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The Food Retailing Revolution:
Experience from Poland
byRapeepun Jaisaard
World Bank
Global Retailing Revolution
Transportation Communications Information
Technology Advertising Trade Regime
Management Innovations
Cross-Border Investment
Processing Technology
Storage Technology
• Expression in food retailing of revolutions in
So Far Few Supermarkets in Balkan Countries
The food retailing revolution is just starting in the Balkans – delayed because of Transition from socialism Security situation
Croatia Local and international supermarket
companies from Austria, Italy and Slovenia Serbia
First foreign supermarket (Est. Dec 2002) and at least 3 hypermarkets of 15k sq meters in 2003
Bosnia, Macedonia have a few
Experience of Poland Poland
First supermarket in 1995. Now more than 500 hypermarkets and supermarkets.
Most major international chains represented: Tesco, Carrefour, IGA, Royal Ahold, Metro
Ten top food retailers in Poland are foreign companies
Experience of Latin America
Latin America Supermarkets now dominant. In only about 10 years, supermarkets
moved from about 10-20% of retail food sales to 58% (weighted) average for 10 countries.
Spread from capital cities to medium-sized cities and towns
42% in fresh fruit and vegetables. Less than in processed food but still very large
Experience of China
China the first supermarket in Beijing was
opened about 1995. Now they are in all cities in the
country. There are 3,000 supermarkets and
modern metro stores in Shanghai alone.
General Characteristics of the Food Retailing Revolution
Early supermarkets are few In the capital and serving the middle class,
capital cities, upper income customer base, largest and richest countries
Later Spread to medium sized cities, middle and
working class customers, poorer countries Hypermarkets on the outskirts of cities
appeal to working class because of low prices
Characteristics of the Revolution in Food Retailing (cont.)
Demand drives the system rather than supply Increased competition More variety Low prices Responsive national, regional and international
supply chains One-stop shopping
Improved quality Food safety practices Improved product quality and presentation Convenience & amenity in shopping
environment
Prerequisites for Entry of Global Supermarket Companies
When prerequisites exist, entry of large international supermarket chains can be very rapid.
This was shown by previous examples of Poland, Latin America and Asia.
Prerequisites for Entry of Global Supermarket Companies (Cont.)
• Population critical mass in trading region (not necessarily a single country)
• Political stability & cross-border logistical ability• Growing per capita purchasing power• Viable banking sector to finance transactions of
the company and domestic and international suppliers
• Communication systems to support EDI (Electronic Data Interchange) & CRS (Continuous Replenishment System) technology
• VAT system compatible with company accounting• Presence of local supermarket acquisition targets
Supermarket Procurement
Use of long-term supermarket supply contracts
Numerous and costly criteria for supplier accreditation
Tough contract negotiations and enforcement
Regional and international procurement
Supermarket Supply Contracts
Earlier, supermarkets bought supplies, especially perishables, on spot wholesale markets
Now typically long-term supplier contracts e.g., 3-year contract, annual renegotiation of
prices
Supplier contracts allow supermarkets to control quality ensure desired supply volumes reduce price uncertainty
Supplier Accreditation
• Technical certification - HACCP (Hazard Analysis Critical Control) - ISO 9000
• Volume trading capacity• Access to adequate facilities for sorting, grading,
packing, storage, transport• Traceability of products back to producers w/bar
codes• Insurance cover on all aspects of supplier’s
operations• Electronic systems in place or planned (EDI and
CRS) • Adequate working capital / general financial
strength • Adequate management and personnel resources
Tough Contract Negotiations and Enforcement
Examples from Tesco in Poland Tesco negotiated a 25% better price
on carp from local suppliers imported from Ukraine suppliers matched lower Ukraine price
Contract volume and delivery terms enforced. Suppliers who failed to meet exactly terms were terminated.
Regional and Global Procurement
Bargaining power of super buyers comes from their access to regional and global networks of
suppliers and their huge volumes
Supermarket companies prefer to deal with large traders with regional and global supply networks rely on them to produce large volumes at
required times
Impact on National Traders
In Poland, 50% of local wholesale trading companies amalgamated or went out of business as supermarket share of retail sales increased
Small traders who pick up variable truck loads at farm gate particularly hurt do not have branded products quality control insufficient
Despite the turmoil, amalgamated companies have succeeding in getting supermarket accreditation some are going regional themselves.
Impact on Processors
Supermarkets initially sourced large % through international (mostly EU) suppliers
Shakeout of local processors continuing stronger ones, including some amalgamated ones,
have now adapted and are taking a growing supermarket share
The meat industry shakeout in Poland especially severe half the still remaining firms expected to merge or go
bankrupt FDI in food processing, grew rapidly during the period. The industry is now more competitive and can expect to
survive and perhaps prosper after EU accession
Impact on Commercial Farmers
Impact of supermarket entry on commercial farmers similar
they struggled to meet the new requirements passed through by traders and processors.
As commercial farmers adapted to supermarket requirements
there was a decline in sales to domestic retail channels Luckily this decline in retail sales was more than
offset by strong export sales resulting in a (small) 8% growth in volume 1995-2001.
One adaptation: the emergence of farmer/traders with own packing facilities, supermarket contracts.
Impact on Small Farmers
Little chance for individual small farmers to sell direct to supermarkets
Some farmer associations and cooperatives that have invested in advanced grading and sorting equipment have been accredited
Tesco, for example, supports this channel to enhance social responsibility image
“Lower tail”of small dairy producers forced out as dairies became more competitive
Poverty impact not favorable in the short run and policies needed
Implications for Policies and Programs in Balkan Countries
Must accept that supermarkets are here to stay and product markets increasingly will be supermarkets.
In food retailing, global, regional and local markets are converging under the influence of global supermarket companies.
Market-oriented policies and projects for the agrifood sector should logically be supply-chain-oriented policies and projects.
Local markets with low quality standards are contracting (but not disappearing).
Implications for Policies and Programs in Balkan Countries (Cont.)
Development programs must learn to deal with “super buyers” and understand that in a liberalized economy, super buyers have alternative regional and international suppliers.
Attempts to continue local monopoly positions or saddle producers with costly social mandates may end badly - and rather quickly given the speed of supermarket entry.
Implications for Policies and Programs in Balkan Countries (Cont.)
Small farmers who can potentially adapt should be helped to organize together quickly otherwise they may be locked into a rapidly
declining traditional market segment. Small farmers who can’t attach to the supermarket
supply chain may be helped by policies and lending to modernize traditional food
retail channels, e.g., promote safety and cleanliness.
Rural families with tenuous attachments to commercial agriculture will need a range of other policies and programs.
Implications for Policies and Programs in Balkan Countries (Cont.)
Agrifood exports typically mean fitting into regional and international supermarket supply chains
The best way for producers to learn how to do this is to fit into domestic supermarket supply chains
Regional logistic questions are important Local suppliers at all points in the value chain
need adequate financial resources and entrepreneurial skills.