The UK has a relatively open economy, and the government has little intervention with large mergers or acquisitions involving UK supermarkets. This allowed the US giant Walmart to takeover Asda in 1999. The lack of intervention in this case allowed Walmart to add considerable financial power to Asda and allow it to compete more easily in the UK industry. If the government imposed tighter restrictions on overseas buyers and mergers, then there may have only been two big players in the UK industry, as Asda would not have had the financial boost it needed. Also Morrison's and Safeway would not have joined which would have meant less power for both. Each of the main four supermarkets also has a good brand identity a solid customer base. This should deter overseas supermarkets such as Carrefour from setting up stores in the UK, even though they would have the capital required to succeed.
If we next consider buyer power, it is interesting to decide who has power over whom. It could be argued that buyers are loyal to their local store, regardless of the company. On the other hand with many alternatives available, consumers may choose to shop elsewhere if they don't like a specific store.
As product differentiation within the supermarkets is relatively little and the majority of firms tend to be price takers, there is little difference on these grounds. The government imposes no restrictions on where consumers can shop, so consumers have any option they wish available. The OFT on behalf on the government, monitor prices to ensure they are fair and most of the supermarkets "price watch" to ensure prices are comparable to their competitors. Again these prices are monitored to ensure the firms aren't colluding to bid up prices. Generally, the government are usually worried about prices set too low. If the dominant firms decide to use destroyer pricing, they can undercut the higher cost retailers, by making use of their absolute cost advantage, and making long term continuation impossible for other retailers. It is often argued that these low prices are good for consumers (i.e. buyers) but not so good for competitors and suppliers.
The government usually does not have to intervene with buyers in the supermarket industry, as supermarkets are very competitive and offer incentives to any customers they can get, such as loyalty cards. With internet use now widely available, many consumers can now compare prices of the major retailers, thus ensuring that they keep prices similar and at a fair level. Even though each buyer contributes to a minute proportion of overall sales to a firm such as Tesco, they are all still highly valued, no matter the monetary contribution. Consumers also have no bargaining power with supermarkets; all prices are set and can not be changed. Governments would not look to interfere as the UK is a mixed economy and relies on the private sector for income.
Supplier power is perhaps one of the most talked about force within the supermarket industry. Due to the enormous size of firms such as Tesco, their buying power is huge and they demand a huge quantity of quality goods across a range of markets. Compared to the low concentration of sellers, there are a vast number of suppliers to supermarkets. This gives them relatively little bargaining power with the supermarkets. In most cases, the supermarket is the price maker, and if the supplier can't supply at that price, then somebody else will. Many have claimed this to be unfair such as Michael Hart (quoted on the FOE website) “Tesco has driven down the price of meat, vegetables, everything because they have such a huge share of the market.
It's a monopoly position; they can simply go and find someone else who will supply them at the price they want.4” The government intervened in this situation and produced a “Supplier Code of Practice,” but has been commented that this is not an effective method of stopping supplier exploitation. The government's growing interest into the environment and sustainable development may soon lead to intervention to make firms such as Tesco more environmentally friendly, which would increase their costs, due to items such as biodegradable packaging. However for firms such as Tesco these are relatively small costs that can be implemented with ease, and therefore the majority of minor government regulations will be relatively harmless to Tesco.
If foreign governments decide to ban Tesco and other supermarkets from taking advantage of their suppliers then again this will lead to the companies going elsewhere. Native governments are generally grateful for the economic contribution big firms make, and the hardship of farmers etc. is generally not enough to merit banning the large multinational firms.
In conclusion, we can see that government can have a large impact on the five forces governing the supermarket industry. However it has also been shown that it is not always beneficial to do so. Markets are generally secure and make large economic contributions to the country. Consumers are faced with a wide range of well priced, quality goods, and that is hard to argue against, even by the government. In most economic situation there is a trade off between one's wellbeing and another's. In this case supermarkets are left relatively to themselves, and the market is left to set an equilibrium price without intervention to artificially move it above (or below) its equilibrium level.
Firms such as Tesco are extremely powerful economic agents, employing a huge number of people in the UK, and making livelihoods for their suppliers. Unless seen to be unfairly using their relative monopolistic powers to gain supernatural profits and exploit consumers, the government is likely to leave them without too much intervention. Small foreign countries may rely on the business from firms such as Tesco and Sainsbury's, even if at times the prices offered may be deemed unfair, and even cause natives to supply at a loss. The government's impact at the moment is relatively low, but if needed it can be increased to benefit the stakeholders of the supermarkets.
