarkets had traditionally strong bargaining position vis-à-vis the suppliers. While this held true for most suppliers, the growth of major FMCG companies like Nestle and Proctor & Gamble had tilted some of the power back to the suppliers. Overall, the power seemed to be relatively balanced between the two parties. …
