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In this revision video we look at the oligopolistic but increasingly contestable UK supermarket industry.

2022 Exams - Industry Profiles - The UK Supermarket Industry

The UK retail grocery sector is probably best described as a contestable oligopoly. In recent years, the dominance of the Big 4 (Tesco, Asda, Sainsbury and Morrisons) has come under increasing threat from the deep discounter chains headed by Aldi and Lidl. In January 2017, these two businesses had a combined market share of 10.7% in the UK. By April 2022, this had grown to 15.4%. These businesses have a different business model based on rapid organic growth and a range of cost-strategies designed to allow them to sell at low prices.

Revising the UK supermarket sector as a case study might encourage you to think about:

Different business objectives & pricing strategies of key firms

Organic versus external growth of businesses

Sources and impact of internal economies of scale

Extent and significance of barriers to entry in the industry

Changing spending patterns of consumers post pandemic

Supermarkets and the labour market - monopsony power?

Supply chain problems and responding to cost-of-living crisis

The pattern of grocery shopping in the UK is changing and are likely to continue evolving post pandemic. Sales growth in hypermarkets is slow / flat whereas sales growth with discount stores and smaller convenience store formats are stronger. The pandemic accelerated the switch to online grocery shopping which has consequences for supermarket costs and also for a number of occupational labour markets. Sales at city centre convenience stores have collapsed.

Supermarket hourly wage data (April 2022)
Aldi: New employees get £10.10 an hour, rises to £10.57 after three years
Within the M25, the minimum pay has risen to £11.55 per hour
Lidl: £10.10 an hour; London £11.30. Can rise to £11.40 or £12.25 with experience
Morrisons: £10.00 per hour
Marks and Spencer: £10.00 plus workers get free health checks. (£11.25 in London)
Sainsbury's: £10.00, Outer London £10.50, £11.05 in inner London.
Asda: £9.66 (London £10.83)
Other perks for workers include 10% off Asda groceries and George items, and 20% off Food to Go items in store and petrol filling stations.
Tesco: £9.55 per hour, Night Premium Payments for eligible colleagues of £2.30

There are big wage pressures on UK supermarkets in 2022:

Shortages of lorry drivers

Shortages of distribution centre workers

Record number of job vacancies in the UK labour market has shifted the balance of wage bargaining power back towards workers

Most supermarkets now pay above the national minimum wage for their employees although only a few pay the Living Wage

Pressure on supermarkets to look for cost savings elsewhere including cutting back on 24 hour opening, more self-service checkouts, removing layers of salaries staff management

Why are Aldi and Lidl so much cheaper?
Smaller range of items - bulk purchased from manufacturer
Most products are private label rather than branded
Branded goods tend to discontinued or overstock products - bought at a discount
Smaller stores in locations with cheaper rents (fixed costs)
Energy efficient lighting, commitment to renewables
Smaller ratio of staff to customers - higher MRPL
Relatively small marketing spend (fixed costs)
Shorter opening hours (avoids unsocial hours payments)

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Industry Profile: UK Supermarket Industry

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In this revision video we look at the oligopolistic but increasingly contestable UK supermarket industry.

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Final dates! Join the tutor2u subject teams in London for a day of exam technique and revision at the cinema.

Topic Videos

Last updated 18 Nov 2022

In this second video on the UK energy market, we look at short term policy responses to address the surge in gas prices.

Energy Price Crisis: Policy Responses

What government interventions might limit the impact of the surge in energy prices?

Short term interventions

Cut or freeze VAT on gas bills

Freeze the contribution to gas bills from the climate change levy

Increase in winter cold weather payments to poorer households (Warm Homes rebate is paid to families on a means-tested basis)

Temporary state-backed loans to energy companies to help absorb higher costs - which would be paid back when prices are lower

Preferred government policy - £200 energy bill rebate loans for customers - to be repaid in annual instalments of £40 for 5 years

Longer term strategies

Investment to improve energy efficiency in homes - more than 16m UK homes are 'not energy efficient' with limited insulation

Accelerate shift to renewable energy supplies to reduce gas dependence

Investment in much higher gas storage capacity so that UK market is less impacted by short term global price volatility

Shift towards installing electric heat pumps in houses

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Industry Profile: UK Energy Price Crisis: Policy Responses

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In this second video on the UK energy market, we look at short term policy responses to address the surge in gas prices.

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In this video we provide an overview of some of the key statistics on and issues facing the UK water industry.

One area that examiners are keen to stress ahead of students taking their papers is for them to showcase their knowledge of the subject and add contextual application to their answers. Hopefully this series of short update videos will help in this.

2022 Exams - Market Profiles - The UK Water Industry

The water industry in England & Wales was privatised in 1989.

Most water and sewerage companies are regional monopolies, with dedicated pipe networks and water supplies This means that household customers cannot choose or switch their supplier and competition is limited.

Water supply is therefore a good example of a natural monopoly - an industry with large economies of scale

There is a need for regulation of the industry to ensure that the industry delivers value for consumers and the environment.

Ofwat is the economic regulator from the water industry in England and Wales.

Ofwat sets wholesale price limits for each water company alongside performance targets, such as for leakage reduction, reducing pollution incidents and lowering personal water consumption.

In 2017, the UK government introduced competition into the water supply & services industry at retail level for businesses

Regional water companies (utilities) act aswholesalers and manage their networks

Business customers can now choose their water provider in the same way they choose energy or telecoms providers.

Some entrants have come into the retail market such as ConservAqua, EverFlow and Castle Water. Some businesses have also been granted their own "self-supply" licence

Motivations for businesses switching retail water supplier:

Reductions in water bills

More accurate water metering and billing (estimated 70% of bills are inaccurate)

Consolidated billing - for example supermarkets with stores across the country

Improved customer service

Additional value added services such as water efficiency and help in meeting leakage targets

Exam gold - some key issues

The continued political debate over ownership - should the UK water industry be nationalised?

The nature of natural monopoly - the UK has regional water monopolies - what are the benefits and costs of this?

Will the introduction of competition at retail level for businesses who use large amounts of water be successful?

How should water bills be regulated? Should water companies be allowed to raise bills more than inflation to fund investment in infrastructure?

Externalities from the water industry - how best to tackle sewage discharges Behavioural economics - how best to tackle water scarcity and reduce people's consumption?

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In this video we provide an overview of some of the key statistics on and issues facing the UK water industry.

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In this revision video we look at aspects of the changing UK broadband market. Great application for your exams!

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3.3.3 - Economies of Scale (Questions 2)

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3.3.3 - Economies of Scale (Questions 2)

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| Examine the likely effects on the profitability of Indonesian rice farmers of the government’s increased investment in dams (Extract E, lines 43-48). Use a cost and revenue diagram to support your answer.

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Edexcel Econ Micro AIS 3.5.3 Wage Determination

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Edexcel Econ Micro AIS 3.5.2 Supply of Labour

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Edexcel Econ Micro AIS 3.5.1 Demand for Labour

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Edexcel Econ Micro AIS 3.4.7 Contestability

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Edexcel Econ Micro AIS 3.4.5 Monopoly - Price Discrimination

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Edexcel Econ Micro AIS 3.4.1 Economic Efficiency

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Edexcel Econ Micro AIS 3.2.1 Business Objectives Mobile Operators

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Edexcel Econ Micro AIS 3.2.1 Business Objectives Amazon

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Edexcel Econ Micro AIS 1.4.1 G I Subsidies

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Edexcel Econ Micro AIS 1.4.1 G I River Pollution Policies

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Edexcel Econ Micro AIS 1.4.1 G I Maximum Prices

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Edexcel Econ Micro AIS 1.4.1 G I Information Provision

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Edexcel Econ Micro AIS 1.4.1 G I Indirect Taxes

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Edexcel Econ Micro AIS 1.2.7 Price Mechanism

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Demand Side Policies to reduce Unemployment 

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Demand Side Policies to reduce Unemployment 

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Paragraph 2
Demand-side policies might also focus on reducing the cost for businesses of employing extra labour. For example, the UK government recently cut national insurance paid by firms when they take on someone who has been long term jobless. These are people out of work for at least a year. A subsidy lowers the marginal cost of taking on an extra worker. As a result, assuming that workers are sufficiently productive in their new job, there is an incentive to hire more people. If successful, a jobs subsidy will increase the demand for labour and therefore lower the unemployment rate.Once in work, there is the added benefit that the newly employed will have more disposable income to spend on goods and services.

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Reducing Unemployment - Demand-side policies

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Paragraph 2 Demand-side policies might also focus on reducing the cost for businesses of employing extra labour. For example, the UK government recently cut national insurance paid by firms when they take on someone who has been long term jobless. These are people out of work for at least a year.

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A new tax on manufacturers and importers of plastic packaging is being introduced into the UK in April 2022.

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2021 was an important year of partial recovery from the first phase of the covid pandemic. Having awareness of some key UK macro indicators is vital to help to getting top marks for application in 2022 exams!

Real GDP grew by 7.5% after falling by 9.4% during 2020

The 7.5% increase in GDP during 2021 wasthe fastest growth seen among the G7 countries. But, the UK is recovering from a lower base, having contracted 9.4% in 2020. That was a steeper downturn than other G7 members. Only Spain experienced a deeper downturn among high-income countries (Spain is not in the G7)

The unemployment rate has been declining over the last year - it is now just 4.1% of the labour market

The number of people in jobs has recovered the falls after the furlough scheme ended, the unemployment rate has fallen to pre-COVID levels, job vacancies are at a record high. Around 500,000 people (mainly over 50 years old) have left the labour market and are now economically inactive.

There is now a record level of job vacancies in the labour market

The record level of job vacancies is a sign of a tightening labour market. The balance of wage bargaining power might be tilting towards employees especially in sectors where there are large and persistent shortages of skilled workers.

Consumer price inflation has surged to a 30-year high

CPI inflation is now further above the Bank of England's 2% target than at any point since the UK first adopted an inflation target in October 1992. The cost of living crisis is real and is impacting many millions of households. Lower income families are expected to be hardest hit by rising food & energy prices.

House prices increased by an average of 10 per cent in 2021

House prices may start to struggle in the near term if the Bank of England send more signals that they are willing to raise interest rates further in order to control inflation. Property affordability is a huge problem in the housing market and rents continue to out-pace the growth of people's incomes impeding geographical mobility of labour.

The Bank of England has started raising interestrates - now at 0.5%

In normal circumstances with inflation more than three times the official target of 2%, then the central bank would be acting decisively to raise base interest rates to control inflationary pressures. There seems to be continued policy inaction at the BoE which risks them losing some credibility.

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2021 was an important year of partial recovery from the first phase of the covid pandemic. Having awareness of some key UK macro indicators is vital to help to getting top marks for application in 2022 exams! The 7.5% increase in GDP during 2021 wasthe fastest growth seen among the G7 countries.

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APT IET Papers Edex AS AL Eco A Th 2 (2)

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Edexcel A-Level Economics Calculation Practice Book | Economics | tutor2u

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Packed with activities to help students develop their confidence and practice all the quantitative & numerical skills required for Edexcel (A) A-Level Economics. Perfect for homework, cover & revision.

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In this essential 30 minute revision webinar for all Yr13 A Level & IB Economics students Geoff will look at the relative successes and failures of the Chinese economy in recent years.
Learn more ›

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What are Supply-Side Policies? | Economics | tutor2u

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In this essential 30 minute revision webinar for all Yr13 A Level & IB Economics students Geoff will look at the relative successes and failures of the Chinese economy in recent years. Learn more ›

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When I was studying Economics at A Level and at University, I often wondered why, given the current state of technology and communication, there were never any recordings of class or lecture content. Revision was difficult, grasping key concepts was at times difficult - it was hard to stay ahead of the game.

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Edexcel A Level Economics (A) - Resources | Economics | tutor2u

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These teaching, assessment and revision resources for Edexcel A Level Economics (A) provide a high quality and cost-effective base for teaching both years of the Edexcel specification. Includes a complete range of new printed workbooks and digital study companions for each Theme.

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Boats and boating--Equipment and supplies