Provide students with a classification system for distribution formulae and their current status in Italy. The lessons will give students a greater understand of how indivudal distribution formulae are configured.
- Main variables for classification of distribution formulae.
- Grocery and non-grocery classification.
- Evolution of distribution formulae in Italy compared to other European countries.
- Distribution formulae for grocery.
- Distribution formulae for non-grocery.
- Other distribution formulae: non-store retailing, shopping centre and retail park.
- Cash and carry, rack jobbing, truck jobbing, drop shipping.
- Evolution of grocery and non-grocery wholesaling in Italy.
- Forecasting strategies of independent wholesaler.
- Other forms of wholesale: wholesale commerce on board ships, markets in general, associations for non-grocery wholesale.
- The role of inter-business coordination.
- Large agglomerations of retail outlets.
Grocery and non-grocery classification
The most common model in the specialist literature classifies distribution formulae on the basis of at least two overlapping parameters. The main variables used for classifying them are:
- degree of specialisation (width and depth) of assortment;
- sales technique used;
- location of points of sale;
- price category and contribution margin;
- inventory turnover;
- size of retail business.
Grocery - Non Grocery classification
Number of grocery stores in Italy and Europe
- Macro grouping of products;
- perishable (fruit and vegetables, meat, fish, bread etc);
- various non-perishable goods (tinned food, hygiene products, etc);
- textiles (clothing, underwear, linen, etc.);
- bazaar (household goods, stationery, toys, gardening, etc);
- over 50,000 sales items;
- over 2,500 sq.mt. surface area, sometimes over 10,000 sq.mt;
- non-specialist assortment;
- differentiation and variety of HYPER;
- included in shopping malls with specialist shop.
Grocery retail (cont)
- Large number of different sales items;
- surface area >400 sq.mt. (average 800 sq.mt.);
- low cost services and products;
- self service;
- convenient and efficiently-organised;
- differentiation between supermarkets;
- associated groups of small sales points with broad and comprehensive assortment (fresh produce);
- large integrated structures.
Grocery retail (cont.)
- Simple everyday consumer goods;
- surface area between 200 and 400 sq.mt.;
- selected number of high turnover brand items, reduced profit margins;
- self service;
- convenient local service.
- Limited number of non-brand items (low level of specialisation);
- low level of service;
- hard discount: very good price reductions always available (generic products),
- soft discount: transformation of superettes into hard superettes (with leading brands in that country).
Traditional small shops
- non-specialist assortment
- significant degree of convenience and assistance
- need to reposition formula (creating associations).
Non grocery retail (cont.)
Large specialist stores;
- Significant negotiating power over producers.
- Specialist function.
- Buying and selling.
- Strategic approach designed to take advantage of a combination of market variables (price, assortment and service) to create the conditions for being competitive.
Large department store
- specialist assortment in non-food departments;
- management policy encourages increased productivity of spaces and work;
- progressive decline in original type of large general department store:
- development of non-specialised retail (supermarkets, hypermarkets, non-food discounts);
- increasing interest in specialist town-centre shops.
Non-grocery retail (cont.)
Retail businesses with specific assortment with a more or less limited number of lines and different products all belonging to the same sector, or related through “function” or lifestyle of a potential customer group.
They are noted for:
- competitive advantage based on depth and completeness of their assortments and the service and information they provide;
- flexibile operational systems;
- competition based on early adoption of product differentiation policy (monopoly type competition);
- competitive policy not based on price (price control).
Non-grocery retail (cont.)
Sale of goods from mobile sales points is a non-specialised form of distribution which aims to capture those market segments attracted by low prices.
- they source very low-cost supplies or discontinued lines (from industry or shops) which are technically obsolete or out of fashion;
- production function is effective (better use of productive capacity);
- target consumers are different from those of other discount stores.
Non-store retailing and Retail Park
- Selling through postal catalogues, vending machines, phone and tele sales;
- responds to customers’ desire to make better use of free time;
- door-to-door sales and multi-level marketing;
- different mechanisms for recruitment, motivation and economic incentives for components of the network;
- e-commerce (limits):
- minimal costs for providing free delivery;
- home delivery with reduced margins for delivery times;
- rational reduction of width and depth of assortment.
- Group of three or more retail businesses;
- Specialised in sale of non-food items;
- Consumers are united by a common interest (DIY, sport, handicrafts)
Planned Shopping Centre
- Single, coordinated planning and management (assortment planning, administration, promotion);
- independent retail businesses (non-specialised and specialised stores as well as various services).
- Specific functional characteristics;
- Integrative capacity
- Shopping Centres based on integration (quantitative and/or qualitative);
- Shopping Centres that fill a gap in market or substitute existing market.
- Inclusion/absence of certain types of stores in merchandising plan.
If the basic mix of services is the same, then quantitative factors (like levels of service, quality of products and price level) will determine the image of a shopping centre.
Some basic concepts
Wholesalers and the role they play in the shopping industry
- Assortment planning;
- movement in time and space (transport and storage);
- quantitative and qualitative adaptation;
- information transfer from supplier to client;
Some basic concepts (cont.)
Running a wholesale business
Cash & carry
- There are no costs relating to financing client, transport costs, sales assistance is limited and human resources costs reduced, low prices.
- Wholesaler is responsible for looking after the shelves the client makes available or rents out;
- no transfer of ownership until final sale;
- wholesaler is responsible for inventory control, pricing, turnover of publicity material, substituting deteriorated stock.
- Attempt at door to door sales, with itinerant stock.
- Wholesalers, find out what retailers need then submit the order directly to supplier who delivers goods to client.
Traditional grocery wholesaler and cash and carry
Traditional grocery wholesaler
These are usually small, family-run businesses where efficiency and opportunity for development are limited.
- Crisis in traditional wholesale businesses as they are squeezed from above and below in the supply chain because of vertical integration phenomena;
- to reduce the impact of GDs, the industry has chosen to support traditional wholesalers, even if it means cutting down on efficiency and profit margins, adopting:
- different kinds of distribution channels at local level, with professional sellers (agents or reps. ) with or without warehouses;
- local wholesalers/agents, with a greater depth of range (mono or multibrand, mono or multi company) and levels of service adequate for market demands.
Traditional grocery wholesaler and cash and carry (cont.)
Grocery cash and carry wholesale
- Self service;
- standardised logistics for stocking, storing and transporting goods;
- reduced transport and finance services for clients;
- reduced costs and lower prices;
- surface area increasing (approx. 4,000 sq mt, some over 10,000 sq mt).
- Small retailers, especially in South;
- LSR when they are out of stock or want to add local variation to assortment;
- large buyers (hotels, bars, communities, organisations, hotels etc.).
Development in less evolved foreign markets
Opportunities: Countries where the distribution structure needs traditional wholesalers, big enough and over a long enough period of time to offset the initial investment costs without having to face tough competition from large-scale retailers or industry.
Threats: High research costs, lack of information, linguistic and legal barriers, high costs relating to finding and keeping customers, lack of legal protection regarding contract, political and economic risks.
Focus on National market but in association with other companies
Opportunities: Greater contractual power with manufacturers and therefore more likely to prove competitive to their customers compared to other competing supply chains.
Threats: When competition is strong and the competitors are large retailers or manufacturers (with downstream integration even if a franchise) forming associations is, sooner or later, the only way to survive.
Opening retail sales points in less evolved less crowded markets
Opportunities: commercial opportunities and advantages somewhat limited in time because of rapid evolution in the industry.
Threats: Financial and management difficulties not to be underestimated (administration problems widespread crime, unreliable workforce etc).
Phase I: research
- Analysis of how commercially attractive one or more foreign markets might be.
- Participation in general trade fairs.
- Acquire marketing information on potential customers.
Phase II: piloting
- Visit potential customers abroad.
- Receive visits from potential foreign customers.
- Business correspondence and phone-calls leading to a trial order.
- Send out catalogues, price lists, videos and sample products. Find ways of dealing with problems relating to language, customs regulations, taxes, transport, currency, banking, credit etc.
- Decide “on the ground” how attractive the market really is.
International marketing (cont.)
Phase III: development
- Taking part in specialist trade fairs.
- In-depth analysis of characteristics of specific market sector of interest and the prospects it has for development.
- Gaining new customers through “travelling” sales people (executives or agents/representatives).
- Opening up offices abroad, with or without warehouse, in collaboration with foreign operators.
Phase IV: consolidation
- Identifying other forms of collaboration (distribution agreements, joint ventures etc.) aimed at holding on to the competitive advantage gained.
Problems relating to itinerant wholesaling by sea
- Rationalisation of logistics.
- Definition of travelling time.
- Quantification of number of market days to allot to each hypothetical port of call.
- Assessment of political problems in each hypothetical destination.
- Analysis and solution of problems relating to dealing with the daily takings in each of the planned market places.
- Evaluation of various tax benefits available as well as currency and customs problems.
- Evaluation of most effective advertising strategies to use in each of the planned destinations.
- Assessment, with retailers concerned, of any operating difficulties.
- Checking out of possible partnership with shipping company, regarding ship-shop as well as restocking.
- Breakdown analysis of costs involved for all participants in venture.
- Evaluation of overall feasability of venture as regards various aspects of marketing and management.
Wholesale General Markets and Shopping Centres
General markets for production
- Near areas of production, include producers and collectors who select assortment;
- Customers are generally wholesalers or LRO buyers from national or foreign markets.
General markets for consumers
- Near town centres, created by wholesalers;
- Customers are generally local small retailers.
Wholesale Shopping Centres
- Based on principle of cumulative attraction.
Wholesale General Markets and Shopping Centres (cont.)
Advantages for clientele;
- Reduced search and comparing costs;
- optimisation of costs of shopping expedition;
- logistics and car parking;
- availability of commercial brands, variety of assortment and promotional support.
Advantages for wholesale businesses
- Sharing of services and costs;
- joint marketing projects;
- joint training schemes.