Elsevier

Industrial Marketing Management

Volume 51, November 2015, Pages 122-130
Industrial Marketing Management

A model of supplier–retailer power asymmetry in the Australian retail industry

https://doi.org/10.1016/j.indmarman.2015.05.008Get rights and content

Abstract

Power asymmetry in highly concentrated retail markets is an unavoidable consequence within supplier–retailer relationships. This paper investigates the existence of power asymmetry in an Australian context and outlines the impacts on the industry. A documentary analysis was undertaken using documents from three major investigations into the grocery retail sector in recent years. These documents allowed us to gain insights into the industry using report submissions and transcripts of public hearings. In addition, in-depth interviews were carried out with suppliers to Australia's two major supermarket chains (who account for 73% market share). The interviews focussed on the nature of the relationships they had with the retailers. Combining these two approaches provided rich data. This paper contributes to the literature on power in supply channels. The findings support the existence of power asymmetry across many product categories but, contrary to other studies, find that the major supermarket chains in Australia are not averse to exerting coercive power for their own benefit. We propose a model identifying the determinants of power asymmetry. We find that the highly concentrated nature of the grocery retail market sees the power imbalance exaggerated in this context. We conclude that power asymmetry in the short-term is benefitting consumers, but that the long-term impacts on the supply chain may be detrimental to the grocery industry in Australia if nothing is done to curb the market power of the two major supermarkets chains.

Introduction

Relationships have long been considered vital to business success (Ford, 2002, Brennan and Turnbull, 1999, Turnbull et al., 1996), but it is the understanding of the dynamics of those relationships that can hold the key to that success. Power and interdependence have been a central theme of relationship dynamics and are considered crucial for understanding relationships (Caniels & Gelderman, 2007). In the retail industry there is almost an implicit understanding that relationships between powerful retailers and their suppliers will be asymmetric (Hingley, 2001). These relationships can be long-term, with the parties being committed to the relationship, albeit ‘calculative commitment’ (Kumar, 2005). Essentially many suppliers have little choice but to maintain their relationships in order to access consumers (Schellhase, Hardock, & Ohlwein, 2000).

Numerous studies have highlighted the ability of major retailers to exert power in highly concentrated markets (Gedeon et al., 2008, Olsen et al., 2014, Hingley, 2003). To date the majority of these studies have concentrated on players in the European and US markets. This paper investigates this phenomenon from an Australian perspective. The Australian grocery retail market is highly concentrated with two major dominant players. Such dominance may lead to power asymmetry and a channel climate that may lead to the exercise of that power asymmetry (Zhuang & Zhang, 2011).

Given this context, the purpose of this paper is to understand the supplier–retailer relationship dynamics (specifically power) in the Australian environment. The specific research questions of this study are:

  • To what extent do Australian retailers have and/or exert power in the grocery supply chain?

  • What is the impact of power asymmetry in this context (negative and positive)?

Section snippets

Power in business relationships

Power is a central theme of relationship dynamics and is interestingly considered crucial to the operational and commercial success of relationships (Dahlstrom and Dwyer, 2008, Cox and Chicksand, 2005, Turnbull et al., 1996). In any business relationship, the balance of power and the degree of dependence or interdependence will help shape the dynamics of the exchange processes that lead to the evolution of relationships. In order to understand the role of power in relationships it is important

The Australian context

The Australian grocery retail industry is dominated by two major supermarkets, Woolworths and Coles. In 2013, Woolworths was the leading player with 39.6% market share, while Coles held 33.5% (IBIS World, 2014). To highlight the dominance of these players, it should be noted that Metcash, which supplies independent grocers, has only 9.5% market share and Aldi the next biggest supermarket has only 10.3% market share. In 2011 there was a dramatic shift in power in the grocery supply chain

Methodology

To understand the impacts of power asymmetry, qualitative exploratory research was undertaken using a combination of documentary analysis and in-depth interviews.

Documentary analysis can provide a researcher with rich insights into an area where no other course of analysis is possible because of the contemporary nature of the research area (Davis & Schneider, 2010). An overriding advantage of using documentary analysis is the lack of bias; the authors of the documents have no way of knowing at

Discussion of findings

Initial analysis concentrated on power, dependence and the impacts of these on the Australian grocery retail sector. From the outset of this study, power was considered a central theme. However upon analysing the documents and interview transcripts several other recurrent themes emerged. This section will outline the findings on these and other emerging themes.

A model of power asymmetry

Based on these findings we propose a model identifying the determinants of buyer power and increased asymmetry. It is developed based on three key areas in this context, Company, Dyad, and Environment. The themes which emerged above are linked to these areas to show the evolutionary nature of power asymmetry. Essentially the degree of retailer power is influenced by the various determinants and results in increased or decreased levels of power asymmetry (Fig. 1).

Conclusions, implications and future research

This paper has sought to understand the nature of supplier–retailer relationships in the Australian grocery industry with a specific focus on power asymmetry and its impacts. Using documentary analysis and in-depth interviews with suppliers, the existence of a growing power asymmetry was established and the impacts of this on the industry were ascertained. Both positive and negatives impacts were uncovered but it was clear that for suppliers in this particular industry the negatives far

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