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Compare the profitability of the provision shops with that of the supermarkets. Explain two demand factors which might have caused the change in the supermarkets’ share of the industry. To what extent are large supermarkets more cost efficient than small
The supermarkets being bigger then the provision shop, they would be able to enjoy greater economies of scale. The operational costs of the supermarkets are spread out and therefore theirs total cost would be lower then the provision shops. Most of the time, the supermarkets such as NTUC would capture bigger market share compared to a provision shop as they are able to provide a larger variety of goods compared to the provision shop With the ability to purchase in bulk would lower the cost price and in turn it could sell at a much cheaper rate compared to the other to the provision shop as they could not enjoy the benefits of economies of scale. Therefore the supermarkets would be profitable then the provision shop
The supermarkets over the years have grown into a more profitable business then the provision shop. Two of the demand factors that have increase the demand for supermarkets are the changes in prices of related goods and the change in customers’ taste and preferences. In a supermarket, it provide a larger variety of goods then the provision shop and therefore, shoppers could easily compared the prices of the substitute goods and the decide which to buy whereas in a provision shop, they tend to hold only a limited variety of goods making comparison minimum. As the customers’ taste and preference has also differ over the years as most customers would also like to enjoy the comfort of shopping in a bigger and cooler place like the supermarkets compared to the provision shops, which are usually very cramp due to the place constraint in the shop.
I strongly agree that large supermarkets are more cost efficient than smaller provision shops, as they do not enjoy the economies of scales. Being big, they could actually enjoy many different benefits compare to the provision shops. They could either purchase goods at a much lower price or enjoy longer credit terms then the provision shops. In such a way the supermarkets would be able to sell the goods at a much cheaper rate then the provision shops due to the purchase discount they have received from the suppliers.
Large supermarkets could also advertise their product over the newspaper to attract or inform customers whereas the provision supermarkets would not be able to advertise in order to attract more customers, as the business is too small for advertising. The cost of the advertisement would be too much for the business. However the supermarkets are able to bear the cost as most of them have more than one branch and this cost could be spread over for all the branches.
Therefore the economies of scale that the supermarkets earn allow it to be more cost efficient then the provision shops.