The Internet Grocery Market in UK

This assessment is part of Economics and Business Finance module in phase 1 in MSc Finance and Investment at University of Brighton 2008-2009. The main emphases of this assessment is to do a full analysis of a market of my own choice and write a report as if I was an analyst submitting a document to my professional colleagues in a finance house.

In the process of choosing the market I looked up in books to see the definition of a market. I found out that Sloman & Hinde (2007) define a market as the interaction between buyers and sellers. Knowing that, I logged into www.keynote. co.

uk to find a market to make a report that was of my interest. After looking over different types of markets I decided to go ahead and make a report about the Internet grocery market in UK. In a report I found on Key Note from 2007, "E-Commerce: The Internet Grocery Market" (2007), the market has been divided into two main sectors: Supermarkets online; and niche and specialist suppliers. I'm mainly going to analyse the market for supermarkets online, but these sectors are so related that inevatible the niche and specialist suppliers will come into the picture.In this report I'm mainly going to talk about the microeconomics aspect of the market though I will cover the macroeconomics part of it to some extent.

In 1994 Tesco was the world's first retailer to open up a grocery store on the Internet. Take-up of the service was slow the first years. Mainly because people were unfamiliar with the Internet, Internet connections were slow, people hadn't been doing business over the Internet before and didn't know if it was safe.But with ever growing technology resulting in faster Internet connections and better online ordering systems the market picked up on the service and it started to expand, more grocers came into the market. Along with this and increasing ownership of home computers and people getting more familiar with shopping online the Internet grocery market has been growing year by year. The markets's sale increased from i?? 660m in 2002 to i?? 1,835m in 2006 at a current price in 2007, an increase of 278%.

(Key Note, 2007) All markets on the internet are part of electronic commerce, usually referred as e-commerce.To see if the internet grocery market fits the definition of a market we have to look at the definition of the e-comerce. E-commercse is a general concept covering any form of business transaction or information exchange executed using information and communication technologies. E-Commerce takes place between firms, between firms and their customers, or between firms and public administrations. Electronic commerce includes electronic trading of goods, services and electronic material.

So from that we can see that the Internet grocery market fits into the short description of the market, i.e. interaction between buyers and seller. (Whiteley, 1997) The Internet grocery market in UK is where firms, i. e. supermarkets, niche and specialist grocery stores, use the Internet to distribute their services and products.

Only business-to-consumer (B2C) part of the market is included in the report. (Key Note 2007) The participants on the Internet grocery market are all the economic agents. Of course the households as the consumers trying to maximize their satisfaction by going online and order goods and services from the firms on the market.The firms participate on the market as the producers and try to maximize their profit by offering goods and services to the consumers. Some members of the households are also workers or even owners of the firms on the market. Firms and households are therefore in a twin demand and supply relationship which is called the circular flow of income.

(Sloman and Hinde, 2007) Figure 1: Circular flow of goods and income. Source: (Sloman and Hinde, 2007, p24) Sloman and Hinde (2007, p24) describe the relationship in following way: On the right-hand side of the diagram, households demand goods and services, ans firms supply goods and services.In the process, exchange takes place. In a money economy (as opposed to a barter economy), firms exchange goods and services for money.

In other words, money flows from households to firms in the form of consumer expenditure, while goods and services flow the other way - from firms to househoulds. This coming together of buyers and sellers is known as a market. At last, governments participate on the market by trying to maximize social welfare by amongst other things set the taxation level, which affects the consumer's income and therefore consumer's expenditure.