Food retailing in the UK and globally is increasingly controlled by a small number of multinational corporations. In the UK we now buy 88% of our groceries in supermarkets and around 75% from just four supermarket chains – Tesco (30.6%), Asda-Walmart (16.6%), Sainsburys (16.3%) and Morrisons (11.1%).[3] Whilst Somerfield, Morrisons, M&S;, Sainsburys and even Asda-Walmart are suffering, Tesco continues to increase its market share and turn in impressive profits (£2.2 billion in 2005[4]). To succeed in the cut-throat world of grocery retailing, supermarket chains have to keep expanding their market share: through mergers and acquisitions, through price wars and through opening more and more stores both in the UK and across the globe. As the number of food retailers falls, competition is diminished and the surviving corporations increase their market power and their economies of scale, enabling them to extract ever larger profits from their businesses.

Over the past few years there has been a frenzy of corporate takeovers in the grocery retail market - the takeover of Safeway by Morrisons, of Kwiksave by Somerfield and the buy-out of convenience store chains Adminstore and T&S; by Tesco. The Competition Commission classifies convenience stores as a totally different sector to supermarkets, which has allowed Tesco to increase its market share of grocery retailing overall well beyond the 25% share of the supermarket sector permitted by competition rules.

Supermarkets also expand through poaching each others' customers in aggressive price wars. This affects the profitability of not only the big supermarkets, but also smaller retailers who just cannot compete with this buying power. US-based multinational, Wal-Mart, which bought Asda in 1999, has a well-documented strategy of deliberately destroying the economic and social fabric of small towns across America by building out-of-town superstores, selling goods at rock bottom prices putting all other local retailers out of business, and then, when they have secured a near monopoly, increasing prices again.[5]

Tesco is also not averse to predatory pricing according to Ian Proudfoot, owner of a chain of long-established grocery stores in North Yorkshire. He called on the Office of Fair Trading to intervene when Tesco opened a store near to his Witthensea store and sent letters to over 6000 households promising discounts of 40% to customers that spent over £20 in the Tesco store. 'It is predatory pricing and an attempt to squash competition and dominate the catchment area' says Proudfoot, who believes that the supermarket chain is trying to put him out of business. Tesco also poached company staff, 'they came into my store and gave cards to staff they thought were hard working or they liked the look of,' Proudfoot claims.[6] Whilst Proudfoot's sales plummeted, the OFT ruled that Tesco had not engaged in "abusive" trading.[7]

As they eliminate the competition, the market shares of the remaining supermarkets increase and as a consequence so do the profits for their shareholders. This desire to conquer and consolidate is the logic of the current corporate structure - company directors have a legal duty to make money for their shareholders. See our report Corporate Law and Structures: Exposing the roots of the problem (2004) for more information.

Tesco is by far and away the biggest supermarket in the UK with 30.6% of the food retail market nationally. An analysis by Citigroup shows that Tesco is the number one operator in eight out of 10 regions in the UK; in London, where it is second to Sainsbury, it is catching up; Tesco is twice the size of Asda in food and growing twice as fast. It has more than 25% of the market in eight regions, 38% in the east of England and 37% in the South.[8]

Tesco also has the biggest plans for expansion, and plans to double the number of Tesco 'Express' stores, its small in town convenience format, to 1200 by 2015,[9] and if it continues to expand at current rates, is likely to triple the number of out of town hypermarkets, Tesco 'Extras' to 300 by 2015. Tesco, in common with all the other supermarkets, has also been buying up land with development potential and is sitting on a 'land bank' of more than 185 development sites, which, if all of them were to receive planning permission, could create more than 4.5 million sq ft of new supermarket space. [10]

Ironically, even the other large supermarkets are now complaining as Tesco's share of the market exceeds 30%. With its move into the convenience store sector and with its huge land bank, it is predicted that Tesco has the potential to grow to control 40-50% of the grocery market in the next 5-10years. Despite being part of the biggest company in the world by sales, Asda Wal-Mart is losing market share to Tesco and, alongside price wars and cutting 1,400 jobs in July 2005, is lobbying for changes to planning legislation in the UK so that it can compete more effectively (see section on Supermarkets and the Planning System). Sainsburys has also asked the Office of Fair Trading to take action to stop Tesco's growing domination of the grocery market.

References
[3] TNS Superpanel figures for October 2005 in 'Record Somerfield performance as takeover gets board approval' 20th October 2005 www.marketresearchworld.net/index.php?option=content&task;=view&id;=331&Itemid;= Viewed 8/11/05

[4] Press Association Tesco profits soar to £2.2 bn Guardian 25 April 2006 www.guardian.co.uk/uklatest/story/0,,-5778612,00.html Viewed 22/5/06

[5] Bill Quinn (1998) How Walmart is destroying America and what you can do about it, Ten Speed Press; also see www.walmartwatch.com

[6] Richard Fletcher 'Proudfoot cries foul at Tesco's tactics' The Telegraph 1st February 2004

[7] David Derbyshire 'Is Tesco getting too big for its own good?' The Telegraph 13th April 2005

[8] Notebook 'Tesco rules' Guardian 30th July 2005 http://business.guardian.co.uk/story/0,3604,1539310,00.html Viewed 8/11/05

[9] Tesco Stores Plc Annual Report and Financial Statement 2005 p.5
http://81.19.58.74/annualreview05/downloads/tesco_report_2005.pdf

[10] Sarah Butler and Jenny Davey 'Asda fights back in war on Tesco with appeal to watchdog ' Times 19 September , 2005 http://business.timesonline.co.uk/article/0,,9074-1786936,00.html Viewed 23/1/06