The Food Retailing Revolution: Experience from Poland by Rapeepun Jaisaard World Bank

1. The Food Retailing Revolution:Experience from PolandbyRapeepun JaisaardWorld Bank

2. Transportation Communications Information Technology Advertising Trade Regime Management Innovations Cross-Border Investment Processing Technology Storage Technology Global Retailing Revolution • Expression in food retailing of revolutions in

3. 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

4. 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

5. 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

6. 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.

7. 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

8. 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

9. 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.

10. 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

11. 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

12. 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

13. 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

14. 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.

15. 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

16. 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.

17. 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

18. 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.

19. 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

20. 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).

21. 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.

22. 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.

23. 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.