The Relationships between Changes in Firms’ Strategies and Industry Structure

Having separately analysed the mechanisms characterising the dynamics of firms’ strategies and industry structure, in this section we analyse the relationships between changes in firms’ strategies and the industry structure.

It is possible to affirm that the existence of heterogeneity among grocery retailers linked to changes in the external environment and firms’ strategies, continuously create changes in the structure of the industry. These changes threaten the position of established firms and create opportunities for other firms. There is, therefore, an interrelationship between changes in firms’ strategies and industry structure. They influence each other; as this process occurs in time, it is difficult to establish a primary determinant (it is a bit like the question of the chicken and the egg).

The interrelationship between firms’ strategies and industry structure is evident when we consider that in the 1980s, a significant number of large retailers tried to move to the higher end of the market by developing larger stores, offering services to customers and developing own-label products. Brand tends to be important and consumers tend to be more loyal, at the higher end of the market. Companies operating in this end of the market will be protected from potential entry, as new retailers do not have the consumer franchise and reputation of existing retailers. This is not the case for retailers operating at the discount end of the market where brand has little value and price is the most

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important variable. Existing companies are therefore under the threat of the development of new discount operators.

Figure 12.3 Retailers’ Position in 1980

National Operators Regional Operators Local Operators Specialist Marks & Spencer

High Waitrose Sainsbury Safeway Medium Low Discounters Specialist Tesco Kwik Save Budgen Hillards Wm Low Morrison Gateway Presto ASDA Iceland City Edge of

Centre Town City Centre Edge ofTown CityCentre

Edge of Town Source: Interpretation based on available data.

Figure 12.4 Retailers’ Position in 1995 and Relative Changes compared to 1980 National Operators Regional Operators Local Operators Specialist

High

Medium Discounters

Specialist

Marks & Spencer

Sainsbury’s Waitrose Safeway

Tesco

Budgen

Gateway J Presto Morrison

ASDA < s---

Iceland ^ --- —----

City Edge of City Edge of City Edge of

Centre Town Centre Town Centre Town

Source: Interpretation based on available data.

In pursuing their re-positioning strategies, companies closed city centre outlets and opened edge-of-town ones. Expansion policies of some companies had important consequences on the industry structure. Larger stores negatively affected small retailers;

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this is clear when we consider the decline in their numbers of operators and outlets. However, new opportunities have also emerged for other retailers. The decline in the number of operators and the move to edge-of-town sites has created space for new discounters who have seen the possibility for profitable development in the industry. They have been helped in their strategies by the fact that the price of city centre sites decreased while that for edge-of-town superstores increased, thus contributing to level the price competitiveness between the two forms of retailing. The changes in the market position described here have also been described in research as the “wheel of retailing" (Markin and Duncan 1981).

Because of the interrelationship between firms’ strategies and industry structure, it is therefore easy to explain the domino effect that has taken place at the beginning of the 1990s and to partly explain the difficulties that ASDA has had in changing its market position.

The domino effect of the 1990s was the result o f an excessive gap between the average price of goods supplied by new entrants in the industry (hard and soft discounters) and the average price of goods supplied by extant companies. Companies positioned at the lower end of the market were affected first but as they adjusted to the new competitive climate, new differences emerged between them and other companies positioned in the higher end of the market. The re-positioning of companies continued until all the companies operating in the industry narrowed the gap.

ASDA had some problems in moving towards the higher end of the market because this part of the market had successfully been taken by other operators. At the same time, its

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successful strategy of going back to its discounter image was also helped by the absence of similar retailers in the industry.

It is therefore possible to see how changing firms’ strategies have had important consequences on a changing industry structure and have produced effects whose results could not have been foreseen. These effects affected the dynamics of firms’ strategies. If a single firm had followed a strategy of edge-of-town superstore development, there would not have been major changes in the industry but as this policy was systematically followed over a long period of time by many companies and it was accompanied by a continuous decline in the number of retailers and outlets in the industry, some unbalances were created in the market, with opportunities for new companies to rapidly build a presence in the market, even in the presence of increasing concentration. In this context, a specific firm could be responsible for introducing an important innovation that starts a process of important change in the industry. However, that firm cannot completely control this change process, and at a later stage, may be a victim of it. Researchers are therefore wrong to dichotomise the issue of firms starting the process of change and reacting to external change. When analysed longitudinally, the same firm can be, over different historical periods, both an active and passive participant in the change process. In this context, the case of ASDA is particularly interesting.

ASDA went into grocery retailing in the mid-1960s, by developing a new retailing formula built around two concepts: one of superstore and one of discount. Around this formula, it established its success and developed. In the 1970s, the group continued to invest in the superstore business and was highly successful. However, in the 1980s, the

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group ran in difficulties as other companies were expanding their network of superstores.

Companies running into difficulties or stopping their development are a necessary requisite for change in the players operating in an industry. This is clear when we consider that firms established at different times have become important players in the UK GRI. Argyll went into the market in the early 1980s, at a time when many companies were willing to dispose of their interests in food retailing as a result of the strong price competition of the late 1970s, as well as because of the necessity for change in the nature of the service provided to customers.

12.2.1.4 Summary

Having analysed the issues in detail, we can briefly summarise the main research findings before moving to analysis around the second research theme. What emerges from the research is that:

1. The dynamics of firms’ strategies and industry structure are characterised by two interconnected elements of continuity and change. It is not possible to say that firms’ strategies and the industry structure are static or continuously changing. Continuity and change are two important interrelated characteristics of firms’ strategies and industry structure.

2. Firms' strategies affect the dynamics of the nature and structure of the industry. 3. The dynamics of the industry and competition influences the dynamics of firms’

strategies.

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4. It is necessary to study longitudinally the changes in firms’ strategies, industry, consumer markets, technology and government policies in order to understand the dynamics of firms’ strategies and industry structure.

5. Strategy is a complex concept. By distinguishing between strategy flows and strategy stocks, intended and realised strategy, our understanding of its complexity and of its dynamics improves.

6. Top management, competition and firms’ strategy stocks play an important role in the dynamics of firms’ strategy flows.

12.3 Second Theme: Similarities and Differences among the Four