Internationalisation of Food Retailing

INTERNATIONALISATION OF FOOD RETAILING

AND ITS IMPACT ON SUPPLY CHAIN OPERATIONS

Introduction

What is internationalisation, and in particular the internationalisation of the food retailing industry, and why has it become such a major development in relation to the supply chain, and how has it impacted the public consumer market. These are questions that will be explored and discussed over the next few pages.

Internationalisation has made many food retailers look beyond the confines of the domestic market, for their retail presence and the sourcing of produce. Food retailers tend to favour two types of strategies:

* The first is the one-format internationalisation retailers made famous by discount outlets such as Aldi and Lidals. These companies use the same style and format regardless of the country they are operating in, and use the same produce in all areas (minus some local variants). In terms of supply chain operations it's a case of stretching the existing distribution channels and maintaining either regional or centralised distribution hubs, and/or stockless depots operating cross-docking arrangements.

* The other format is the international multiformat or multichannelisation delivered in hypermarket format by retailers such as Carrefour and to some extent Wal-Mart. This format presents the biggest challenges to the supply chain operations, with multiple freight modes, complicated distribution channels that lead to extended supply lead times with unreliable and inconsistent transit times.

Small World Feeling

We live in an age of true global accessibility where we can have food products from any corner of the globe regardless of shape or size. These food products can be delivered to the retailer or customer in a matter of hours and not days or weeks as was the case in years gone by, and it is the supply chain that is expected to achieve this. Food products that were once considered exotic and expensive and only available through exclusive ground agents are now easily accessible and readily available at competitive prices. With the advent of e. commerce and high-speed distribution channels and globally positioned international suppliers and retailers, the planet we live on has become smaller in regards to where we choose to source products.

The consumer can now choose from an incredibly large selection of value for money, quality goods for which the majority of the products can be ordered and purchased 24 hours a day, 365 days a year from outlets such as:

* Hypermarkets - 2500 sq. m plus sized retail outlets;

* Supermarkets - 1000 - 2500 sq. m sized retail outlets

* Discount stores - 1000 - 2500 sq. m sized retail outlets

* E-Commerce (Internet) - The internet makes it possible for all retailers to operate on a global scale, with services such as home shopping and home delivery from suppliers. The role that the Internet can play in supply chain operations is still evolving, but is has significant potential to improve operational efficiency and reduce operating costs as well as enhancing customer services.

Global versus Domestic Suppliers

Where as once retailers used to source their products on a local scale or through suppliers operating in a limited and/or known geographical area, the availability of produce from all corners of the globe has totally changed how retailers and suppliers source their products. Where retailers once only operated at a national level, many are now operating on a truly global scale, one example of a global retailer is the Wal-Mart chain. There are advantages and disadvantages to the supply chain operation when operating either on a national or global scale:

* Domestic. One of the strategic questions a retailer needs to ask it self, is do they source their products at a local level (national) and keep their supply chain operations costs down and uncomplicated. Good communication lines and short distribution channels helps reduce the need for substantial capital outlay, they also reduce the opportunity for distribution failure. Keeping to the domestic market will allow companies to adopt the Just-in-time (JIT) principle and achieve the following:

* Reduce the amount of stock held;

* Reduce any waste (material and human resources);

* Simplify the distribution channels;

* Reduce the opportunity for shrinkage.

But the downside to keeping to the domestic market is the increased competition from multinational companies, who bring with them a multitude of new and innovative products.

* Global. When considering sourcing food on a global scale, one must take into account the modern consumer. They demand high-quality products and complete product range throughout the year, and if one retailer cannot supply they will go to one that can. Chain loyalty is no longer a customer priority, they demand choice and value for money. For retailers to offer choice and value for money they must source on a global scale, which means they can follow the seasons and select the best produce and also buy from cheap economic markets. Global sourcing does carry risks, the most catastrophic being a break in a long supply chain, for which the retailer has little or no control.

Sourcing on a global scale can have a paradoxical effect in terms of social accountability and business ethics. The average westernised consumer has a much greater understanding of social and economic issues not just on the domestic front but on an international level. This greater understanding makes the consumer a powerful instrument in terms of strategic decision making and on issues such as where we source from, how we move it along the supply chain and how and who we sell it to. As an example Wal-Mart sourced US$10 Billion worth of goods in China in 2001 (Trompiz 2003), it could be said that Wal-Mart are exploiting cheap labour and loosely regulated manufacturing standards, but on the other hand one could say Wal-Mart are significantly contributing to a growing economy.

Public image and consumer confidence in the food retailing industry is a vital factor when considering operating on a global scale, and this applies to and is carried through the entire supply chain.

Seasonal and Time Critical Goods

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