Big chain stores setting their prices on a national rather than local basis can help independent retailers survive, according to new research funded by the Economic and Social Research Council (ESRC). It protects them from the intense local competition that could arise from price wars in places where several big name outlets are present, says the study, which backs concerns from policymakers about the potential impact when chain stores opt for local pricing.
Matt Olczak, of the ESRC Centre for Competition Policy, University of East Anglia, examined in detail the situation in the opticians industry, and the implications for consumer choice and the local economy. His investigation highlights the pricing strategies of the major optician chain stores as a key factor in whether the small, local independents can survive.
The study follows a report from the All-Party Parliamentary Small Shops Group, in which MPs predicted that less than a decade from now, many small shops are likely to have stopped trading, with few independent businesses taking their place. They said that people, as consumers and members of communities, stand to be disadvantaged the most 'with restricted choice, entrenched social exclusion and a vulnerable supply chain caused by consolidation'.
Matt Olczak said: "It is clear from my research findings that the opticians market at least needs to be monitored regularly, since a change in pricing strategy by any of the chain stores could have a negative impact on independents." Importantly, he says, he found that it matters whether chain stores set prices nationally - that is, charge the same in all their stores, or locally -setting different prices depending on local market conditions. The four principal chain store retailers – Specsavers, Dolland & Aitchison, Boots and Vision Express – have a national presence, with stores in all regions of England and Wales.
Prices at Specsavers and Boots are set nationally, and those at Dolland & Aitchison and Vision Express are also determined predominantly on this basis. Since deregulation of the industry in the 1980s, there has been rapid entry and growth of chain store retailers. Between 1988 and 1991 alone, chain stores' market share increased from 46 to 75 per cent.
Matt Olczak continued: "It is interesting to note that Optical Express has a local pricing strategy, and its national market share is increasing significantly." In his report he argues that chain store national pricing strategies can boost variety and choice for the consumer.
Where the average wage is higher, his findings suggest, there will be more independents, and where pay is lower, there will be more chain stores. Also, areas with an older population are likely to have more independent outlets. But he points out that while independent retailers are more likely to be located in areas of higher income, chain stores provide important choice for consumers on lower earnings and therefore, to a degree, support public health policy.
When it comes to the form of competition between independents, this, too, appears to depend on whether or not there are chain stores nearby. Where there are not, it seems the number of independents grows more slowly as increasingly large local markets are examined. This is linked to the fact that, without chain stores, the arrival of additional independent opticians leads to prices being forced down.
NOTES FOR EDITORS
1. The research "Chain Store Pricing and the Structure of Retail Markets" was funded by the Economic and Social Research Council (ESRC). Matt Olczak is a part-time research associate working on his PhD at the ESRC Centre for Competition Policy, University of East Anglia, Norwich, NR4 7TJ - the leading UK Centre for research in the economics and law of competition policy. Website: www.ccp.uea.ac.uk
2. This research into chain stores is among a wide range of ESRC-funded studies featured in the forthcoming Autumn edition of ESRC Edge - a quarterly magazine will be available, from November 8th 2006, online at http://www.esrcsocietytoday.ac.uk/theedge To subscribe to The Edge, e-mail: firstname.lastname@example.org
3. Methodology: Data was gathered by downloading names and postcodes of all opticians' outlets in England and Wales from the online Yellow pages directory. Local Authority Districts were used as an approximation of the area in which consumer search behaviour takes place, and gathered data was divided between the relevant local authority districts. Data was used to test propositions and questions developed from appropriate economic literature.
4. The ESRC is the UK's largest funding agency for research and postgraduate training relating to social and economic issues. It provides independent, high quality, relevant research to business, the public sector and Government. The ESRC's planned total expenditure in 2006-07 is £169 million. At any one time the ESRC At any time the ESRC supports over 4,000 researchers and postgraduate students in academic institutions and research policy institutes. More at http://www.esrcsocietytoday.ac.uk
5. ESRC Society Today offers free access to a broad range of social science research and presents it in a way that makes it easy to navigate and saves users valuable time. As well as bringing together all ESRC-funded research (formerly accessible via the Regard website) and key online resources such as the Social Science Information Gateway and the UK Data Archive, non-ESRC resources are included, for example the Office for National Statistics. The portal provides access to early findings and research summaries, as well as full texts and original datasets through integrated search facilities. More at http://www.esrcsocietytoday.ac.uk
Last reviewed: By John M. Grohol, Psy.D. on 21 Feb 2009
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