As described by Napoleon, the UK has evolved from a nation of shopkeepers into a deeply diverse sector, characterised by:

• stiff price competition, often at the expense of suppliers;
• a largely oligopolistic market, which usually requires significant start-up capital for new entrants;
• a wide range of different niches within which stores have catered

Firstly, the "big 4" (Tesco, Asda, Morrisons and Sainsbury"s) have traditionally catered to the mass market, attempting to act as a one stop shop for the majority of the population. This has seen the growth of Tesco Extra stores, which not only sell traditional produce, such as food and drinks, but also clothing, electrical merchandise and even financial products such as banking and insurance. On the other hand, these stores have additionally tried to cater to the commuter class, with the growth of the Sainsbury"s Local and Tesco Metro brands. Catering to the needs of convenience, they maintain long opening hours, as well as selling traditional necessities side-by-side with ready meals that focus on consumers" desire for convenience.

We should also compare the mechanisms through which the "big 4" have grown. Sainsbury"s and Tesco have seen traditional growth through gradually entering new communities, often at the expense of local convenience stores. Sainsbury"s pioneered the idea of self-service and Tesco followed suite, acquiring the 40 stores of Hillard"s in the process. Morrisons was primarily a northern franchise that gained nationwide appeal though a merger with Safeway. Comparatively, Asda has received backing from the global retailer Wal-Mart, allowing it to compete more effectively. This has helped it to achieve a market share of 17%.

Recently however, all have converged through the homogeneity of their marketing. With slogan"s such as "every little helps" (Tesco), "love it cheaper" (Morrisons) and "Live well for less" (Sainsbury"s), the big 4 all appear to be targeting their advertising at maintaining quality whilst suggesting that they offer cost-saving options to consumers. As a result, it has become particularly difficult for customers to differentiate between the quality and value provided by the shops. Furthermore, stiff price competition has occurred as a result of "price matching" services, which involve most major supermarkets claiming to offer the cheapest price (comparatively) for an equivalent basket of goods. With online sites now cross referencing these comparisons with their own independent data, the consumer is more able to ensure that they are securing the best deal.

However, many of these supermarkets have managed to maintain strong online presences, with delivery as well as "click and collect" offerings becoming a greater feature of their sales. In addition, the use of loyalty schemes such as Nectar points (Sainsbury"s) and the Clubcard (Tesco) enable supermarket chains to overcome some of the problems associated with such competition, as consumers are likely to continue shopping at one particular chain in the hope of receiving benefits associated with repeat custom. This includes vouchers on their shopping as well as subsidised leisure activities (such as trips to the cinema) which supermarkets hope consumers will only shop at their store in the hope of maximising these benefits. It also allows supermarkets to use data analytics to carry out analysis on shopping habits that in theory, should help to maximise the profitability and effectiveness of store layout, advertising and even store location. By tracking the purchases of specific users, supermarkets can directly tailor offers to consumers in the form of vouchers/online targeted advertising, with the aim of encouraging those customers to remain with the same store. And by amalgamating this data, supermarkets can modify their supply chains to only stock products when they are (based on past consumer behaviour) likely to be needed. This will save on costs and decrease wastage.

Noting the above graph, we see that Tesco has lost nearly 60% of its share price value since 2007. Although some of this may be as a result of general economic circumstance, it is endemic of the fact that the traditional players face stiff challenges. On one hand, competition from Lidl and Aldi, two major German retailers, has seen many budget purchasers desert their traditional shopping stores. By cutting out many unnecessary costs (such as car parking facilities and checkout personnel) much in the manner that budget airlines have managed, these retailers have increased efficiency, cut costs and consequently seen their market concentration* grow to 5% and 6% respectively . And with a large domestic and European market with which to fall back on, they are able to run often loss leading** pricing strategies. This can often lead to local farmers being squeezed out of profit, with the monopsonistic*** purchasing power of many supermarkets-leading to the lack of alternatives. This can occur as a result of long term contracts: a situation in which suppliers bind themselves into a promise of supplying goods very cheaply, due to the fact that there may be one sole purchaser in the market. And further in time, when a supermarket imposes a lower price upon the supplier, it can be very difficult to refuse as they do not want the risk of losing the custom of such an important purchaser. As a result of this, there has been the growth of stores such as the Co-operative, which run on a platform of providing high quality food, at a cost effective price. This will often include fair trade products, products without hydrogenised fats and other preservatives and products coming from farms at which conditions are above standard.

As a result of this, there has been the growth of stores such as the Co-operative, which run on a platform of providing high quality food, at a cost effective price. This will often include fair trade products, products without hydrogenised fats and other preservatives and products coming from farms at which conditions are above standard.

Particularly of note is Waitrose, a store owned by the John Lewis Partnership in which all workers own a stake in the company and pledge to provide a higher quality of service and branding. They have managed to capture a large swathe of the middle class that are willing to pay greater prices for a higher quality product and in store service, as well as freebies such as hot drinks and newspapers (if they join the MyWaitrose programme). For this reason, the "big 4" traditional supermarkets have been squeezed both from above and from below, attempting to both decrease costs whilst also increasing quality and coverage (in order to compete with high-end and low-end competitors). This, coupled with recent auditing scandals (Tesco 2013/14), has seen the traditional strength of the "big 4" supermarkets eroded and weakened.

And as we can see from the final graph, a source of great concern amongst retailing executives has been the global growth of Amazon. Harnessing huge economies of scale has allowed Amazon to deliver incredibly cheap products to most areas in the UK, eating into much of the non-perishable (i.e. non-food) business that traditional retailers have engaged in. And although as yet unrealised, Amazon have plans to offer delivery of fresh produce (including the remarkable concept that Amazon could in the future own large greenhouses that provided fresh produce all year round). The internet economy provides major challenges that (without high levels of innovation), traditional high street chains will simply be unable to compete with.

The above developments could give rise to a number of potential impacts upon the Financial Services industry. Similar to the Oil & Gas and Online Betting industries, we could be on the cusp of rapid M&A activity on account of the high efficiency savings that could be gained from pooling supply chain infrastructure and consolidating/removing stores that overlap too closely by area. This could be in the form of direct horizontal integration, in which one of the budget retailers (Aldi or Lidl) expand in the UK, potentially by acquiring Iceland. Alternatively, we could see one of the big 4 attempt to price discriminate more directly by acquiring a smaller firm, such as Costcutter or SPAR and using this alternative brand to target a particular niche. Also, companies such as Carrefour (France) or Costco (USA), may look to strengthen their position in the UK market by acquiring stores within the UK, This could take the form of a takeover of some of the smaller firms listed previously, or something akin to Wal-Mart"s acquisition of Asda.

Due to the highly pressured competition occurring, Legal Services are also key, not only in settling disputes amongst firms as to whether advertising has breached regulation, but also in relation to government regulation of issues such as competition (regulations restrict the extent to which large multi-faceted companies can use certain pricing mechanisms with the intention of crowding out local competition). Finally, we note that in an industry with such tight margins, large supply chains, incredibly complex revenue and cost structures (and onerous reporting requirements) and significant labour forces, the use of external consultants and professional services firms can often be used to ensure compliance with the law and improve efficiency and performance.

Defined Terms

*Market concentration

(often also referred to as market ratio), is a measure of the percentage of the total sales in the market that can be attributed to one company. For example, in a market with 2 firms selling the same number of goods, those firms would each have a market ratio of 50%.

**Loss leader

Pricing occurs where a firm will cross-subsidise products, such as providing cheap staple products (like milk, break and eggs) in the hope of luring customers to make other purchases (of more expensive products) in store, hence enabling them to gain market share and increase profits.

***Monopsonies (not to be confused with monopolies)

Are market structures where only one purchaser exists in a market, giving the purchaser significant power to determine the price at which a product is sold by its producers (as producers have no alternative buyer with which to engage with). Monopsonistic competition often occurs as a result of a large firm controlling the market to such an extent that sellers are forced to sell to them.