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

2. Global Retailing Revolution Transportation Communications Information Technology Advertising Trade Regime Management Innovations Cross-Border Investment Processing Technology Storage Technology 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.