Supermarket Power of Suppliers

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Power of Suppliers
In contrast with the Power of Buyers mentioned above, Power of Suppliers refers to the bargaining power or ability to dictate terms of pricing and quantity of goods when dealing with Supermarkets. Since the supermarket industry has become concentrated (reduced in number of companies), mainly by the five companies mentioned above, suppliers are forced to increase output while decreasing prices. This growth of Supermarkets as Buyers has had an adverse effect on the suppliers. Smaller suppliers such as local farms are not able to compete with larger supply companies such as C&S Wholesale Grocers or Smithfield Foods. They have had difficulty coming up with the required output or comply with slotting allowances just to be able to place their product on the shelves. This has unavoidably caused a concentration in the industry for suppliers as well, hurting local economies that mainly depend on agriculture.

To illustrate the effect that Supermarkets have had on suppliers, the Senate Agricultural Committee released a study in 2004 that covered the effects of economic concentration in the Food and Agriculture Sector. One of the most interesting findings was that the portion of every dollar spent on a supermarket (retail food dollar) that goes back to the farm had decreased significantly. In the period from 1970 to 1998, it had dropped from $0.21 to only $0.12; a 75% decrease. To make matters worse, this information was acquired before the five giant grocery chains doubled their market share. Workers are living in adverse conditions as a result of reduced wages and benefits. The U.S. Department of Agriculture stated that nearly 90% of farm family income comes from sources other than farming. This amount has fluctuated between 80% and 95% from 1988 to 2004. But this is not the only indication of the weakening of supplier power in supermarket industry. The Agribusiness Accountability Initiative (AAI), an organization that supports the farm worker...
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