Logistics PPS6 Topic 3

Typical SA distribution channel Manufacturer Wholesaler Retailer Spaza shop

The South African consumer

Lookie lookie... Economic development Internet Franchising Etc.

Evolution of SA distribution channel Source:

Importing houses Source:

Small independent trading stores in coastal towns Source:

Market days Source:

Going up NORTH Source:

Au Source:

WWII Source:

Egoli Source:

Transport and communication Source: Source telephone:

Advertising Source:

Wholesaler

Retailers

Trends influencing how traditional wholesaling is done Urbanisation Decentralisation of commercial institutions Improvement of infrastructure Improvement in communications Manufacturers and retailers operating on larger scale and leaving out WS (disintermediation) Marketing solution for WS?

The Internet as distribution channel

Obtain info Interactive Multimedia = communications channel, transaction, distribution channel

Developing country trends Informal/ street markets Spaza shops Western influences – hypermarkets and cash-and-carry retailers Large-scale self-service group of retailers i.e. OK Bazaars, Pick n Pay, Shoprite Price Club

How Wholesalers are experiencing competition 1.Self-service/ cash-and-carry i.e. Metro (= actually a large retailer taking role of wholesaler and retailer in one) 2.Forward integration (manufacturer setting up retail sales outlets) 3.Backwards integration (retailer groups creating their own manufacturing facilities)

What Wholesalers in urban areas do 1.They control big cash-and-carry outlets 2.Becomes involved in manufacturing and packing and importing products 3.Their clients now include spaza shops, formal retailers, catering businesses and end consumer Traditional functions: Physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots to retailers, industrial-, commercial-, institutional-, and professional users (or even to other wholesalers) … or even act as an agent/ broker in buying and selling merchandise.

Distribution channel trends in South Africa pp Wholesalers pp Wholesalers pp Retailers pp Retailers pp

Retailers

South African Retailers About independently operated R3.5 million sales (may 2005) Accounts for 29% of GDP Are in direct competition with cash and carry wholesaler

Leading retailers Metcash (1544) Spar (815) Shoprite (743) Pick n Pay (594) Woolworths (221) Massmart (167) Uchumi (31) Casino (24) Nakumatt (14) Carrefour (4)

Large retailers Hyperama, Shoprite, Checkers, Spar, Pick n Pay Account for 63% of food purchases in SA Distinction between large retailer and wholesaler is in the process of blurring

Small retailers Popularity in an important consumer characteristic Limited income, Storage facilities and preference for fresh food create opportunities for small conveniently established retailers supported by a large number of wholesalers.

Wholesalers

Wholesalers in South Africa

Wholesalers Also known as invisible industry because the final consumer has little contact with it. WS have phases and these are determined by a country’s economic dev level. 1 st phase- WS have separated functions from those of an importing house, they import, collect raw materials and retail distribution of products. 2 nd - WS function seperates from retail function. As WS developed,along with the economic dev in the particular country, the WS delegates certain activities to other trading institutions such as the retailer. 3 rd – there is specialisation of of certain products, integration of WS with manufactures and a development of new types of WS such as CCWS emerge.

The importance of the WS The role of WS in developing countries Collect products and raw materials Builds up contacts and markets Keep stock, and break up bulk quantities Carry the financing burden The extent of the influence that the WS has in the distribution channel is usually an indication of the economic stage of development of the country. Japan is the only developed country where there is still so many WS in the distr.channel

Cash-and-carry WS The CCWS markets a limited range of products with a profit turnover and concentrates on a limited range of products in order to get the competitive advantages of buying in bulk. Although the rise of the larger retailers reduced the involvement of the wholesaler in the distribution channel, smaller and independent retailers support CCWS.

45yr timeline of the CCWS development in SA , there were no CCWS , the intro of CCWS in SA. The first one in 1971 was Makro followed by Metro in 1979.Metro grew so rapidly it was in the JSE in the same year , Makro and metro(metro,bingo,trade centre) grew and other CCWS such as shield started to emerge.

Franchising Developing businesses Developing new products Create new opportunities Test the market

Key terms and concepts Product or trade name f. Business format f.

Key terms and concepts Franchisor adv.Franchisor disadv. Market expansionMaintaining a working relationship with the franchisee (must be super otherwise disaster …) Monitoring (incentive)Quality control Economies of scale (i.e. R&D, advertising …) Threat of competition (when franchise agreement expires) Risk management (i.e. test new market without risking own company store … sneaky …)

Key terms and concepts Franchisor adv.Franchisor disadv. Market expansionMaintaining a working relationship with the franchisee (must be super otherwise disaster …) Monitoring cost reduction (incentive)Quality control Economies of scale (i.e. R&D, advertising …) Threat of competition (when franchise agreement expires) Risk management (i.e. test new market without risking own company store … sneaky …)

Key terms and concepts Franchisee adv.Franchisee disadv. Access to training and supportLimited control and flexibility Access to capitalCosts LeverageReliability of the franchisor Exclusivity & independenceErosion of name and reputation

Key terms and concepts Franchisee adv.Franchisee disadv. Access to training and supportLimited control and flexibility Access to capitalCosts LeverageReliability of the franchisor Exclusivity (geo) & independenceErosion of name and reputation

Kauai In groups of two: Study the Kauai franchising model in detail Critically analyse whether you would buy into Kauai and mention several reasons why or why not? Half to analyse from a franchisee’s point of view how you would adjust the model based on concerns that you might have. Half to analyse from Kauai’s point of view how you would adjust the proposed model based on concerns that you might have having to deal with a few franchisee’s now – are there any areas of “best performance” criteria that you would potentially adjust? All groups to answer: what franchising option has Kauai chosen – and motivate your answer – refer to page 110 in your text book to assist.

Distribution channel trends in SA Developing countries

Distribution channel trends in SA Developing countries High population growths Low economic growth Formal sector = saturated Increase in informal trading

Distribution channel trends in SA Informal trading Credit = problem Regulation in SA for informal trading … Regulation in SA for guys selling to them i.e. wholesalers … Problem: Retailers becoming strong … forcing wholesalers out … A = car port B = in-house C = separate

Case study – to be read in class METRO cash and carry: page Break into groups of two each and answer all three questions – compare answers in-class.