Does this sound familiar?

Does this sound familiar? • Euromarche opened its first ‘hypermart’ in Cincinnati in 1984, named Biggs. It was 1.5 times the size of a football field with 75 aisles, 40 checkout lanes and 60,000 different low-priced items. • Carrefour built two hypermarts in the late 80’s and early 90’s.

By 1994 all three were shut down. • Customers said that the stores were too big and overwhelming. • A study commissioned by Kmart showed that hypermarkets would need to attract 4 times as many shoppers as a regular department store and the average transaction would need to be $43, which was double the average for discount stores.

Costs were so high that the gross margin was only about 8%, which was half of the typical discount store margin. • In many other countries, hypermarkets were flourishing, with Carrefour owning 240 stores in France, Spain, Portugal, Italy, Turkey, Brazil, Argentina and Taiwan

Distribution • Process of getting goods and services from producers to consumers • Includes the physical path that take goods and services to market • Includes the legal ownership of items • Important consideration because it affects cost, timeliness, location of product, and even if it’s possible to operate in a country

Channels of distribution • Physical path that goods/services take to consumers • Direct Channel Producer Consumer

Indirect Channels Intermediaries Producer Consumer

Home Country Intermediaries Brokers Wholesalers Agents Export Management Company (EMC) Export Trading Companies Host Country Intermediaries Manufacturing Representatives Distributors Foreign Country Brokers Managing Agents

Wholesalers • Buy products from the producer and resells to other wholesalers, retailers or consumers • Stores product before shipping them to next step • May carry full or limited lines of products • May specialize or carry a variety of products

Agents • Negotiate the sale of goods or services • Agents do not take title of goods • Charge a commission based on the sale price of the item that changes hands

Export Management Company • Provides complete distribution services • May purchase and resell goods or act as agent • Offers knowledge of specific markets and import regulations

Export Trading Company • One step beyond EMC • Provides market research, packages, ships and distributes abroad • May also do banking, investing and manufacturing

How do you choose? • Product characteristic • Customers • Geography • Retail Concentration • Availability • Six C’s: Cost, Capital, Control, Coverage, Character, Continuity

Less developed country channels • Souk – Ethiopia and E. African countries • Small, walk-up store whose proprietor sells everything • Proprietors know what customers want, so morning sales may be coffee, incense and paper cone for coffee ceremony and evening would be cigarettes and gum

Government-owned department stores are less likely to have this service • Mass quantities of merchandise which is slow to sell • May have to use stamps, seals, and papers to go through buying process • Clerks work from 9-5 with a two hour lunch

Pulperia – Cost Rican private store similar to general store in first part of century. • Customers tell clerks what they want and clerks fetch all of the items • Proprietor repackages mass quantities of staples (i.e. 50 lb bag of sugar is sold in smaller portions)

Snack food company Sabritas in Mexico uses donkeys and canoes to distribute in some remote areas

Physical Distribution

Freight Forwarders • Company which performs the task of moving goods to the buyer. • Provides information on rules, shipping methods, packing of goods, and insurance • Also handles all paperwork and arrangements for actual shipping • May be able to combine small shipments of several companies into full loads

Packaging Concerns • Handling necessity and ease • Damage during transport • Climate • Pilferage • Customer’s requirements • Freight rates • Customs duties

Western European manufacturer sent four truckloads of plastic extruders to Iran. The extruders were shipped on wooden pallets. Shortly after the arrival of the merchandise, the marketer received a telex from the customer stating that 90% of the cargo was damaged. A group of service engineers were sent to find out the cause.

It was found that the customer had neither a forklift nor a crane to use in unloading the trucks. So workers simply pushed the pallets to the side of the truck and let them fall to the floor.

Package Labeling • Name of shipper • Country of origin • Container’s weight (pounds and kilograms) • Size of container (inches and centimeters) • Number of packages per container (1 of 6) • Destination • Hazardous material labels

Documentation • Bill of Lading – contract between the owner and carrier of goods being exported; serves as title • Export Declaration – form required by U.S. Dept. of Commerce for shipments greater than $2,500 or for shipments to certain countries

Commercial invoice – quote for goods going abroad; initial contract between buyer and seller, not a final agreement; can be used to arrange financing • Certificate of origin – specifies the exact origin of the product and helps determine if tariffs will be applied

Does this sound familiar?