The Promotional Strategies Adopted By Super Markets

Analysis The Promotional Strategies Adopted By Super

Markets

Introduction
Wholesale markets have for a long time been considered an essential
component of any agricultural marketing system and FAO has been
addressing wholesale market development issues throughout the world for
the past forty years. There is, however, currently much discussion over their
future. Are wholesale markets needed these days In many countries we are
witnessing rapid changes in food marketing systems, involving an expansion
in direct marketing between increasingly large farmers, either in groups or as
individuals, and the integrated food marketing chains represented by ,
supermarkets and chain stores.
Wholesale markets in Central and Eastern Europe
Following political changes in Central and Eastern Europe and the former
Soviet Union, there was great interest in constructing wholesale markets to
serve the needs of the newly privatized farm sector. Farmers found that the
former marketing arrangements had disappeared and that they were now
responsible for marketing their own produce. The low level of development
of the wholesale trading sector in many countries in Eastern Europe meant
that if local farmers were to be able to sell their produce their only option, in
many cases, was to take their produce to the markets themselves. Hence, we
witnessed the development of numerous privately organized “truck
markets”, which continue to play an important role in many countries. The
World Bank and the European Bank for Reconstruction and Development
(EBRD), together with bilateral donors such as Switzerland and Germany,
saw the need for wholesale market development in Eastern Europe and
provided financing for the construction of many new markets.
Problems have arisen with wholesale market projects in this region. These
have stemmed from the terms of the markets’ financing, the time between
the original decision to plan a market and its subsequent entry into
operation, the growth of informal private markets, the overambitious
projections of likely throughput and, more recently, the growth of
supermarkets. The problems were accentuated by the lack of involvement
and commitment of the relevant municipalities and governments in the
success of the markets. Failure to enforce applicable laws and regulations
relating to land allocation and failure to enforce market regulating laws,
even when these were in place, has contributed to the problems confronting

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 The Promotional Strategies Adopted By Super Markets

some of the new markets. Informal private markets, whilst not providing the
facilities of the new official markets, nevertheless were in full operation, and
meeting the needs of retailers, when the new markets, after planning and
construction delays, finally came into operation. When the new markets
opened they faced the problem of competing with the existing markets
whose rentals were usually lower. In addition, there seemed to be inadequate
attention paid at the planning stage to getting ‘core’ importers and
wholesalers into the new markets in order to ensure a volume of trading
sufficient to make the market attractive to other, smaller, traders. Many
larger traders preferred to operate outside the market. Another issue was the
general insistence by EBRD and the World Bank on full-cost recovery from
the newly created market companies. Although subsidies can promote
overbuilding, some of the funds could have been provided by the municipal
or central government, which is very much the practice here in Italy, for
example.
Central European Initiative Wholesale Markets Foundation
The Foundation’s first workshop was held in Bologna and examined
the development of full-service centers, or logistics platforms, within major
wholesale markets. Markets considered that if they were to survive in the era
of supermarkets they needed to adapt to provide facilities for those
companies that were primarily involved in supplying supermarkets and other
large buyers. Participants felt that such an adaptation involved the
development of relationships with modern domestic distribution systems, the
promotion of quality enhancement (standardization and hygiene/health
controls), the broadening of the range of products handled by markets to
include fish and livestock products, flowers and ornamental plants, and the
promotion of value-addition activities, such as preparation of pre-packed
salads. A second workshop, held in Croatia, addressed regulatory issues, in
particular, quality control of products, hygiene and health controls, HACCP,
quality certification, and environmental issues. Regulations regarding
commercial activities related to the trading of food products, fiscal
regulations, customs regulations, transport regulations, municipal
regulations, and the provision of statistical information on prices and
quantities were also discussed.
A third workshop, held in Budapest, looked at the diversification of
wholesale market commercial activities. As noted in the Bologna workshop,
participants felt that wholesale markets could offer space to supermarket
chains to facilitate their operations. This, in turn could increase procurement
through the market. Wholesale markets in Eastern and Central Europe and

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 The Promotional Strategies Adopted By Super Markets

the former Soviet Union could, in theory, also attract wholesalers into the
market by offering services such as customs clearance facilities, banana
ripening rooms and cold storage facilities. Better utilization of available
market space could include: provision of cash and carry stores, to provide
“one-stop shopping” for caterers and small retailers; facilities for handling of
empty crates and containers; food testing laboratories; and training facilities.
A fourth workshop, held in Verona, looked in more detail at the quality
control issues highlighted in the Croatian workshop.
The growth of supermarkets
We are all aware how rapidly supermarkets and have become such dominant
forces in food marketing in Western Europe and the United States. In the
past decade this trend has been noted elsewhere, particularly in Latin
America, and there is now growing evidence that a similar revolution is
occurring in Central and Eastern Europe. This started in Poland, Hungary
and the Czech Republic and is now rapidly spreading East and South. The
trade press has in the past few years been reporting intense activity by major
international retailers in the region.
Recent trends have seen several developments in common over the
countries. These have recently been well-analyzed by Dries, Reardon and
Swine (2004) and the following discussion owes much to their work. These
trends are:
extensive investments by foreign retail chains and the rapid rise of the
modern retail sector;
a dramatic rise in the retail sector share of supermarkets;
inter-country as well as intra-country supermarket diffusion;
growing concentration in the supermarket sector; and
changes in procurement systems that affect farmers and also wholesale
markets.
Global multinationals have moved into the region in a significant way. This
was initially into countries that have now joined the EU, with Hold, then
Carrefour, then Tesco starting operations in Poland, the Czech Republic and
Hungary. Subsequently, multinationals moved into other Central and Eastern
European countries (recently, for example, Metro into Croatia) and, finally
(in the last couple of years), they have established footholds in Russia (e.g.
Metro). In the first years of operations in Eastern Europe supermarket
multinationals concentrated on the larger cities. However, given the strong
competition in major urban areas, companies started to look at developing
supermarkets in much smaller towns, with A hold in Poland, in 2001,

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 The Promotional Strategies Adopted By Super Markets

indicating that it was then targeting towns in the 50 000 to 70 000 population
range. At present only ten percent of the Russian retail sector is accounted
for by supermarkets. However, there is likely to be rapid future growth, with
the entry of the global multinational retailer, Metro, and regional
multinationals such as Ramenka of Turkey. Domestic chains are also
making major investments.
Supermarket and chains moved into the region because the companies,
facing considerable competition in Western Europe, identified untapped
potential in the East. In making such a move, the supermarket chains have
been helped by increased demand for the services they can provide, resulting
from:
rapid urbanization;
per capita income growth increasing the demand for processed foods;
increasing employment of women, with a consequent increase in the
opportunity cost of their time, leading to a demand for meals that are easier
to prepare and for retail outlets that offer a wider range of products;
reduction of effective food prices for consumers because of supermarkets’
greater ability to control costs;
growing access to refrigerators, allowing larger quantities of food to be
stored, and to cars, allowing larger quantities to be purchased at any one
time;
increased travel to Western Europe and elsewhere, exposing the populations
to modern retailing techniques, to a wider range of products and, particularly
for fresh fruits and vegetables, to the possibility of being able to consume
many products “out of season.”
Wholesale markets in Eastern and Central Europe or, indeed, in many
developing countries of the world may not yet be fully noticing the growth
of supermarkets. This is because supermarkets tend to penetrate fresh fruit
and vegetable retail markets and make changes in their procurement systems
more slowly than they do for processed or packaged products. Also, fresh
produce marketing systems that developed immediately after the end of the
centrally planned era are changing. Declines in wholesale sales off the back
of the truck and a decline in retailing by farmers may actually, in the short
run, lead to an increased flow of produce through wholesale markets. It
would be an interesting exercise to analyze throughput figures over the last
few years for the region’s leading wholesale markets to try to identify any
trends in response to supermarket development. FAO is planning such a
study in Latin America.

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 The Promotional Strategies Adopted By Super Markets

If wholesale markets have not yet noticed the impact of supermarkets

they almost certainly will in the near future. That is because both
multinational and national supermarket chains are following the practices of
the West in many ways, including:
shifting towards centralized procurement systems;
shifting toward cross-border procurement systems;
shifting toward specialized/dedicated wholesalers;
shifting toward “preferred supplier” systems;
shifting toward private standards for fresh produce that are usually more
demanding than national standards and which invariably include a
requirement for “traceability.”
You will note that none of the above trends appears to involve wholesale
markets! There has been a marked tendency to shift from procurement by
individual supermarkets, which may have involved purchasing from
wholesale markets, to a centralized system involving a central buying office
for fresh fruit and vegetables with distribution to stores through several
distribution centers over a country. This is done in order to reduce
coordination costs, generate economies of scale by buying larger volumes
and working with fewer wholesalers and suppliers per unit merchandized,
and to have tighter control over product quality and freshness. Some
examples of developments follow. They do not necessarily refer to
distribution arrangements for fresh fruits and vegetable but are indicative of
developments likely to take place in the coming years:
A hold in Poland operates over 180 outlets, all of which are supplied via
five distribution centers.
Tesco opened a 40,000 m2 distribution centre on January 6, 2004 for the
distribution of all processed/packaged food for all its stores in Poland. It is
now building a second, for fresh food.
In the Czech Republic, A hold opened its first distribution centre for fresh
fruit and vegetables in 2001 and a second one in 2002.
Delvita in the Czech Republic was operating a distribution centre as early as
1995, and recently opened a second.
Tesco is building its first distribution centre in the Czech Republic.
Tesco opened its first distribution centre in Slovakia at the end of 2003, as
will Kaufland in 2004.
In Croatia in 2000, Konzum opened the largest distribution centre in the
former Yugoslavia region, and has since rapidly left behind its system of
small warehouses and individual store deliveries to use a set of distribution
centers with coordinated, centralized procurement from Zagreb.

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 The Promotional Strategies Adopted By Super Markets

Also in Croatia, Metro completed a large distribution centre in October

2003.
In Russia, Pyatyorochka, Russia’s largest supermarket chain, with 150
stores in St Petersburg and Moscow has developed a distribution centre in St
Petersburg to compete with foreign competition from Turkish, German and
French chains.
The various chains in the Central and Eastern European region are also
beginning to use national distribution centers for cross-border sourcing. This
allows the procurement of the best value products from various countries
and also, in the case of fruits and vegetables, enables seasonal supply
constraints to be more easily addressed. It extends the set of suppliers
available to the chain. This process is also related to EU accession, which
increases opportunities for post-accession, cross-border procurement.
Together with these changes in distribution methods have come changes in
procurement methods and it is these that present the greatest threats to the
region’s wholesale markets. The types of changes taking place are:
Chains are shifting from traditional wholesalers to “specialized/dedicated
wholesalers” that are specialized in a product category and dedicated to
supplying supermarkets. The wholesaler is more responsive to quality,
safety, and consistency requirements of supermarkets than are traditional
wholesalers who aggregate produce from many producers and may also be
unable to supply the quantities required;
the new wholesalers move from mainly buying at wholesale markets or from
a list of customary suppliers, to contracting production that meets the
specific grades and standards of the retail chain. The leading chains are
shifting toward “direct” purchase from growers under the “preferred
supplier” system. This is done in order to select producers capable of
meeting quality and safety standards of the supermarkets and thus to lower
transaction costs for the chain both through lower search costs and by
reducing the number of suppliers per unit sold. Additionally, such linkages
permit more rapid movement of produce from farm to store, enabling
supermarkets to sell much fresher produce;
in some cases it has been noted that the retail chain eventually acquires or
enters into a joint venture with the wholesale firm.
How do wholesale markets respond?
In such a retailing environment, how do wholesale markets react as
noted above, some options have already been discussed by the CEI
Wholesale Markets Foundation. These, and other approaches, include:

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 The Promotional Strategies Adopted By Super Markets

Being pro-active. Wholesale markets that sit back and wait for business to
come to them will rapidly cease to be relevant. They have to explore ways to
attract business by surveying their customers and identifying their needs.
Retailers, for example, may feel the need for improved retail markets, the
development of which could provide a measure of competition for
supermarkets. Market logistics may need to be re-examined, together with
trading hours, in order to maximize the convenience for customers and
minimize the delay between harvest and sale. Wholesale markets need to
look to their strengths. In many cases, for example, they should be able to
supply locally produced produce more freshly than supermarkets that
operate just one distribution centre per country. Exchange of ideas and
experiences between markets in the region will be beneficial and much can
be learnt from the experiences of wholesale markets in Western Europe;
identifying new services. The Foundation has examined a range of services
that can be provided. Although supermarket chains in one or two countries
may be prepared to site their distribution centers and other facilities in
wholesale markets, in most cases this is unlikely to happen and there is little
evidence that it has happened to date. Some of the other services identified
by Foundation members as being suitable for inclusion on the land of
existing markets, such as banana ripening facilities, may also find it difficult
to gain acceptance. Thus markets need to be aware of their real potential for
capturing business from supermarket chains. If such potential is limited than
they need to explore ways of maximizing business from non-supermarket
customers;
serving non-supermarket retailers and caterers. Small retailers will continue
to play an important role in Central and Eastern Europe and increasing
affluence will mean that, as in the West, people will eat out more. If
supermarkets do not use the services of wholesale markets then the markets
need to look at how they can best serve these other categories of customer.
Both retailers and caterers would be attracted by the provision of
commercial wholesale cash-and-carry facilities. Such a store in a wholesale
market compound would enable traditional fruit and vegetable retailers to
diversify into selling new products. It may also encourage dry-goods
retailers who have not previously sold fruits and vegetables to start doing so.
Many retailers, but particularly larger stores and independent chains that are
not large enough to justify having their own distribution centers, could
benefit from the one-stop-shop concept, i.e. by being able to buy fruits and
vegetables, fish, meat and dairy products and dry goods at one wholesale
market location. Caterers could similarly benefit from such a facility and
would also welcome services such as pre-packed salad preparation;

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 The Promotional Strategies Adopted By Super Markets

improving procurement arrangements. I have already noted that

supermarkets are rapidly moving to direct procurement arrangements, either
themselves working directly with farmers or farmer groups or working
through dedicated wholesalers. They do this because they need to guarantee
both the quantity and quality supplied and because, by linking with farmers
in this way, they can reduce the costs involved in searching for produce and
organizing the logistics of moving that produce to the consumer. Some
would argue that such arrangements also enable the retailers to squeeze the
farmers’ margins, but that is another discussion. Wholesalers working in
traditional wholesale markets cannot dismiss these trends as a supermarket
fad of little relevance to them. If they see caterers as potential customers
they will also in the future have to be in a position to offer “traceability.”
Some British travel agents, for example, are now demanding assurances
from hotels regarding the reliability of their food supplies before agreeing to
include the hotels in their brochures, thus forcing the hotels to introduce
preferred supplier and traceability arrangements. Wholesalers in markets
will therefore need to strengthen linkages with farmers in the same way as
supermarkets are doing; this will probably lead to reduced opportunities for
small farmers and much consolidation of farms, as it is virtually impossible
for supermarkets or wholesalers to work with individual small farms.
Farmers will be increasingly called upon to specialize. Small wholesalers are
unlikely to be able to take such initiatives without support, and this seems to
be a role for the market management;
promoting increased fruit and vegetable consumption.
Faced by a declining share of the market, wholesale markets can try to
increase their share again but, as we have seen, this may be difficult. An
alternative approach is to work to increase the total size of the market.
Several countries have adopted “five a day” promotions, to encourage
people to have five servings of fruits and vegetables a day. In FAO, we are
now working closely with the World Health Organization (WHO) on the
WHO/FAO Fruit and Vegetable Initiative and collaboration of wholesale
markets would be welcome;
planning of new wholesale markets. After reading this paper it might be
queried why new wholesale markets should be suggested when existing
markets are struggling to obtain adequate throughput. However, in parts of
the former Soviet Union, in particular, there may still be scope for such
markets. For example, Tbilisi in Georgia, which I visited recently, has no
organized wholesaling for domestic produce. An earlier feasibility study was
not followed up. Any such new developments will need to recognize that

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 The Promotional Strategies Adopted By Super Markets

there will be competition from supermarkets and thus realistic appraisals of

throughput potential will need to be made. Lavish constructions will need to
be avoided and the emphasis will have to be on providing basic facilities at
minimum cost.

Andrew Denby took over as the chief executive officer, supermarkets, of

Aditya Birla Retail Ltd six months ago. Before joining the Aditya Birla
group, he had worked for retail majors like Marks & Spencer, Dairy Farm, A
S Watson, et cetera.

He has traveled across India studying the Indian market and trying to make
the supermarket brand 'more.' a success.

'more.' has 302 supermarkets all over India right now. It includes 251 in the
southern part of India after the Birla group acquired the Trinetra retail chain.
The target for 'more.' is 600 retail stores by March 2008. The group has
earmarked about Rs 8,000 -- 9,000 crore (Rs 80-Rs 90 billion) for its retail
operations over the next few years.

Andrew Denby was in Chennai as a delegate to participate in the Foodpro

conference organized jointly by the Confederation of Indian Industry and the
Ministry of Food Processing Industries, Government of India and the
Government of Tamil Nadu.

He talked on consumers and retail.

After his presentation, he spoke to Contributing Editor Shobha Warrier on

the growing retail sector in India.

At that time, I did not know anything about what happened to Reliance
Retail.

It is always scary when something like that happens, especially if the target
is your key competitor. However, life must go on. India is surging ahead in
modernization and the consumer is demanding more day by day.

We hope people would understand the 'more.' brand. We hope they keep in
mind the Birla reputation. We deal directly with the farmers and give them
an opportunity to sell their products at a good price. We are also

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 The Promotional Strategies Adopted By Super Markets

providing employment to many. To the consumers, we are giving good

quality products. People, therefore, can trust us. In India, trust is the key
word.

I look at it as a challenge. I also look at it as the most exciting opportunity.

The Indian retail market is untapped. There is so much opportunity here. To

me, Indian consumers are smarter than the consumers in countries I have
worked in.

By smarter, I mean they are much more price-savvy. Same is the case in
Indonesia.

Indian women like to bargain every time they go to shop. Bargaining does
not mean trying to get things cheap. It means getting better value for money.
It is interesting to see the level of acceptance of suppliers' promotions in
India. For example, if you sell a 1.5 liter of Pepsi with a packet of free potato
chips, the volume increase is maximum. People in India like promotions.

Indian housewives are different from housewives in the rest of the world
except that they spend more time on checking each product they buy.

That is because they take a long look at the labels. They don't trust that the
retailer will sell fresh products. They want to know whether the shop is
selling at the maximum retail price or below the MRP.

I think women all over the world prefer watching television or looking
after their family to trudging the supermarkets. I want Indian women too to
feel the same way. Because if they spend too much time at the supermarkets,
it is a waste of energy. I want to gain their trust. I want to tell them that what
we sell are quality products and that they need not spend extra time in our
stores.

If we run modern looking shops run by modern operating systems, right

back up, right policies and right procedures, we need not worry.

Yes. More than 70 per cent of the people that go to supermarkets early in the
morning from Monday to Friday are women. They shop to meet their daily
needs -- mainly fruits, vegetables, bread, etc. But of the families that shop in
the weekends, the male female ratio is 50:50.

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 The Promotional Strategies Adopted By Super Markets

Yes. Women between 18 and 50, who are looking for a comfortable and
convenient shopping ambience, throng the supermarkets.

Indian market is complex because the product range here is more focused on
staples. The latter again vary from state to state. For example, toor dal
soaked in oil cannot be found anywhere but in Gujarat. What is popular in
Delhi may not be that popular in Mumbai.

The success of a retailer lies in how he gives each shop the local
flavor. Needs of the people in Punjab would be different from those living in
Tamil Nadu.

It is the size of India that makes its retail market so unique.

We have tapped just the tip of the iceberg. It is three and a half per cent as
we speak. The analysts say it could be 10 per cent in 10 years. I think it is a
very realistic target. I am looking to be in the forefront as the industry grows
from strength to strength.

To me it is a blue ocean strategy. With growth in population and growth in

urbanization, there should be very few individuals whose livelihood would
be at risk. With more people coming in with an increased disposable income,
there will never be dearth of people going to the kirana stores for their daily
needs.

I would say there is room enough for everybody right now. Do I feel sorry
for them Yes, I feel sorry for anybody who is going to end up without a job.
But for the next 10 years at least, there should be room for everybody.

Let me use the McDonald's phrase, ' I love it!' It is a challenge working in
India. It's a wonderful opportunity to travel across the country every week. I
have probably been to more cities than most Indians had. The aspiration and
optimism that run through the veins of India are stronger than that in any
other country.

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