Search

This paper explores the sets of trading relationships and interdependencies that existed between British and Irish food retailers and the Irish food manufacturing sector prior to Tesco Stores acquisition of Power Supermarkets in 1997. Power Supermarkets was at that time the largest grocer in Ireland. The paper examines the role played by Irish and British retailers in the development of the Irish food manufacturing sector. It points to some of the ways in which retail internationalisation and growing retail concentration are likely to affect food manufacturers and the sets of power and dependence relationships that exist along the food chain. It demonstrates that the effect of internationalisation is likely to be asymmetric with small and emerging firms more likely to experience adverse consequences. The impact upon manufacturers' brand portfolio and customer portfolio strategies are also highlighted. [ABSTRACT FROM AUTHOR]

This article traces the emergence, evolution and demise of below-cost legislation in the grocery industry in the Republic of Ireland. The article adds to our understanding of the legislation by adopting the view that, by using the net invoice price as its definition of cost, the legislation increased two streams of quasi-rents, first on suppliers' brands and second on retailers' own brands, which acted to depress competitive forces and direct supplier-buyer negotiations to off-invoice discounts. Supplier-generated quasi-rents financed discounts and, when coupled with retailers' higher margins on their own brands, provided little incentive for a return to a price-competitive environment. Two factors undermined this situation: the substitution of discounters' products for suppliers' brands as the discounters share of the market grew and the increase in cross-border shopping. These had the combined effect of reducing the available quasi-rents earned in the Irish market, resulting in the breakdown of the status quo and a return to price competition. Through its impact on negotiations, the legislation also introduced inefficiencies to both retailers' and suppliers' businesses, representing additional waste that could have been more productively used to reduce consumer prices. The article endorses the Government's decision to rescind the order and remove an important constraint on both vertical and horizontal competitions. Lessons from the Republic of Ireland suggest that the competitive response to the removal of below-cost legislation, and reductions in prices, may take time and will depend on economic circumstances and a change in the prevailing norms of organisational behaviour and quasi-rent seeking opportunities. [ABSTRACT FROM AUTHOR]

This study adopts the transaction cost framework to shed light upon governance structures within the context of retailer-manufacturer relationships. It argues that a retailer's investment in establishing itself as a retail brand is frequently based on the willingness of manufacturers to make specific investments. Two complementary flows of quasi-rents are created, resulting in a safeguarding problem for both parties. The appropriate governance structure is posited as a solution to this issue. Based on an empirical analysis of 104 trading relationships between Irish food manufacturers and their Irish and British retail customers, the authors find that the degree of relational exchange or "closeness," established between food retailers and manufacturers is positively related to both parties' specific investments, perceptions of interdependency, expectations of relationship continuity and attractiveness, but negatively related to symmetric dependency and retailers' ability to sanction their suppliers. [ABSTRACT FROM AUTHOR]