Price Competition in the Australian Retain Grocery Market

This research report is concerned with competition in the Australian grocery market, and it attempts to explain why price promotion has become so central to grocers' competitive strategy, and what significance the practice has. The work undertook to shed light on some shadowy aspects of grocery retailing, to understand them, and to assess their potential contribution to successful manufacturing strategy with respect to grocery products. It opens with an analysis of the Australian industry in an international context, contrasting features of the Australian market with foreign examples, particularly from the U.S.A. and Great Britain. Contrasts in structure and recent performance are highlighted, followed by a closer examination of Australian industry structure and performance. Issues in grocery retailing theory and practice are then examined, highlighting practices of some notably successful retailers, not only grocers. Price promotion in the Australian industry is discussed, and the possibility that price-sensitivity amongst consumers may be caused by high C.P.I. growth rates is explored. The report then examines published research, highlighting findings which are relevant to retailing strategy, particularly in the Australian industry. A series of issues is then discussed - the interests of consumers in the Australian environment, and the strategic position of retailers themselves in their industry. It is argued that the monopo1istic structure of the industry does not appear to threaten consumer welfare, indeed that the opposite may be true. The strategic position of retailers is found to be unfavourable; profitability is weak, despite highly concentrated ownership of buying and store operations. Retailers are believed to rely heavily on cash income generated from their suppliers to shore up weak profitability, much of that income being related to price competition itself. The report concludes with a statement of imp1i cat ions for manufacturersand suppliers, recommending fields of strategic and tactical focus whichmight alleviate difficulties encountered in trading with grocers.A summary of conclusions is presented, and recommendations for furtherresearch are given.