Evolving Relationships between Food Manufacturers and Retailers: Implications for Food System Organization and Performance

Abstract

This paper focuses primarily on bargaining relationships between manufacturers of advertised-brand grocery products and supermarket operators (supermarket chains and wholesalers who purchase most of the groceries sold by independent supermarket operators). This is part of the ongoing process of incorporating firm and industry behavior into foodmarketing system analyses. Developing a dynamic theory which predicts evolving structure and performance of industries and subsectors would not only benefit industry analysts but also allow academic and government researchers to plan and communicate better their research results. Data needed for statistical analyses of the effects of dynamic vertical linkages on industry structure are not available. Therefore, this analysis draws primarily from an extensive study of food distributor procurement practices which merged trade literature data and scores of confidential interviews with grocery buyers and sellers (Harnrn 1981). The validity of the conclusions drawn by this or any analytical descriptive research rests upon the accuracy of the empirical observations and the logic used in the analysis. The value of such research is in its potential contribution to the formulation of testable new theoretical constructs as well as in its empirical findings.

The Economics of Vertical Restraints

“…In addition, there has been some analysis of the nature of bilateral market power between adjacent stages in the food marketing system. For example, Burns (1983) and Hamm and Grinnell (1983) have reviewed the nature of inter-relationships between food manufacturers and _retailers in the UK and U.S. respectively, while Azzam and Pagoulatos (1990), using techniques from the NEIO, have estimated the extent of oligopsony power in the U.S. meat-packing industry. However, apart from the above research, there has been little formal analysis of the nature of vertical contractual relations between stages of the food chain.…”