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Recession, Credit Crunch and Effect on Supermarkets

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Recession is a phenomenon that occurs due to a contraction in the business cycle. The economic activity of any nation varies from year to year. Sometimes the economy faces an increase in production mainly due to the increase in the workforce, stock of capital and technological improvements. Then again, there are times when there is a fall in the economy’ s output. This happens due to the fact that the firms are not able to sell the entire amount of goods and services produced y them and hence, reduce their production. The fall in production is coupled with a decrease in the employment rate, real GDP and income.

This period is defined as a recession, which is characterized by a decrease in income and an increase in unemployment (Mankiw, 2008, p. 435). A credit crunch, on the other hand, is defined as a sudden fall in the availability of credit in the market. It occurs due to the fact that lenders become wary of giving loans and hence reduce the volume of credit for a given interest rate. Ina supply-demand analysis, this crunch is characterized by a leftward shift of the credit supply curve.

It generally occurs during a recession (Gisdakis and Felsenheimer, 2008, p. 205). Generally, during a recession or economic crisis, supermarkets do better than others, since food is an indispensable good rather than a luxury commodity which individuals would curtail. Nevertheless, most of the supermarkets have started to feel the loss as strapped for cash consumers prefer price-saving budget stores to help them reduce their food bills. Up to now, the retailer chain, Aldi has come out to be the biggest winner, as said by the 2008 TNS World panel market share numbers.

A report showed that the sales figure of Aldi's sales has grown up by 22.1 percent over a period of three months from August to September 2008, resulting in a 3 percent market share.  

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