Supermarkets join forces to improve economies of scale

Posted by Daniel Palmer on 24th September 2008

UK supermarkets Waitrose and Booths have announced plans to join forces on a new buying alliance in order to reduce costs and improve their ability to compete with the major retailers.

Booths currently has 26 supermarkets located in the north of England and Waitrose 192 throughout England, Scotland and Wales.

The deal between the two companies is designed to take advantage of the “synergies between the two brands” and will involve sharing cost prices and deal structures for branded food purchased by both supermarkets on a selected range of products. The alliance creates the potential for both businesses to benefit from greater economies of scale.

“There are already many similarities between the Waitrose and Booths brands in terms of our focus on food quality, the provenance of our products and customer service,” Mark Price, Waitrose Managing Director, said. “This buying alliance will benefit customers of both Waitrose and Booths for the long term by ensuring that prices within both shops are highly competitive through greater supply efficiencies.”

One of the greatest difficulties smaller retailers face is the ability to compete on price with major retailers, whose buying power often allows them to sell goods at a lower price without compromising margins. With price one of the primary drivers of purchase choice, the greater economies of scale of the majors puts small retailers on the back foot and often dictates a need to focus on other purchase drivers, such as quality service and convenience. As such, the deal by two of the smaller retailers to improve supply chain efficiency and promote areas of interest to both companies appears wise, as it will enable a heightened ability to battle the market leading retailers on a key element in the marketing mix.