1. ApEc 4451

2. History of Modern Supermarket First self-service grocery opened in U.S. in 1916. Before that products were behind counter and each customer was waited on by a clerk. By 1937 were 3,000 supermarkets in 47 states. Rapid spread occurred in 1950s and 60s.

3. continued Chains could buy in large quantities and provide price advantage over traditional grocer. Plus much lower labor costs. Jointly, supermarkets and large food manufactures transformed the consumer food market. Also role of general ownership of autos, TV’s, and refrigerators. Supercenters began to appear in 1990s.

4. Rapid Global Spread of Modern Food Retailing - % of food retail sales

5. Global Spread First wave started in early 1990s in South America, Northern Central Europe (Poland), and East Asia (Asian Tigers). Second wave in mid to late 1990s included Central America, Southern-Central Europe, and SE Asia (Thailand & Malaysia). Third wave started in early to mid 2000s in China, India, and Russia. In 1989 China had no supermarkets. Fourth wave: Sub-Saharan Africa (S. Africa & Kenya).

6. continued Mix of local chains and global retailers like Walmart & Carrefour. Wal-Mart is the largest general merchandise and food retailer in Mexico (over 800 stores). Food is more important (larger share of sales). Low-price strategy really appeals. Has several formats, including even a restaurant chain. Sales of $18 billion in 2006 with sales growing 15%. Much faster sales growth than in US. Recently bought a South Africa supermarket chain.

7. Factors Affecting Spread Push/Supply FactorsPull/Demand FactorsEnabling/External Factors  Domestic market saturation  Per capita income growth in other countries  Political stability  Reduced growth in food spending  Urbanization  Trade liberalization  Competitive pressure on profits  Entry of women into the work force  Globalization of other industries (i.e. finance)  Supply chain technology  Emergence of middle class  Communication and transportation technology  Fear of being left behind  Size of market potential  Inefficiency of traditional food systems  Cultural globalization

8. Ten Largest Global Food Retailers CompanyHeadquartersSales in Billions b/ No. of StoresNo. of Countries 1. Wal-MartUnited States$312.406,38016 2. CarrefourFrance$92.612,17938 3. TescoEngland$69.62,36514 4. Metro GroupGermany$69.32,45827 5. KrogerUnited States$60.63,7261 6. AholdNetherlands$55.36,42211 7. CostcoUnited States$52.94608 8. ReweGermany$51.811,24214 9. Schwarz GroupGermany$45.87,29922 10. AldiGermany$45.07,78814

9. Common Trends Supermarkets gain share most rapidly in groceries (processed and packaged items). Over time establish efficient supply chains for fresh products. Open first in largest urban areas & then spread to smaller cities. Core of customer base is “emerging middle class”. Even poor shop for bulk purchases because of prices. In Nairobi survey, 80% of households shopped at in previous month.

10. Transformation of Supply Chain Traditional production & marketing systems are very inefficient. Post-harvest losses on the order of 30%. Modern food retailers are reordering the supply chain to get both: - Improved product quality & food safety. - Reduced costs and increased volumes.

11. Four Pillars on New Procurement System Centralized procurement rather than store-level. - regional DC’s Specialized/dedicated wholesalers. - Hortifruti est. to procure fresh produce for major supermarket chain in Central America. Preferred Suppliers. - Achieving vertical coordination. - Investment in cold chains & IT. High quality & food safety standards. - Gov’t standards are lax or not enforced.

12. Example: Xincheng Foods supplies produce to two Cninese supermarket chains Leased 2,500 acres of prime farmland. Hired farm workers. Invested in tractors. And in drip irrigation & greenhouses. Invested in cold chain & IT. So could supply highest quality produce. Also contracted with some 4,500 small farmers for additional production.

13. Impacts Global spread of supermarkets is bringing more change to agric. sector in DC’s than decades of gov’t programs and dev. projects. Many positive impacts in terms of greater efficiency and improved quality & safety standards. However, small retailers are being put out of business. Small farmers with limited resources lack to knowledge or capital to make the necessary changes & investments to supply supermarkets. Supermarkets want to deal with a small number of preferred suppliers.

14. Small Farmers Small farmers typically lack capital & knowledge to supply supermarkets. Transaction costs are high and transaction risk. Costly to deal with many small farmers. Risk product delivery will not be reliable and/or meet quality requirements.

15. Supermarkets Require - reliable supply of large volumes. - meet higher quality standards; consistency. - modern logistics practices (chilled storage; trucking) - strict delivery standards in terms of timing, grading, & packaging. - high level of efficiency; low transaction costs. - advanced management & IT systems.

16. Some Opportunities for Small Farmers Some opportunities in contract farming for a larger supplier, which provides technical assistance & capital. - may provide inputs such as seed & fertilizer. - and marketing. Also in forming cooperatives; again will need technical assistance & capital. - perform best when involve a small cohesive group of small farmers. - linked to private-sector marketing intermediary. - group liability for credit repayment. - Gov’t agencies & NGO’s can help set up.

17. The Primary Solution With rapid economic growth, such as in the BRIC’s, new job opportunities in the cities & industry are pulling labor off small farms with better pay & opportunities. In 1900, 40% of US population lived and worked on farms. Today is less than 2%. Only 100,00 large farms account for most of the output. Without off-farm employment small farms, in general, simply can’t ever generate much income.