Food distribution systems - Science Direct

Food distribution systems Evolution in Latin America and the Middle East

Erdener Kaynak The author describes the characteristics of food distribution systems and practices in developing countries, with particular reference to Latin America and the Middle East. He also examines the characteristics of the environmental factors which have an influence on food distribution, and explores the relationship between the environmental factors and the specific characteristics of food distribution systems of developing countries. The intention is to show how structural and operational changes can be induced in the distribution systems of developing countries. Dr Erdener Kaynak is Associate Professor of Marketing and Chairman of the Department of Business Administration, Mount Saint Vincent University, Halifax, Nova Scotia, Canada, B3M 2J6 (Tel: 9024434450). This article is part of a research study on Agro-Industry (Agricultural food marketing systems in developing countries) at Michigan State University in the summer of 1979 under the Fulbright Hays PostDoctoral Research Fellowship. The author sincerely thanks Michigan State University, the Council of International Exchange Between the USA and Turkey and the Council for International Exchange of Scholars for providing invaluable assistance throughout this and encouragement research study.

78

Modern distribution, especially the distribution of food, is a vital requirement particularly in the rapidly growing urban centres of developing countries. Food distribution in developing countries is an economic activity of substantial proportions, the volume of which is often underestimated because of the unspectacular appearance of food retailing outlets, public markets, broker offices and itinerant retailers. In Buenos Aires, for instance, 64 000 retail stores procure the nutritional requirements for the population and these retail stores represent a far bigger economic activity than the combined activities of sellers and buyers at the wholesale market. ’ In developing countries, it is generally observed that in the process of economic development, the creation of new production capacity receives the limelight. However, it is often overlooked that industry cannot exist or grow without equally modem distribution facilities. This article focuses on two aspects of food modernization of food distribution which are both interrelated: the creation of vertically and later horizontally integrated distribution systems; and, the appearance of innovations in food distribution, particularly in retailing. Cities within developing countries often have food distribution systems dominated by small food retailers who perform a locational function, allowing consumers to purchase small quantities of food near their homes. To modernize their outmoded distribution systems, government officials of developing countries generally try to adopt many of the food marketing innovations pioneered in the USA and West European countries. Despite certain similarities, the food marketing structure of developing countries and the Western countries will continue to have important differences both structurally and operationally.* From a systems viewpoint, the concern of this study is to show how structural and operational changes can be induced in the food distribution systems of developing countries so that they respond better to consumer demands. Hence, this article reports the results of a cross-national study comparing the food distribution systems in Latin America and the Middle

OX%-9192/81/020078-X3$02.00

o 1981 IPC Business Press

Food distribution systems

East. The Latin American part of the study draws heavily from previously reported research of the Latin American Research Centre of Michigan State University that had been conducted in various Latin American countries. In the Middle Eastern part of the study, the results of a number of surveys undertaken in the two largest cities of Turkey, Istanbul and Ankara, studies conducted by the FAO are reported. The major premise of this article is that there are similarities between food distribution systems in the Latin American countries and the Middle East. The applicability of the comparative approach to the study of distribution systems requires recognition that the differences in distributive practices in various countries are as important as the similarities. Such contrasts are essential elements in a comparative analysis. For this reason, it is not adequate to simply describe distribution in one particular country. The critical element in comparative distribution in developing countries is the manner in which experience gained in developed countries is interpreted, related and generalized by forming a refined theory of distribution development for developing countries.’ Unfortunately, few studies of this kind have been undertaken in developing countries; this made a comparative approach particularly necessary.

Distribution ‘Klaus Mall. Stimulation of industrial Development Through Modern Management of Distribution, UNIDO, Industrial Operations Division, Vienna, 1977, p 3. LErdener Kaynak, ‘Government environment of food distributors in an emerging economy’, presented at the seminar on Channels of Distribution and Public Policy, ESCEC, Cergy, France, 30 November-l December 1978, p 21. ‘For more information on this topic see: Erdener Kaynak, ‘A refined approach to the wheel of retailing concept’, European Journal of Marketing, Vol 13, No 7, 197% PP 237-245; ‘Some theoretical foundations for the appearance of new retail institutions in developing countries’, presented at the Annual Meeting of the European Academy for Advanced Research in Marketing, Sixth Annual Workshop on Research in Marketing, Saarbrucken, West Germany, 13-15 April 1977, pp IX-I to IX-II. 4Henry L. Munn, ‘Retailing in Nigeria’, Journal of Retailing, Vol 24, Fall 1966, pp 26-32; William Canas, ‘Food retailing practices in Chile’, Journal of Retailing, Vol 37, Fall 1961, pp 32-33; Erdener Kaynak, ‘Food retailing systems in developing countries:

the case of Turkey’, HaceWe

EWetin of

Social Sciences and Humanities, Vol 8, Nos l-2, June-December 1976, p 41. 5E.F. Wigglesworth, ‘Retailing trends in Thailand’, Journal of Retailing, Vol42, Summer 1966, pp 4151; George Wadinambiaratchi, ‘Food retailing institutions in Ceylon’, Vidyodaya Journal of Arts, Sciences and Letters, Vol3, No 2, July 1970, pp 89-l 10. 6J.K. Galbraith and R. Holton, Marketing Efficiency in Puerto Rico, Cambridge University Press, Cambridge, 1955, Chapter 1.

FOOD POLICY May

1981

systems in developing countries

The food distribution system in most developing countries is still largely based on a traditional retail structure which consists mainly of small-scale groceries and of a large number of specialized retailers and public markets. It is pointed out that most of these retailers have rather small sales volumes, the efficiency of their operation is low and their sales prices are comparatively high, and the goods they handle are limited. Many of those found in small towns and neighbourhood areas of cities are one-man shops, carrying limited stock of merchandise and undertaking no promotion. Large scale retailing is substantially concentrated in the major cities.4 In rural and less developed areas of developing countries, food retailing systems are normally dominated by small retailers, allowing consumers to purchase small quantities near their homes, frequently on credit. For instance, the retailing systems of Thailand and Sri Lanka continue to be a conglomeration of thousands of small retail outlets and public markets, the exact number being unknown. Each retail unit is highly specialized in its range of stock and restricted in its catchment area with the single proprietor still predominant.5 The traditional small scale food retailer has been quoted by Galbraith and Holton

as saYingI

I am already getting more business than I can handle...1 have no incentive to expand.. .I can make a comfortable living without killing myself much.. .I would not own achain organization if it were given to me.. .I am in business just to make a living for myself and my two aging parents.. .as long as the store gives me a decent living without doing hard work, that is all I need. These traditional types of food retail outlets are typically small, carry a poor range of food products of uncertain quality, and lack sanitary facilities. Understocking is common, and retailers offer few services, and only the most elementary accounting records are kept. These institutions generally are an important form of unemployment relief for developing economies. Entry into traditional food retailing is relatively easy because

79


‘H.W. Boyd and A.A. Sherbini, ‘Channelsof distribution for consumer goods in Egypt’, JournalofMarketing, October 1961, pp2633. *Erdener Kaynak, ‘Changes in the food retailing institutions of urban Turkey: the Istanbul experience’, Studies in Development, Vol 18, Winter 1978, pp 53-71; Improving Food Marketing Systems in Developing Countries: Experiences From Latin America, Research Report No 6, Michigan State University, November 1974, pp 26-55. 9Arieh Goldman, ‘Growth of large food stores in developing countries’, Journal of Retailing, Vol50, Summer 1974, p 55. %I.R Solomon, ‘The structure of the market in underdeveloped economies, Quarterly Journal of Economics, August 1948, pp 519-540. “Repoti of the Technical Conference on the Developmenr of Food Marketing Systerns in Large Urban Areas in Latin America, FAO, &17 May 1973; H.W. Boyd, ‘Marketing in Egypt’, Proceedings of the American Marketing Association, December 1961, pp

419-424. 12Fomenting Improvements in Food Marketing in Costa Rica, Research Report No 10, Latin American Studies Centre, Michigan State University, 1974.

80

of the low investment and technical skills required. The result is a multiplicity of small food retail outlets characterized by poor management practices. These stores tend to operate with a minimum of space and the scale of operations in most cases is low. For these reasons, the retailer seeks high margin rather than volume.’ A significant recent development in Turkey and in some of the Latin American countries like Colombia, Brazil and Peru is the gradual decline in the importance of small food retail establishments and the beginning of a trend toward greater concentration among large food retailing units in the last decade. In terms of size as measured by floor space, the relative importance of small food retailers in these countries has been declining as the importance of stores with 50 square metres or less has declined. A trend toward greater concentration among large food retail establishments is evident.* Similarities among food distribution systems of developing countries exist not only for modem distributive institutions such as the supermarket, but also at the level of the traditional institutions. Traditional outlets display similarities both in the nature of the basic distributive forms and in the general path of development they follow. Similarities among systems are due to the same type of forces and processes operating on, and taking place within distributive systems, resulting in the appearance of similar distributive forms and development patterns. The study problem becomes one of identifying such forces and processes and showing that they operate in a number of marketing systems, and that they result in the appearance of similar institutional forms and generate similar development paths.9 The organization and structure of the market for food products in developing countries are a function of certain economic variables such as the size of the market, the nature of the goods, the size of the production units, and the degree of specialization. These variables show a similar pattern throughout the densely populated developing countries of the world, because they, in turn, are the products of a certain state of economic development. A definite type of food marketing structure whose basic uniformity is eventually ascribable to a certain relationship of factor supplies, ie low-capita and low natural resources per capita, is to be found throughout this area. In contrast, those developing economies possessing large natural resources per capita - the sparsely populated developing economies have a distinctly different marketing structure. ” Urban food distribution in Latin America and the Middle East is still largely based on a traditional retail structure which consists mainly of small-scale groceries and of a large number of specialized retailers and public markets. Most of these retailers have rather small sales volumes, the efficiency of their operation is low and their sales are comparatively high. One important fact to take into account is that approximately half of the amount of money spent by these consumers on food is paid for marketing services while the other half is received by farmers, livestock owners and fishermen.” Food distribution systems prevalent in developing economies adjust themselves to the characteristics of the trading community. Conditions vary from country to country. Even within a particular country there may be different groups of consumer classes requiring different retail arrangements. ” An obvious distinction can be drawn between consumers residing in urban and rural areas; of course, each will require different retail systems. Traditional general stores that are successful in rural areas have competitive difficulties in urban areas. The style of stores prevalent in FOOD POLICY May 1981


urban areas have certain difficulties in rural areas. Different classes and different types of customers have different outlooks and patronize different retail stores. Some studies of domestic marketing and distributive systems in developing countries describe the existing structure and prescribe that the system should look more like the North American model.‘j The criteria to support these normative models for developing countries were the improvements in transaction and market structure productivity and efficiency which come from the economies of large scale distribution. These studies clearly recommended that large, modem, low-cost, multiline, self-service supermarkets should be put into place alongside the traditional small, one or two person, single-line, high-cost shops. ” Food distribution even in urban communities of the Middle East and Latin America appears to be through a highly-fragmented system. This type of system is characterized by small, neighbourhood food stores carrying only one line, small sales volume per store and per worker, trade areas which are small and relatively fixed, owners that regard the number of customers and the amount they purchase as stable and inelastic, and “Harry A. Lipson, ‘The impact of double owners who are passive and resist change. I5 The accepted view is that digit inflation upon the modernization of the food distribution to urban low income areas of developing countries is retail structure in developed and developing economies’, in Edward M. Mazze, e&s, inefficient and that it functions in a fragmented food marketing system 1975 Combined Proceedinas. Series No with little coordination. This results in high food marketing costs that 37, American Marketing Ass&iation, 1976, cause high prices to consumers and low returns to farmers. Consequently, p315. “Susan P. Douglas, ‘Patterns and parallels it is generally accepted that inefficient retailing practices are affecting the of marketing structures in several countries’, welfare of the population and the economic growth of these countries. I6

MSU Business Topics, Spring 1971, p 36; Arieh Goldman, ‘Outreach of consumers and the modernization of urban food retailing in developing countries’, Journal of Marketing, October 1974, pp 6-l 6; Charles C. Slater, ‘The role of food marketing in Latin American economic development’, in Peter D. Bennett, eds, Proceedings of the 1965 Conference, Marketing and Economic Development, American Marketing Association, Chicago, 1965, pp 30-37. “Kelly Harrison, et al, Improving Food Marketing Systems in Developing Countries: Experiences From Latin America, Research Report No 6, Latin American Studies Centre, Michigan University, State November 1974, pp 26-48; Jack G. Kaikati. ‘The marketing ‘environment in Saudi Arabia’. Akron Business and Economic Review, Vol 7, No 2, Summer 1976, pp 10-11; Erdener Kaynak, ‘Changes in the food retailing institutions of urban Turkey: the Istanbul experience’, Studies in Development, Vol 18, Winter 1978, pp 5371. ‘“Rudolfo E. Paiz, Experimenting with New Concepts of Retail Food Distribution in a Developing Environment, lnstituto Centroamercano de Emprasas (INCAE), Managua, Nicaragua, 1974, pp l-l to 2. “Erdener Kaynak, ‘Shopping practices for food: some cross-cultural comparisons’, in Michael J. Baker, ed, Buyer Behaviour, Proceedings of the Marketing Education Group Conference, Glasgow, July 1976, p 107. ‘“W.W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto, Clarendon Press, Cambridge, UK, 1960, p 4.

FOOD POLICY May 1981

Is Western technology applicable? Marketing science has come a long way, especially in the last two decades but, unfortunately, little work has been done on the marketing practices and consumer behaviour in developing countries. There has been a tremendous time gap in the application of marketing institutions and techniques of developed countries of the West to developing countries. What is also not clearly recognized by most economic policy makers of developing countries is that similar marketing institutions and techniques do not evolve in different environments in the same manner; nor should they be expected to do so. ” The tendency of Western marketing scholars has been to compare the marketing institutions of any developing country with a developed economy during one or more stages of its development. This is probably done without full recognition of the implications which it holds. In this regard, one cannot help but recognize the impact of Rostow’s thesis on The Stages of Economic Growth. Ix What is most troublesome with Rostow’s framework in terms of the contribution of marketing to economic development is the premise that development process can somehow be hurried along if institutions from developed economies are transplanted into developing economies without paying due attention to the varying environmental conditions prevailing in the recipient country. Understanding the environment in a developing country helps in understanding the middlemen and the total distribution system because these marketing institutions are a product of their environment. In developing countries, just as in developed ones, consumer buying habits are a major factor in shaping distribution channel


activities. The channel members will capitalize on environmental change by introducing innovations which anticipate trends in the environment. Thus, when supermarkets were first introduced in some West European countries, they were accepted enthusiastically because enough of the market was ready to change from the practice of shopping at several small, limited-line stores. Several European retailers have innovated: within a relatively few years, they have moved from the stage of ‘mom and pop’ stores to a variety of retailing concepts as advanced as the ones in North America. In so doing, these innovative retail institutions simply telescoped time and leap-frogged several stages of institutional development. I9 Amdt”’ found a tendency for supermarkets to be more prominent and retail establishments to be larger in nations where the gross national product was higher. Temporal lags in the development of retail systems between countries tend to approach the same length as lags in the most important environmental factors. For the five environmental and retail structure indicates studied, temporal lags in the range of seven to nine years emerged quite consistently. This result shows that the structure of retailing systems is a function of selected characteristics of the societies they serve.

Developed country practices

19Ralph 2. Sorenson, ‘US marketers can learn from European innovators’, Harvard Business Review, September-October 1972, pp 89-99. *OJohan Arndt, ‘Temporal lags in comparative retailing’, Journalof Marketing, Vol 36, October 1972, p 45. “George Wadinambiaratchi, ‘The theories of retail development’, Social and Economic Studies, Vol 4, December 1972, pp 392394. *lDavid Appel, ‘The supermarket: early development of an institutional innovation’, Journal of Retailing, Vol 48, Spring 1972, pp 39-52; Delbert J. Duncan, ‘Responses of selected retail institutions to their changing environment’, in Peter D. Bennett, ed, Marketing and Economic Development, American Marketing Association, 1965, Chicago, pp 583662.

82

In Western societies, marketing innovations of this century are, to a large extent, a reflection of the changes in the retailers’ environment: increase in discretionary purchasing power, growth of production capacity through technological progress, growth of private automobile ownership and transportation, the movement towards suburbia and changes in consumer attitudes. Institutional changes take place slowly; for this reason, retailing institutions, like product specialized stores, are a function of the environmental factors of the immedite past.Z’ The factors which created the introduction of supermarkets in the USA were favourable in 1932 when the first supermarket was established in New Jersey. It was established to provide customers with low-cost food and variety of other products. In the depression of the 1930s this form of self-service retailing was one of the mechanisms for cutting distribution costs to make consumer staples accessible to the unemployed. People were willing to give up the wide variety of services such as credit, delivery, and friendliness which the small food stores provided. Supermarkets spread quickly during the later years and by the 1970s they accounted for more than 70% of retail food sales. The growth of supermarkets in the USA was the result of several important environmental factors. First, the US population has become highly mobile. With better roads people began to move away from the centre cities to the suburbs where they enjoyed the benefits of single family dwellings. Car ownership, as a result of substantial increases in personal disposable income, increased quickly. Food shopping became a task for which people were willing to spend the extra time and effort to go to a single stores where they could purchase most of their food and non-food needs for a period of a week or more. Because of the costs of the introduction of technology from manufacturers to retail food stores, large retail firms were required to perform the activities from production to wholesale and retail themselves. With the introduction of technology came better means of packaging, preserving, and handling food products. The small independent food store could no longer find economic reasons to exist.zz However, in the last decade, FOOD POLICY May 1981


with the dramatic change in the shopping behaviour of most Americans the number of convenience store units has more than tripled and all indications are that this figure will only continue to grow, as many of the larger chains indicate that they plan to add units at a rate of about 10% a year for the next five years.z3

Less developed country practices Marketing experts of less developed countries try to apply the marketing and distributive institutions of the West to their countries. These marketing institutions and techniques are conditioned by the immediate environment and the unique culture of Western countries. By making proper adaptation perhaps both developing country planners and the distributive institutions may overcome certain difficulties which were encountered by the developed countries’ planners during their implementation of the various marketing techniques and institutions in their home countries. Too often, US and West European marketers are inclined to assume that effective marketing institutions and methods of the West would be equally successful in the developing countries if introduced and implemented with Western ‘know-how’. But, these institutions should not be adopted without considering their applicability. Furthermore, to improve the value of such adaptation, a better understanding of the evolution pattern and development of marketing institutions such as supermarkets in developed countries is needed. For this reason, proper implementation of the retailing institutions and methods of the West requires sound understanding of the historical development of these practices.Z4 Food marketing practices of the last two decades in most developing countries have shown that the mere transfer of marketing technology from the West is not sufficient. There is a strong need for a proper adaptation by paying particular attention to environmental factors which hinder or encourage the development of supermarketing practices in those countries. Another concern is that mass marketing technology of the West is too big and too expensive. It does not create the jobs needed to absorb the rapidly expanding labour force in the developing countries, and it is not appropriate for their small distributive institutions that make up so much of the economic activity in these countries. The customary Western marketing systems evidently do not bring about the desired reorientations of marketing technology. Using the final price to the consumer as an independent measure of performance, study findings point to the conclusion that the traditional food retailing structure is more suitable for their current needs than generally assumed. For instance, the highmargin, high-selling price factor was not verified. The indication is that low volume retailing firms in developing economies might be more efficient than theory would lead one to believe.*’ 23‘Convenience stores’, Progressive Grocer, Vol58, No 4, April 1979, p 133. 24D~~ Izraeli, Priorities for Res&?rcb and Development in Marketing Systems for Developing Countries, Working paper No 209/74, Tel Aviv University, Tel Aviv, 1974. *5Kendall A. Adams, ‘Resources utilization by meat retailers in a developing economy’, Business Perspectives, Winter 1970, p 16.


Barriers to change and development retailing system takes a great deal of the blame for the inefficiency of the food distribution system in developing countries. This may be caused b y conspicuous characteristics of the retail structure and of retailing practices: the numerous small shops and market vendors who handle low volumes with little investment, the poor sanitation conditions, the inacThe

a3

Food distribution

systems

‘“Rudolfo E. Paiz, op tit, Ref 16, pp 1-5. “Charles Slater, Donald Henley, John Wish, et al, Market Processes in La Paz, Bolivia, Michigan State University, MI, 1960; Charles Slater, Harold Riley, et al, Market Processes in the Recife Area of Northeast Brazil, Michigan State University, MI, 1969, Chapter 6; J.R. Guerin, ‘Limitations of supermarkets in Spain’, Journal of Marketing, Vol 23, October 1974, p 21. ‘“Robert D. Buzzell, ‘Can you standardize multinational marketing?‘, Harvard Business Review, November-December 1968, pp 102-l 13. “Irvin M. Lande, ‘Consumer marketing development in emerging economies’, in M.S. Moyer and R.E. Vosburg, eds, Marketing for Tomorrow Today, AITW%XI Marketing Association, 1967, Conference Proceedings, Series No 25, Toronto, 1967, pp 251-253.

84

curate measurement tools used, the low labour productivity and the high wastage. It was argued that the net result of this is the perception that the consumer is paying a higher price for his goods than he would if ‘modern’ distributive techniques were used. Modem distributive techniques by these people are generally characterized as those used by mass retailers who handle large volumes and operate with high merchandise turnover with a selling area of more than 300 square meters and include: self-service, prepackaged goods, refrigeration equipment for storage and self-service, check-out counters, mechanical handling methods and a sanitary selling environment.2h Why is it that mass-marketing technology has spread from the USA and helped to deliver a high living standard to 30% of the world but has not been adopted adequately to serve the basic needs of the poor masses in rural and urban areas of developing countries. From the consumer’s perspective, modem food marketing has been inhibited by: a disproportionately high demand for staples; the lack of ready cash; the cultural pattern of daily buying at traditional retail outlets; the dependence on public transportation for shopping mobility and the lack of appropriate storage and refrigeration capability. From the retailer’s point of view, small scale retailing practices with their low volume, low investment characteristics and the lack of management training and motivation seem to pose barriers to modernization. To overcome the deficiencies of the food distribution systems in developing countries, the adoption of horizontal and vertical coordination and ’ the introduction of modem large scale retail institutions into the distribution system of these countries has been recommended by some researchers.27 The same people are not at all explicit, however, concerning how the introduction of supermarkets and resultant horizontal and vertical integration would correct those deficiencies of the food distribution systems of developing countries. Studies of comparative marketing systems show that a number of barriers exist which deter the adoption of new marketing and distribution practices and structures. Academics have developed certain checklists for examining the market opportunities in different countries and the factors which serve as obstacles to identical strategies being used internationally.” The barriers to changing marketing and distribution systems from the way they existed to the way analysts recommended are usually called the environmental factors. Economic, social, political, legal, cultural and physical conditions and variations result in differing local and national factors affect values and consumption patterns. 2y These environmental the food distribution system primarily through their impact on the food distributive institutions. The environment contains certain operating conditions which limit the scope of the institutions activity and affect their organizational structure. Among the environmental factors studied, the most significant one is the consumer environment. Studies have indicated that the structure of food distribution systems is a function of selected characteristics of the societies they serve. In North America, the retail innovations of this century are, to a large extent, a reflection of the changes in the retailers’ environment. Retailing and marketing institutions are a function of the environmental factors of the immediate past period. Retailing practices may be said to be a function of the environmental factors of the same period. In developing countries, the environmental factors affecting the operations of retailers are not the same as the ones in developed countries. For this reason, proper analysis FOOD POLICY May 1981

Food distribution rystems

of the different environmental conditions affecting any marketing institution and its operations need to be made before embarking on transferring any marketing technique or institution to developing countries of the world? It has been noted previously that not only is the overall pattern of the food distribution system and its operations in the Middle East and Latin America less advanced than that found in North America, but within each region the nature of the food distribution system and its practices tend to vary. Certain patterns of food distribution systems and institutions and their practices tend to correspond with the incidence and operations of certain factors which are operating in the environment within which food distributive institutions of all kinds are found. Developing countries are characterized by a continuous increase in income and population density. This constitutes an ever present source of pressure on food distributors for the appearance of new forms of marketing institutions in their food distribution systems to meet the ever increasing wants and needs of the food shoppers. That is the reason why the interaction taking place between the food marketing system and the surrounding environment is complex. The new marketing institution, such as the supermarket is subject to several limitations; the number of potential customers, their incomes, their social and economic make-up which influence the type of distributive institutions operated in a developing country. Each of these sets a different limit on the number of units demanded for the new marketing institution. Likewise, the number of units that could be set-up in a given part of Latin America or the Middle East is subject to a variety of limitations: available managerial talent, financial, resources, initiative and capital which are considered as input variables, each of which sets a different limit on the number that could be operated profitably. It must be pointed out here that the growth of the new marketing institutions is, to a certain extent, contingent upon easing the most restrictive limiting input stimuli. As in any other distribution system, there has been a change and rapid development in the distributive systems of Latin America and the Middle East. This involves looking at all changes in the distributive environment _ social, economic, and operational - as well as distributors’ responses to them. Of course, such environmental changes are, to a large extent, beyond the control of the distributors. For that reason, such environmental conditions should be taken into consideration and the necessary adaptations be made while designing a distribution system for a developing country. Among all the environmental factors, the most significant ones are the consumer and government environments. Certain characteristics of developing country consumers and governments serve as a constraint on the development of modern distributive institutions such as supermarkets and that only when certain changes occur does it become possible for these institutions to develop and prosper.

Government “‘A. Graeme Cranch, ‘Modern marketing techniques applied to developing countries’, in Boris W. Beeker, ed, Marketing Education and the Real World and Dynamic Marketing in a Changing World, Series No 34, 1973, p 183.


Opinions

differ

environment over

the extent

of food distributors to which

governments

of less develoDed

countries directly intervene in the buying and selling of food products, and thus act as intermediaries. Although private sector intermediaries continue to be the core of the food distribution system in developing

85

Food distribution

systems

countries, the recent trend has been toward increasing government involvement. 3’ The Chilean government, for instance, has had limited success at promoting marketing efficiency through its regulative activities such as price controls, antitrust controls, and through sales taxation.3z Control of participation in the retail marketing of food products can have varying effects on efficiency. Reduction in the number of competitors may enable a few large institutions to increase efficiency through realization of potential economies of scale. Such a reduction, however, may also reduce the level of competition. When a government establishes control over the number of competitors, it assumes responsibility for achieving a balance between these competing determinants of marketing efficiency. The central government and the municipal governments of developing countries act in large cities as competitors in food marketing for various food products. Regulative efforts of the government to control prices of meat and essential food stuffs are intended to force competition among food marketing institutions and encourage cost reduction. As a participating entrepreneur, the government, in most developing countries, brings efficient food marketing methods into the food distribution sector and encourages the channel members through its competitive activities. There are many ways in which governments of developing countries intervene directly in the marketing process.33 First, price and margin control is applied in many countries where rates of inflation are high. If the prices and margins are fixed at too low a level for a long period, they become serious discouragements to the trade to make the necessary investments in marketing facilities. This has become evident in a number of developing countries. 34Furthermore, such actions operate much more adversely against the larger and generally more progressive enterprises than the traditional small family type of business whose prices and margins cannot be controlled. Second, the establishment of direct state marketing enterprises by the government at the wholesale and retail level to buy and sell in competition with the private trade. The objective of state food marketing enterprises is to maintain food prices at low levels, particularly in conditions where inflation is rife.

Consumer )‘Erdener Kaynak, ‘Government and food distribution in LDCs: the Turkish experience’, Food Policy, Vol5, No 2, May 1980, pp 132-142. ‘*Peter D. Bennett, Government’s role in retail marketing of food products in Chile, The University of Texas at Austin, 1988, pp 88-97. 33Hans J. Mittendorf, Organizing City Food Marketing Systems for Rural Development, Agricultural Services Division, FAO, Rome 1977,pp2&21. 340ECD, Critical Issues on Food Marketing Systems in Developing Countries, Paris, France, 1977. Wolin Bain Guthrie, Food D&rib&n in a Latin American City (Cali, Colombia), PhD Thesis, Michigan State University, MI, 1972, p 278; Erdener Kaynak, Comparative analysis of food retailing systems in urban Turkey, PhD Thesis, Cranfield Institute of Technology, UK, 1975, p 481.

environment

of food distributors

In the rapidly growing cities of Latin America and the Middle East, the socioeconomic environment of food distributors is extremely heterogenous. There are acute disparities of income, education and lifestyle among the residents of these cities which make it very difficult for both government officials and businessmen to design food distribution systems that can adequately meet the needs of all segments of market.35 Many of the food consumers in developing countries in the lower income classes for instance remain tied to shopping in traditional general stores and public markets and do not generally patronize the modem food retail institutions because they are unable and therefore unwilling to pay any extra for the services offered by modem distribution systems. These low-income consumers simply do not have enough income. Limited storage capabilities in the typical house, and desire of the housewife to socialize with culturally rooted patterns encourage the high frequency of food shopping trips. That is the reason why food distribution systems serving consumers in FOOD POLICY May 1981


most parts of Latin America and the Middle East with these characteristics seem to be totally conditioned by them. The consumers being sparsely scattered, the distribution system serving them is fragmented. Consumers buy in small quantities and frequently. As a result of such shopping patterns and other factors, the retail distribution structure encountered in simple retail systems is characterized by a large number of small grocery stores carrying only a few lines of products. When private enterprise introduces supermarkets in developing countries, it tends to place them in high and middle income areas simply because there is not enough buying power in low income neighbourhoods. Thus, an institution, which in North America caters adequately for the basic needs of the masses, becomes exclusive in developing countries, bringing the benefits of mass marketing to those who least need them.36 There is not much concern on the part of these large food retail institutions operating in upper and middle-class income areas with the needs and wants of consumers residing in the lower income brackets of an area. The effect of consumer environment of the food distributors is shown in Figure 1. Food shoppers in Latin America and the Middle East are generally willing to devote more time to shop for food than those in developed countries. Furthermore, they are not able to make large purchases at infrequent intervals. This is true in general because of the small amount of cash they have to spend and in particular of food, because of the lack of refrigeration. With limited means of transportation and because of the friendliness of the small food retailers, most of developing country consumers prefer to buy from stores within easy walking distrance - that is within a one kilometre radius. Thus a food distribution system which is composed of a great many small food retail outlets, distributed throughout a community, is more appropriate to their needs. Over the past two decades, much of the literature on the improvement of food distribution systems in developing countries has placed heavy 36Frank Meissner, ‘Rise of Third World emphasis upon the transfer of capital intensive technology originating “demands marketing be stood on its mainly in the USA. The small-scale, limited-line food retailers, and the head” ‘, Marketing News, 6 October 1978, lengthy, poorly coordinated distribution chain that serves them have P 1. lndlrect

Figure 1. System distribution.

approach

(modlfylng)

to food

Notes: a Capital, labour, financial resources, initiative, manage ent talent, know-how, location and site; ‘6 Urbanization, government, competition, suppliers, consumerism; c Culture, population make-up, income distribution, social class, family make-up, education.


forces

Consumer chamcterlstlcsC

Retall businesses and goods

lndlvldual retall stores, supermarkets

T Direct

forces

(controllhng)

87


been identified as inefficient market elements. The literature holds that a modern system of vertically integrated chains would provide substantial benefits through scale economies, the adoption of self-service, and the by-passing of clogged wholesale food markets.37 It is difficult to transfer capital intensive distributive techniques to the Middle East and Latin America with reasonable success. The USA, for example, has been an important nation for two centuries; it has abundant resources and expertise, and received its human capital through immigration. Today, most of the countries in the Middle East and Latin America are generally short on resources and lack of know-how. It is difficult to transfer US marketing technology, which is a product of historical and economic conditions, to a completely dissimilar environment. For that reason, certain difficulties are inherent in transferring technology like supermarketing and horizontal integration from the USA to developing countries. Making technology available is not the same as transferring technology.38 At present, it is evident that there are a number of large food retail stores operating mostly in urban areas of Latin America and the Middle East. It seems that these countries, like most other developing countries, are not ready for food distributive innovations of the West for the following reasons:3’

“Louis P. Bucklin, ‘Improving food retailing in developing Asian countries’, Food Policy, Vol2, No 2, May 1977. p 114. ‘“Dov Izraeli, ob tit, Rei 24, p 5. Wonald Savitt. ‘Is Turkev readv for suoermarkets?‘, pap& presenied at ihe Fadulty of Business Administrative Sciences, Bogazici University, Istanbul, 1973; and Retail Change and Economic Development: Some Insights from Turkey, University of Alberta, 1974.

88

countries is sold on 0 A large amount of the food sold in developing credit; supermarkets do not offer credit facilities. in Latin America and the Middle East shop at 0 Most food consumers frequent intervals four or five times a week, buy small quantities, and patronize those food retail outlets in their close vicinity - a supermarket within a one-kilometre radius would not meet the requirements of the consumers in these countries. 0 There is greater concern in Middle Eastern and Latin American culture for home preparation of food than is generally found in North America. Although supermarkets generally provide a wider selection and better quality products than small food stores, some of the products supermarkets sell are not considered fresh by consumers, especially fresh fruit and vegetables, meat and meat products. difficulties continue to prevent applying self-service 0 Important methods of selling meat, fresh fruit and vegetables. Restrictive local regulations along with certain aspects of consumer acceptance appear to limit self-service sale of meat in most supermarkets operating in developing countries. Food shopping in the Middle East and Latin America, like in other developing countries, is as much social activity as an economic necessity. Supermarkets may disrupt certain social functions in day-today life of food consumers in less developed countries. 0 A low literacy rate in most Middle Eastern and Latin American countries limits the degree to which self-service forms of retailing can operate especially to the extent that the products offered for sale have to be packaged. in most developing countries would displace a substan0 Supermarkets tial number of small food retailers if experience repeats itself. While many small food retailers in the Middle East and Latin America are inefficient in economic terms, they do provide employment. l The adaptation of supermarkets assumes that there is a high cultural similarity between the Middle Eastern and Latin American countries with the USA. FOOD POLICY May 1981


Conclusions

and policy recommendations

The marketing institutions like capital intensive distributive institutions, their operational methods and techniques can only be introduced into the Middle East and Latin America when the forces in the environment permit. There cannot then be an instance of the most appropriate or advance retail institutions and techniques, since what is most appropriate will be different from one environment to another. A retailing system can be meaningfully ‘advanced’ or ‘underdeveloped’ depending only upon whether the environment in which that system operates is advanced or underdeveloped. If this is the case, the nature of the relationship can be speculated in more specific terms than simply advanced or underdeveloped. If we can identify the stages of socioeconomic development, then we should be able to predict in general terms the kind of retail pattern which is found associated with a given stage of development. The policy implications suggested here are designed to institute change as an evolutionary process of the present food distribution systems rather than as a revolution in the food distribution institutions and their operational techniques. It must be pointed out here that changes in food distribution systems of the Middle East and Latin America will ultimately depend upon simultaneous changes in the infrastructure surrounding retailing systems. These changes may be the enabling conditions that will make the retailing changes possible. The best way to design a kind of food distribution system for developing countries will be by working on the existing food distribution institutions of the Middle East and Latin America which can be suitably modified for that purpose. Action programmes to improve the performance of the traditional food distribution structure could be undertaken by govemments, community groups such as retailer or consumer cooperatives or by business enterprises. The existing small food retailers of developing countries cannot grow to the large volume of sales by a programme of reducing prices to generate more volume to enable further price reductions. The reason for this is that these stores are perceived as charging high prices, offering low quality of goods, and having no desirable attributes other than locational convenience, the friendliness of the store personnel and offering some credit facilities. The operators of these small food stores must be able to sense consumer dissatisfaction and be able to discover the causes of such dissatisfaction. They must also be prepared to remedy them. The first set of changes in the food distribution system can deal with the physical appearance of the small food stores. The layout and organization of these stores need to be changed to accommodate greater customer flows. The fixtures of these stores must be attractive. This means that they should facilitate the neat display of goods, while being clean and attractive. The second area for reform deals with the organization of supply channels. This improvement would allow lower consumer prices yet provide reasonable standards of living for the small food retailers as well as the opportunity to accumulate sufficient capital. On the supply side, the organization of small food retailers through grocers’ associations could consolidate the buying power of the operators so that volume purchases could be achieved at relatively low prices. With this pooled volume purchasing, vertical coordination could be fostered by the organization which would allow direct purchasing from producers and


89

Food distributionsystems

manufacturers for their mutual benefit. Thus, the price paid by the small food retailers would be further reduced through rationalization of the supply channels. Finally, the organization of small food retailers would provide for the common transportation and storage of the commodities where necessary. Again, savings could be achieved through rapid turnover of commodities, improved handling, packaging and storage facilities and efficient large transportation of goods. The organization could also arrange a programme of grading and standards which would allow the segmentation of markets and the more efficient distribution of products. Improvement in the management of existing traditional small food retailers might constitute a more natural development in the modernization process. The impact of higher productivity and the gains from large food purchasing power would be immediately felt on the marketing system. The biggest constraint on this course of action is the lack of management talent to run these operations, including the absence of managerial orientation in traditional retailers and the negative effect this traditional attitude has in terms of initiating such cooperative efforts. The pattern of change in food distribution is complicated because it involves the interaction of many different elements. Changes in product lines can bring about changes in sales size which, in turn, permit changes in operating methods and personnel utilization. However, it may be that the operating changes may have to occur first in time, to attract customer attention and thus make possible the changes in merchandise assortment and total sales. An essential element in this process of change is the preservation of locational convenience and mass merchandising for food shoppers. The food store should carry a complete food line, but within each category of foods only the high turnover items. This model store differs considerably from the convenience store found in the USA where its main function is to complement services of conventional supermarkets. Convenience stores in the USA are used by consumers to make small unplanned purchases that were not included in the weekly shopping trip to the supermarket. In both Latin America and the Middle East, neither the length of the shopping trip nor the mode of travel are likely to change easily for the consumers of these two regions in the foreseeable future. Therefore, most food distibution innovations will take place within existing shopping areas. This requirement suggests a process of a gradual adaptation rather than a revolutionary obsolescence and replacement of existing food distribution facilities. Finally, instead of setting up chains of retail stores, establishing controls on retail food prices as is currently the case in several Latin American and Middle Eastern countries, government planners should be developing programmes directed toward helping traditional retailers achieve a higher level of productivity. Managerial and marketing training, as well as incentives for increased investment in existing enterprises, should have top priority in these programmes.

90
