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Focus on opticians shows chain store pricing policies can save independents

08.11.2006
Big chain stores setting their prices on a national rather than local basis can help independent retailers survive, according to new research funded by the Economic and Social Research Council (ESRC).

It protects them from the intense local competition that could arise from price wars in places where several big name outlets are present, says the study, which backs concerns from policymakers about the potential impact when chain stores opt for local pricing.

Matt Olczak, of the ESRC Centre for Competition Policy, University of East Anglia, examined in detail the situation in the opticians industry, and the implications for consumer choice and the local economy. His investigation highlights the pricing strategies of the major optician chain stores as a key factor in whether the small, local independents can survive.

The study follows a report from the All-Party Parliamentary Small Shops Group, in which MPs predicted that less than a decade from now, many small shops are likely to have stopped trading, with few independent businesses taking their place. They said that people, as consumers and members of communities, stand to be disadvantaged the most ‘with restricted choice, entrenched social exclusion and a vulnerable supply chain caused by consolidation’.

Matt Olczak said: “It is clear from my research findings that the opticians market at least needs to be monitored regularly, since a change in pricing strategy by any of the chain stores could have a negative impact on independents.” Importantly, he says, he found that it matters whether chain stores set prices nationally - that is, charge the same in all their stores, or locally -setting different prices depending on local market conditions.

The four principal chain store retailers – Specsavers, Dolland & Aitchison, Boots and Vision Express – have a national presence, with stores in all regions of England and Wales.

Prices at Specsavers and Boots are set nationally, and those at Dolland & Aitchison and Vision Express are also determined predominantly on this basis. Since deregulation of the industry in the 1980s, there has been rapid entry and growth of chain store retailers. Between 1988 and 1991 alone, chain stores’ market share increased from 46 to 75 per cent.

Matt Olczak continued: “It is interesting to note that Optical Express has a local pricing strategy, and its national market share is increasing significantly.”

In his report he argues that chain store national pricing strategies can boost variety and choice for the consumer.

Where the average wage is higher, his findings suggest, there will be more independents, and where pay is lower, there will be more chain stores. Also, areas with an older population are likely to have more independent outlets. But he points out that while independent retailers are more likely to be located in areas of higher income, chain stores provide important choice for consumers on lower earnings and therefore, to a degree, support public health policy.

When it comes to the form of competition between independents, this, too, appears to depend on whether or not there are chain stores nearby. Where there are not, it seems the number of independents grows more slowly as increasingly large local markets are examined. This is linked to the fact that, without chain stores, the arrival of additional independent opticians leads to prices being forced down.

| alfa
Further information:
http://www.esrc.ac.uk

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