Dario de Oliveira Lima-Filho y Leidy Diana Souza de Oliveira
Supermarkets represent a well developed industry in the USA and UK, allowing little space in the market for other forms (conventional) of food retailing (Hawkes, 2008). In the UK, the five largest firms concentrated 69.3% of total sales in the supermarket sector in 2007 (Competition Commission, 2008, in Hawkes, 2008).
In the USA, although smaller, this figure reached 48% in 2005, against 24% in 1997 (Hendrickson, Heffernan, 2007). In the USA, the traditional forms of food retailing have been losing space to new forms. In relation to the traditional supermarkets, the consumer spending on the purchase of food for home preparation fell from 62.7% to 58.2% of the total household spending in the period 2001/2005; in the case of convenience stores, the fall was drastic: dropping from 16.6% to 3.6% in the period 1994/2005; on the other hand, the non-traditional forms (supercenter, dollar store and home-delivered) jumped from 17.1%, in 1994, to 31.6%, in 2005 (Martinez, 2007). When market share is analyzed, the figures show a similar tendency. The traditional forms are forecast to drop from 48.9%, in 2007, to 43.3% in 2012, while the group of non-traditional stores (wholesale club, supercenter, drugstore, dollar store) will jump from 35% to 39.6% (Sowka, 2008).
Like the USA, the Western European countries are a mature market for the food industry, where growth is, generally, associated with a small increase in population and changes in eating habits, which demand higher added value products (light, diet, organic, functional). In fact, the patterns of demand of European consumers are changing. There is growing demand for foods perceived as safer, healthier, or that are produced in such a way so as not to cause harm to the natural environment (environmentally friendly). Demands also include animal welfare and labor issues. For example, 80% of the consumers in the European Union (EU) express concern about animal welfare (Blandford, Fulponi, 1999) and are increasingly consuming organic products (Halkier, 2001). Social concerns about the equitable distribution of income and sustainable development are reflected in the sales of products from the “fair trade” system (FAO, 1999).
Hutchins (1993), in Shiu, Dawson and Marshall (2004), made a study including 155 food categories present in the United Kingdom National Food Survey, outlining the tendency in the consumption of each one of them since the Second World War; classifying them in terms of the annual percentage of change in demand, which reflects consumer preferences. The results show that the ten products with the highest increases in demand were related to health or convenience, with fresh fruit and vegetables (FFV) and frozen or prepared foods being of particular note. On the other hand, the ten products with the biggest fall in sales are considered less healthy and/or less convenient. For example, whole fish, fresh peas and cauliflower generally require considerable preparation time. Fresh fruit is often used as in ingredient in cakes and pastries, and is, from this perspective a less convenient food. Instant canned, bottled and instant fruit and vegetables are associated with artificial preservation and, therefore, considered less healthy.
In response to growing consumer demands for food safety, quality and convenience retailers have adopted more proactive marketing strategies in an attempt to win consumer loyalty not only by means of improved services, location and store layout, but also by exercising influence on the creation of value in the agri-food chain. For example, changes introduced by retailers in the USA include a sharp increase in new products on the shelves and a wide variety of prepared foods (Codron et al., 2005).
According to the Food Marketing Institute (FMI, 2007), the growing demand for quality in the USA has led to the success of innovative retailers who base their sales on a philosophy of sustainable agriculture and participation in the local community; in 2007, 90.4% of retailers in the USA used private-label as a strategy to keep customers, 89% sold natural/organic products, 84% highlighted consumer welfare and family health and 82.2% emphasized the experience of one-stop shopping, store design and assortment.
Ready-to-eat foods are offered at 94.9% of the food retailing sales points in the USA. In an effort to surpass the close competition from restaurants and better attend the growing number of clients that make a quick visit to the supermarket to buy the dinner; the food retailers have increased the service options: in 2007, 50.6% of stores offered rotisserie and delicatessen, hot and cold food, while in 2006 it was 36.8% (FMI, 2007).
In order to win the loyalty of customers who are increasingly concerned with quality, European retailers have used a combination of private-labels and strategies intended to a closely control the products on the shelves; the use of retailer private-labels places all the responsibility for the quality and safety of the products on the retailer; hence, they need to coordinate and develop close relationships with suppliers in the supply chain so as to ensure the quality of the items offered (Hoch, 1996; Hoch, Banerji, 1993; Patti, Fisk, 1982). In 2005, the market-share of the private-label in total food retail sales was 41% in the UK, 35% in Germany, 25% in France and 20% in the USA (US Food…, 2005); just in the USA this represents more that 65 billion dollars (Store…, 2008).
Although there are similarities between North American and European demand, the European consumers are more concerned about the attributes of the production process and food safety. For example, more than 60% of British consumers are concerned about Bovine Spongiform Encephalopathy (BSE) or, more simply “mad cow disease” and more than 50% are concerned about animal welfare, with the use of antibiotics and hormones in animals and with biotechnology (transgenics) in food production. By contrast, only 20% of North Americans are concerned about BSE disease, 40% about the use of hormones and antibiotics and 30% about animal welfare and biotechnology in food production (Codron et al., 2005). The greater concern about BSE among the British is understandable given that the disease first appeared in England.
According to Omar (1995), differentiation in terms of the store and the development of new products with competitive advantages in technology are determinants for the success of British food retailers. Technological capacity is a prerequisite for those that adopt the quality strategy and for those that wish to respond quickly to new consumer needs. In addition, evidence suggests that food retailers are increasing their advertising budgets in an attempt to improve the image of the own-brand products. Cooperation and strategic alliances intended to develop exclusive products may benefit both manufacturers and food retailers.
Wal-Mart’s operational efficiency strategy (low price) has guided the reorganization of the supermarket industry in the USA (Kinsey, 2000). The chains have sought differentiation strategies in an attempt to attract customers and build lasting relationships (loyalty): i) ensuring a pleasurable shopping experience by offering clean stores, attractive shelves and wide aisles; ii) offering high quality services with suitably trained staff and attractive salaries and environments; iii) using own brands to attract the customer and obtain higher margins; iv) attending to specific needs: an organic products segment, ethnic segment, gourmet segment; and v) offering convenience in terms of location, variety and services items (mainly FFV and ready meals) and short waiting time in the check outs (Martinez, 2007; US Food, 2005).
With regard the logistics and distribution system, modern supply chains have been created and standards developed for the transport and storage of food, allowing the efficient transport of a wide variety of products from many points of origin to numerous destinations (King, Venturini, 2005). Information and communication technology (ICT), such as self-checkout lanes, biometric technology, efficient consumer response (ECR), electronic data interchange (EDI), automatic replacement, radio frequency identification (RFID) and mainly web services, has been fundamental in the modernization of store supply (Martinez, 2007).
In a wide ranging review of the bibliography aimed at verifying the development of supermarkets on consumer diet, Hawkes (2008) concluded the study discussing four hypotheses for the USA and UK environments. First, in order to facilitate access to industrialized foods, the expansion of supermarkets makes it possible for the poor population to buy low quality products. Since the low income population in the USA has less access to supermarkets, it is not clear whether this hypothesis can be applied to that country. Second, access to a wide variety of foods at low price permits a better quality diet. This may be stated for the USA, but there is no evidence for other developed environments. In contrast to the preceding statement, the third hypothesis, which suggests that the development of supermarkets leads to a deterioration in the quality of diet because they offer low price, fat and sugar heavy products, is poor. However, a review made by Cummins and Macintyre (2005) shows that the relationship between environmental influences and obesity is a reality in the USA. Fourth, supermarkets have encouraged consumers to buy more and consequently, eat more. This hypothesis seems to more universal than the first three. Nevertheless, Hawkes (2008) reveals that the message from the supermarkets is “buy it from us” – in order to attract consumers from competitors – not “buy more” and “eat more”, though this communication strategy may lead to this. Finally, this is a complex debate that deserves further development.
The spread of supermarket technology in the CDEs can be explained by the growth in the demand for supermarket services; this fact requires increasing investments in order to increase supply. The forces affecting the growth in the demand for services seen in the CDEs are similar to those seen in Europe and the USA in the 20 century. In first place, urbanization, with the resultant entry of women into the labor market, increases the cost of womens’ time opportunity and their motivation to buy ready and semi-ready foods. Secondly, the increase in sales in supermarkets raised the scale of production and allowed manufacturers to reduce the price of processed foods (Arda, 2006; Reardon et al., 2003).
On the supply side, foreign direct investment (FDI) has been a crucial factor in the spread of supermarket technology. The development of supermarkets was very slow in the CDEs before the 1990s, when only domestic capital was involved. From the 1990s, FDI was decisive for the “take off” of supermarkets. Saturation, intense competition in domestic markets and the higher rates of profitability offered by investments in the CDEs stimulated FDI on the part of European countries, the USA and Japan, leading to the arrival of multinationals retail chains in the less developed countries, like South Africa. Moreover, the local competition was weak, generally being made up of domestic firms (Reardon et al., 2003; UNCTAD, 2001).
A second crucial factor was the revolution in logistics and stock management that occurred during the 1990s. The new technologies included efficient customer service practices, with the adoption of ECR and the use of computers and web services for stock control and the coordination of relations with suppliers (Lima-Filho, Sproesser, 2006). These new technologies initially appeared in the DCs and at the end of the 1990s and beginning of the 2000 they spread throughout the CDEs with the global retailers; there was also knowledge transfer and imitation of the innovation by local supermarket chains. These changes were, in turn, essential for centralizing product procurement and distribution, which was consolidated in order to “drive costs out of the system” (transformation of fixed costs into variable costs) a widely used phrase in the retail sector. Cost reductions from efficiency gains, economies of scale and better coordination of agents meant significant profits were possible (Reardon, Codron, Harris, 2001). In food retailing in Africa there is both formality and informality. South Africa is the country on the African Continent that has the largest number of supermarkets (55% of the total, with 1,700 points of sale), in relation to food retailing as a whole, to attend 35 million people. This contrasts with Nigeria, for example, where supermarkets represent a mere 5% of the food retailing stores. The number of supermarket stores in South Africa has been high since the end of apartheid in 1994. The retail chains have also invested in thirteen other African countries. In South Africa, the supermarkets are rapidly substituting traditional retailing and direct sales in the countryside; they now represent 50-60% of total retail food sales, while the four largest firms are responsible for 90% of the sales in the sector.
In response to global tendencies towards economic reforms, South Africa initiated a process of reviewing its food distribution and production policies. The increase in the number of supermarkets, since the mid-1990s, has transformed the food retailing sector. Production and distribution have undergone large-scale structural reforms, caused mainly by changes and diversification of demand, new technologies (for example, biotechnology and information systems), products with new characteristics, changes in the size of firms and greater exposure to world markets. Structural adjustments in agriculture and the formation of new supply chains are, in part, a response to increased concern about food safety, health and nutritional issues, which have impacted the processes of food production, retail and services. Another important reason for the formation of new supply chains is cost reductions, particularly those of transaction costs, aimed at promoting competition. Distribution costs are a large part of the total cost of food in South Africa, mainly due to the deficient freight transport infrastructure (Ndzamela, 2008). Therefore, attempts at satisfying changes in consumer demands and reducing costs have concentrated on increasing competitiveness in the agrifood chains.
In Brazil supermarkets are the main institution involved in the distribution food and beverages. The segmentation strategies of the market are based on the dimensions quality and new consumption tendencies that include concerns with health, nutrition and convenience. Sales of ready-to-eat meals and frozen food are growing at the rate of 20% per year, while the demand for diet and light products has increased 26% annually since 1990 (Farina, 2001). In order to put into practice strategic segmentation based on quality and cost control, the food industry and food services have strengthened upstream relations and adopted the contract system with suppliers, which establishes prices compatible with scale, quality standards and regularity (Lima-Filho, Sproesser, 2006; Farina, 2002; Farina, Machado, 1999).
In fact the growing competitive pressure in the Brazilian economy led agribusiness to adopt quality management systems to reduce logistics, production and distribution costs. A second objective is to charge premium prices for quality; as the reputation of the Brazilian government is poor in these areas, the private sector has adopted mechanisms such as private certification of quality and traceability (Mainville et al., 2005; Farina, 2001).
In order to lower costs, the large groups began to adopt “Power Center”, the name given to the concept of two stores in the same physical space, uniting retail (supermarket, hypermarket or supercenter) and wholesale store or food “retail-wholesale” of the same group (for example, Pão de Açúcar/Casino and Wal-Mart); or, even, combining food retailing from one chain, with building material retailing from another chain (for example, Leroy Merlin and Dicico) (Varejo..., 2008; Assai..., 2008).
The new competition patterns that have arisen with growing regional integration (ex.: Mercosur) and globalization require adaptation on the part of the Brazilian firms. The majority of large Brazilian retail firms have been sold to international groups. Those that remain need to attain greater operational efficiency, on the one hand, and on the other, adopt more rigid quality standards in relation to internal (warehousing, stock management etc.) and external (procurement, quality control etc.) processes. The small and medium-sized chains have found successful strategies in niches and specific market segments. Many of these strategies are based on collective action, associations, consortiums and, to a lesser extent, traditional cooperatives (Rosa et al., 2007; Lima-Filho et al., 2006; Farina, 2001).
Prior to the 1990s, Brazilian supermarket retailing was mainly financed by domestic capital, which limited its expansion in the country and the adoption of innovation, since there were legal restrictions to the entry of FDI (Belik, Rocha-dos-Santos, 2002). Today, the sector is dominated by global chains; of the five largest, three are international: Pão de Açúcar/Casino, Carrefour and Wal-Mart. Between 1990 and 2006, the number of stores grew 38%, the sales area in square meters rose 42.1% and the quantity of check-outs increased 27.5% (O Brasil…, 2008). In Brazil, consolidation “multinationalization” and increased competition are the three main forces that have characterized food retailing since the beginning of the 1990s (Farina, 2002).
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