Analysis of Tinned Tuna Market in the UK

This is a study about the canned tuna market in the UK. In this study I will concentrate on how the tuna market has developed in the past, every bit good as how it might germinate in the hereafter. The nonsubjective with this study is to reason whether or non come ining this market would be profitable for a company. First there will be a short sum-up of the merchandise itself. Then a description of the current market state of affairs every bit good as the market histrions ( future rivals ) will follow. Furthermore this study will analyze the monetary value puting standards and effects on measure demanded and supply available by analyzing replacements and possible complements and discoursing the demand driving factors. At last this study will look at possible betterments and advanced solutions for a possible hereafter provider.

Tinned Tuna – The Merchandise

Tuna is one of the most commercially valuable fish on Earth[ 1 ], and in the UK tinned tuna is the most of import fish purchased at retail degree by volume, transcending any other fish whether tinned, fresh or frozen[ 2 ]. Since the 1970 ‘s the sum of the most common type of tuna, the Atlantic Bluefin tuna, has declined by about 90 per cent. While being about extinct, the overfishing of tuna still continues. While being really popular in Japan because of the demand for sushi and sashimi, it has increased in popularity in the West during the last decennaries, partially because of being a comparatively low-priced trade good. In western states the most common type of tuna sold is tinned tuna. In the UK entirely, the 2006 ingestion of canned tuna was 700 million Sns which makes the UK the 2nd largest tinned tuna devouring state in the universe[ 3 ]. Tinned tuna can presently be bought in the three most usual signifiers – in sunflower oil, seawater, or spring H2O. The merchandise is a Sn with a net weight of about 150-200g and has a monetary value of 60 pence and above depending on provider. In UK supermarkets the monetary value is about one lb per Sn ( as at 25/11/09 ) . One might state that tuna is a homogeneous primary trade good since it practically is the same no affair what trade name you buy ( given you buy e.g. tuna in spring H2O from different providers ) . However I find that, while being instead similar no affair which supplier chosen, tuna is a differentiated merchandise since it does non needfully hold to be of the same quality and type. In this study I will contract my market down to tinned tuna sold in the UK, and will include tuna in sunflower oil, seawater and spring H2O.

Market state of affairs & A ; supplie

The UK market for canned tuna is presently dominated by a few big providers – Princes ( 27.1 per cent of entire market value ) and John West ( 31.3 per cent of entire market value )[ 4 ]. Furthermore, the major supermarkets in the UK ( Tesco, Sainsbury ‘s, ASDA, Morrisons and Marks & A ; Spencer ) all have their ain trade name of canned tuna. Since there is more than one provider, and the merchandise is comparatively similar no affair which supplier chosen, it can be ruled out that there is a monopoly or monopolistic competition on the market. What can be concluded from these facts is that there is presently an oligopoly in the canned tuna market in the UK, with a few major participants. That all the supermarkets have their ain trade names is simply grounds of that a strong place on the nutrient retail market is required for presenting a new trade name to an already bing market. In other words, the barriers to entry the canned tuna market are high and the endogenous barriers such as the advertisement barrier are a major issue for new market entrants. The “ economic systems of graduated table ” barrier is yet another issue for new entrants. Worth over 2.7 billion USD[ 5 ]( ?1.65 billion ) worldwide, the canned tuna market would be really hard to try to come in for a company without a significant economic strength. Even with a fiscal authority, come ining the market would necessitate considerable sums of initial capital spending, merely for covering the barriers to entry. These sunk costs might be a deterrent factor even for a company with fiscal strength.

Product Price Setting & A ; Effect in Quantity Demanded

If disregarding the supermarket ‘s trade names and concentrating on the two major providers Princes and John West, we can reason that the market providers ‘ monetary value scene is significantly influenced by the rivals on the market. If so taking into consideration the many assorted supermarkets ‘ ain trade names that frequently aim to crush the major providers ‘ monetary values, we can pull the decision that it is a strongly competitory market where providers have to keep low monetary values to be able to pull clients. If besides taking into consideration that the canned tuna market is depending on the supply of fresh tuna, which is determined by the providers of a anterior nexus in the supply concatenation, we can pull the decision that even though the supply is limited, it is presently a competitory market for fresh tuna. This facilitates the operations for providers of tinned tuna by keeping low supply costs.

In my research I found that tuna, as a low monetary value trade good, normally is consumed as a low budget pick alternatively of other protein rich food market merchandises. While holding many replacements and non so many complementary merchandises, we can presume that the demand for canned tuna would be badly affected by lifting monetary values ( as shown in figure 1 ) . Under this premise, a little comparative alteration in monetary value would bring forth a greater comparative alteration in measure demanded. This implies that the monetary value snap of demand is elastic for canned tuna.

The many close replacements besides implies that the income consequence for canned tuna would be significant and bring forth a negative income snap of demand ( YED ) since there are more luxury signifiers of tuna or other replacements to the merchandise that could be consumed when holding a higher food market budget ( see figure 2 ) . Hence, the decision is that tuna is an inferior good that will be consumed less ( after a certain point in clip ) when the personal income additions. ( NB the generalization in this instance ignores some facets such as personal gustatory sensation and wonts ) .

The factors that might drive demand up in the hereafter are the monetary value for replacements such as meat or other fish, every bit good as the supply conditions for these. In add-on, the supply conditions for tuna might drive demand up itself – when the supplies get more scarce, consumers might be more keen on purchasing tuna ( although the addition in monetary values for canned tuna would likely extinguish that output ) .

Since the market involves an oligopoly, it is extremely utile to understand how the current providers interact. In order to make so, the “ captives ‘ quandary ” is applied. If the providers on the canned tuna market would hold cooperated and set monetary values on an in agreement degree, they would likely increase gross. However, with the many UK supermarkets providing their ain tinned tuna to the market, frequently with the aim of being cheaper than other providers, it would be extremely improbable that all providers on the market to the full would collaborate and it is accordingly more profitable for the providers compete. The game theory indicates that the tenseness between cooperation and competition in this instance is excessively huge for the providers to collaborate.

Market restraints and quandaries

While non being really dependant of the betterment of new engineerings or developing bing merchandises, the canned tuna market providers have to take into consideration other factors when planning future operations in the market.

The overfishing of tuna has led to worsening sums of tuna in the oceans, and while still on-going the supply of tuna is extremely likely to run out in the hereafter. This does non merely present a direct hazard to the tinned tuna providers by puting a clip bound on their operations in this market, but it besides generates a more close hereafter trouble – Governments and international administrations have progressively started to present fishing ordinances[ 6 ]as an effort to salvage tuna from going wholly nonextant. Since this includes restrictions of fresh tuna supply – it will most likely force supply costs to travel up the more scarce supplies get. When providers so raise monetary values to accomplish fiscal ends, the demand will fall since the monetary value snap of demand is already elastic. While this is an on-going development, the demand will most likely alteration over clip as seen and described in figure 3.

Possible advanced solutions and developments for a new market entrant

In the research for this study it was found that any sort of advanced solutions or new developed methods for bring forthing canned tuna would be extremely improbable to originate. It would possibly affect bettering the bring forthing of the Sns and transporting methods, but it is the fish itself that generates the highest cost for the providers, and the lone manner of diminishing that cost in the long tally would be by an addition in the tuna in our oceans which is non really likely to go on. A new entrant could on the other manus put in an attempt of acquiring the image of being “ environmentally friendly ” or distinguish itself in a manner like that, which most providers on the market already do. All in all, the providers on the canned tuna market are involved in a concern which does cover with the ethical quandary of the overfishing of an endangered species, and it is non easy to bring forth originative solutions to that job.

Decision

The canned tuna market in the UK is a extremely competitory market with high barriers to entry. Presently there are a few major providers on the market, and the lone 1s that have entered the market in recent old ages are supermarkets which through their branded merchandises and economic systems of graduated table have been able to make so. The monetary value snap of demand is elastic and a alteration in monetary value would most probably have terrible effects in measure demanded. While the limited supply of tuna in our oceans continues to worsen, the monetary values for fresh tuna will increase in the hereafter and bring forth an addition in selling monetary value for canned tuna. This will impact many consumers to take replacements alternatively of canned tuna. In the long tally demand will fall to a great extent, and in the terminal the market will likely stop to be when tuna is nonextant. Entering the canned tuna market would accordingly affect a really high hazard and non merely endanger a company ‘s fiscal operations, but could besides give a bad company repute for consorting in a market that is covering with the ethical quandary of about nonextant species. The high barriers to entry would besides connote that it would necessitate the economic system of a big company to come in, and for such a company it would still be taking a great hazard if come ining the market. It is why I have come to the sound decision of that come ining the canned tuna market in the UK would non be advisable.

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