Friday, July 1, 2022

Traditional retail markets hold own against supermarkets

On an almost monthly basis a supermarket opens somewhere in Botswana but backyard gardeners will find comfort in the findings of the 2013 Food and Agriculture Organisation report which says that traditional retail outlets are still the main avenue through which people in developing countries buy fresh unprocessed products such as fruits and vegetables.

“The advantages of traditional outlets, particularly with respect to perishable products, appear to arise from three main interconnecting factors: ability to offer products at low prices, considerable flexibility in product standards, and convenience for consumers due to flexible retail market locations,” the report says.

Elaborating on this point in another section, the report notes that traditional retailers typically operate under structures that give them pricing advantages relative to modern supermarkets.

“Lower labour and overhead costs, as well as higher product turnover rates, result in lower per-unit costs. Modern supermarkets need to provide additional services (for example, processing, sorting, re-packing, refrigeration) and control significant physical assets (for example, buildings and equipment), which add to their costs,” it says.

The end result is that these differences in cost structure allow traditional retailers to develop flexible pricing strategies for different locations and different socioeconomic groups. The survey found that low-income consumers in Thailand and Viet Nam overwhelmingly purchase fruits and vegetables in traditional retail outlets because of lower prices and that in Kenya, Nicaragua and Zambia, over 90 percent of all fruits and vegetables are purchased through traditional outlets.

The survey found that product standards and consumer expectations for traditional food value chains may also be different, permitting the marketing of foods that modern supermarkets would reject and allowing traditional outlets to lower their prices.

“Evidence shows that all consumers care about quality but that those who frequent traditional outlets may have different priorities than those shopping at modern retail outlets. In Madagascar, consumers purchasing from traditional retailers considered meat type and smell highly important rather than other characteristics typically valued by supermarket buyers, such as origin, date of slaughter, fat content and whether or not the product had been under constant refrigeration,” the report says.

However, traditional retail outlets and supermarkets do have a point of contact. Increasingly nowadays, the former sell processed and packaged foods, this being a key part of a corporate strategy. Through a business model that has been successfully implemented in Eastern Europe, Latin America and the Caribbean, major importers and supermarkets use packaged goods to link to traditional retailers and form mini-hubs for their products across the country. The report says that over time, these importers and supermarkets increased their knowledge of local markets and leveraged their brands to increase market share. Later, they expanded into high-value fruit, vegetable, dairy and meat product categories.

In terms of this business model, supermarkets first enter certain product categories (processed and packaged goods), geographies (urban areas first) and socio-economic segments (high- income consumers) before expanding into other areas.

“This business model may be harder to implement for perishable foods such as fresh fruits and vegetables, because their production and distribution tend to be highly fragmented. Seasonal production patterns combined with the perishable nature of fresh produce make it difficult for businesses to ensure a predictable, year-round supply, which is critical for supermarkets. These products also face higher non-tariff barriers, such as quality and safety standards, that limit international trade and global procurement. They also require energy-intensive distribution infrastructure, such as refrigeration, which is often lacking in developing countries.”

On the downside, the report notes that while traditional value chains are a good source of affordable, micronutrient-rich foods, poor post-harvest storage and distribution infrastructure can lead to significant food losses and deterioration in nutritional quality. Traditional value chains suffer from seasonal shortages and high transaction costs that can offset their ability to offer low prices. Interventions to improve the efficiency of traditional food value chains can be effective in improving access to micronutrients, particularly among poor people. In contrast, modern value chains tend to have more efficient distribution chains, with better year-round availability of a wide variety of foods.

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