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German store- Market structure
What is the number of firms in the market and their relative size?

The market of supermarket products in Latvia is clearly an oligopoly. There are about a dozen chains and a couple of individual stores. The most important chains are Sky, Elvi, Nelda, Iki, Maxima, Mego and Mego plus Prisma, Rimi and Supernetto, and Stockmann. However Maxima and Rimi (and Supernetto) are the major players in this field. Rimi has a Market share of a bit over 20% as has Maxima. The other 55% are split up between other retailers, the biggest being Nelda, Iki, and Elvi with around 5% each (Numbers are rounded so much because the source is from 2008). My shop will only compete in the supermarket products market of Riga. There are no statistics available about the market share in Riga, but Sky and Stockmann are also major players in Riga while they don’t even appear in the Statistics for all of Latvia. Also Sky and Stockmann will be more direct competitors to my firm since they offer more German products than the other stores, while others only offer similar products they offer many of the same products as I will.

What is the number of firms which might enter the market?

Since there are no major barriers for opening a new grocery store the number of firms which may enter the market is quite large for a market that is not experiencing a large economic growth. However because of the ongoing economic crisis few international players are looking to expand and few local entrepreneurs have the money to open a new business.

How easy or difficult will it be for your firm to enter the market or what BARIERS TO ENTRY will you be facing?

Scale economies- Firms like Rimi or Maxima are quite large and can therefore provide they services with lower average costs as a new single store. Within Latvia neither of them nor stores like Iki, Sky, or Stockmann are big enough to really minimize their average costs to a level at which it would be a major barrier for new firms. The bigger problem is that each of the mentioned stores is part of an international firm or cooperation. Maxima is a Lithuanian firm which exists in Estonia, Latvia, Lithuania, and Bulgaria. Rimi is owned by the Swedish supermarket chain Ica existing in Norway, Sweden, and the Baltic states with 2200 stores. Iki is the part of the German supermarket chain REWE which founded the cooperation Coopernic in 2005 with 5 other European supermarket chains which are each the 2nd biggest in their country (REWE in Germany, Coop in Switzerland, CONAD in Italy, E. Leclerc in France, and Colruyt in Belgium), which now have a market share of 10% in Europe. Sky is owned by the German coop eG which has a couple hundred stores and is an international distributor which had revenues of 1.3 Billion Euros in 2009. Stockmann is a huge firm which operates in Finland, Sweden, Norway, Russia, Estonia, Latvia, Lithuania, the Czech Republic, Slovakia, Ukraine, Bosnia and Herzegovina, Dubai and Saudi Arabia and had revenues of 2 billion Euros in 2009. Therefore all these companies can use the economies of scale to almost maximum efficiency even though their size in Latvia is not that big. This is one of the main disadvantages of starting a new business mainly because my main goal was to offer better prices, maybe it would be possible to convince competitors of these firms to help me out.

Natural cost advantages- In Riga there are many shopping malls, Gallerija Riga, Gallerija Centers, Alfa, Spice, and Riga Plaza to name a few. Unfortunately this means that many people go to one of those malls to do their grocery shopping and only buy few goods at a time in stores in Old town or their neighborhood. Therefore it will be difficult to convince people to buy everything, or most of what they need in a store in Alberta Street. However there is a Mini-maxima in the Area which is has quite a few customers. I think that I could successfully compete with Maxima and steal their customers.

Anti-competitive practices-
Each of the large supermarket chains also produces their own products. Many of them almost only sell either their own products or products for which they are the exclusive retailers. It may be difficult to get deals with manufacturers. Rimi, Maxima, and other chains generally accept other smaller firms which join the market and do not try to restrict competition; however I will try to offer cheaper prices for better products. If I manage to do so Rimi, Maxima, and also sky will probably lose customers and try to get rid of my store. Mainly sky will have problems as they are also offering German products, but for very high prices. It is quite likely that they would lower prices in order to get customers back. They may try to lower prices to an extent that I would have to lower prices myself or lose customers (and therefor lose money either way), but I think that the price difference between my store and theirs to begin with will be so high that they will not be able to react quick enough and suddenly offer all their goods for little money. Also I am hoping that by the time they manage to react I will already have gotten an Image with the population as a new store which offers good cheap products.

What is the extent to which all firms in the market share the same knowledge?

To a large extent. The service which supermarkets offer is one where there are very few secrets. What may be difficult getting access to good distributers and dealing with logistics. In order to handle that well my company would need to get advice from someone who knows this market well, or to try to cooperate with a larger foreign company which has no stores in Latvia (Aldi, Coop North, or Real perhaps).

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Category: IB1 Economics | Views: 636 | Added by: atg | Rating: 0.0/0
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