Retailing in Britain: Traditional Retailers vs. Discounters

IBSCDC regularly updates the list of free cases. To view more free cases, please visit our site at frequent intervals.

The retailing industry in the late 19th century was characterised by formal agreements between retailers to limit price competition because of limited players operating and also because ofCo-operativeswhose focuswas to fend off the impact of high food prices on the working class. Independent retailers and the privately owned chains restricted competition in two ways. Food retailers in urban areas like London, including chains such as Sainsbury's, entered into formal arrangements called ‘pacts' to reduce price competition and horizontal competition, by restricting newstores in areas under the control of existingmembers. Under the pact, if any member wished to sell the stores, the existing retailers purchased it, in order to prevent new entrants from acquiring a valued site. Second way of limiting competition was restricting wholesale prices. Organisations were formed to monitor importing and wholesaling. These organisations, which included retailers with wholesaling functions, restricted vertical competition through fixing wholesale and retail prices. The Home and Foreign Produce Exchange in London, formed in 1888, and the Scottish Provision Trade Association, in 1889 were among those organisations,whose chief functionwas to disseminate information about othermarket centres in Britain and abroad and to issue weekly recommended price lists. These price lists were not mere guides to themembers but were to be enforced. Reduction of competitive pressures ensured highmargins and profit boosting, which in turn encouraged investments for developing distribution channels and other competitive advantages.Once these investments had infused neworganisational capabilities to the big firms, themarket environment could be altered to suit the competitive advantages.

The first quarter of the 20th century witnessed large-scale retailing organisations of Britain continuing with backward vertical integration intomanufacturing and themanufacturers adopting forward integration to establish their own retailing outlets. "Thus by 1939 national grocery retail chains were established, such as Lipton's with its 449 stores, selling primarily tea from its own plantations, and the Maypole Dairy Co., with 977 stores, or the Meadow & Pearks Dairy Co., with 762 stores, supplied through their own dairy businesses.'¹⁰ Chains that were confined to a specific region also emerged, selling a wider range of goods. Sainsbury's, was one such retailer selling provisions under its own label with 255 shops by 1939. Sainsbury was vertically integrated in a backward direction encompassing wholesaling, manufacturing and even food production apart fromwarehousing and selling to customers.Other types of retailers also emergedwho did not integrate, but depended on bulk purchases to derive economies of scale, such as Tesco, selling goodsmanufactured by other producers, utilising bulk purchasing, in order to create competitiveness.Marks & Spencer, on the other hand, depended on long-term relational contracting with suppliers to avoid the investment in clothesmanufacturing. Unified relational contracting was a successful strategy for new retailing firms dealing in the narrow range of high volume goods. The manufacturers were guaranteed outlets for their output while retailers were guaranteed supply of goods to their stores. However, as retailing business increased in scale and scope, with larger stores selling a wider range of goods, the necessity for relational contracting diminished.Retailers' success depended upon the expansion of the range of products beyondwhat the unified relational contracting provided access to.Retailers, however, retained their control over the distribution channels – themost important ingredient in retailing. By 1950, it was estimated that 90%of groceries, which were sold throughout the nation, flowed through retailer-owned centralwarehouses or retailer-owned co-operativewarehouses.Till the 1980s, the established retailing houses thrived in that environment, to become household names in Britain. The 1980s also witnessed an invasion of foreign retailers into British retailing which gave a tough competition to the incumbents. The foreign retailers not only challenged the traditional retailers on prices, but also challenged the way retailing was carried out by them in Britain.

Next >>

10]Morelli, Carlo "The Development of Chain Store Retailing in the US and Britain 1850-1950", http://www.dundee.ac.uk/econman/discussion/DDPE_148.pdf