The internationalisation of supermarkets, the nature of competitive rivalry between grocery retailers and the implications for local suppliers in Southern Africa

Abstract

Abstract : The growth and spread of supermarket chains globally has transformed how consumers purchase groceries and household consumable products and how these supply chains have developed. This thesis analyses the spread of supermarket chains in Southern Africa, with a specific focus on South Africa, Botswana, Zambia and Zimbabwe. It analyses how the internationalisation of supermarket chains in these countries has affected, and is affected by, competition dynamics and what the implications on suppliers are. This study is among the first to assess these topics in Southern Africa, particularly the implications on the competitive landscape and the effects of market power of supermarket chains on rivals and suppliers. The thesis draws on a critical review of the literature on industrial organisation-based theories of foreign investment and Ownership-Location-Internalisation (OLI) principles to understand the patterns of supermarketisation and internationalisation in the region. It identifies the significance of national policies, political economy dynamics, proximity to suppliers and firmspecific strategies related to market power in understanding the spread of supermarkets. A key finding is that internationalisation has not been to the extent that the literature predicted, including the entry and growth of transnational retailers in Southern Africa. What is seen instead is the ‘regionalisation’ of South African supermarket chains, essentially extending their home networks and oligopolistic rivalry into the region. The thesis also identifies the resilience of alternative forms of retail through buying group-led independent retailers in South Africa, alongside supermarketisation that started in the apartheid period. The complexities of how supermarket chains compete and how market power is exerted affects their spread. The study examines the impact of market power of supermarket chains, showing that competition needs to be understood narrowly by format and segment in very localised markets, possibly limited to a shopping mall in the South African context. Importantly, the analysis reveals the shortcomings of viewing competition through just a price lens and highlights the importance of understanding non-price dimensions of competition, given the characteristics of supermarkets and the way in which the positioning of supermarkets changes over time. This requires a more dynamic perspective. Through extensive firm-level and organisation interviews in each country, the thesis evaluates the impact on suppliers through a combination of a global value chains framework and industrial organisation principles of competition in markets. The forms in which buyer power is exerted in Southern Africa and the impact that this and other requirements has on regional supplier development is evaluated. It finds that supermarket chains are important in driving the upgrading of supplier capabilities to meet these requirements by providing access to wider ii markets, facilitating their climb up a regional or global value chain ‘ladder’. The study however also finds strong concerns of buyer power imposed through the trading terms negotiated with suppliers. As gatekeepers to store networks in the region, supermarkets offer suppliers the opportunity to access more consumers. However, unequal bargaining power leads to rents extraction from value chains by supermarkets, negatively affecting supplier participation and upgrading. The thesis shows that these topics are complex and inter-related, requiring multiple lenses to analyse them. Supermarketisation and internationalisation affect the structure of markets and the competitive landscape, while the degree of competitive rivalry and market power in turn impacts the pace of supermarketisation and internationalisation. Similarly, the market power of supermarket chains has a significant impact on suppliers, while the ability of supermarkets to grow into new markets hinges on the proximity and links to well-established supplier networks.D.Phil. (Economics