Copyright is owned by the Author of the thesis. Permission is given for a copy to be downloaded by an individual for the purpose of research and private study only. The thesis may not be reproduced elsewhere without the permission of the Author. Massey University li~rc'lry New Zealand & Pacific Collec-tion THE SUPERMARKET AND ITS INFLUENCE UPON THE NEW ZEALAND MARKET STRUCTURE FOR FRESH FRUIT AND VEGETABLES by A. N. LAIRD A dissertation submitted at Massey University of Manawatu in partial fulfilment of the requirements for the degree, Master of Agricultural Science . ACKNOWLEDGEMENTS The writer wishes to record his thanks for the consideration afforded him by both his supervisor Mr . D. Ridler and Professor w.v. Candler , in the compiling and drafting of this dissertation . Financial assistance from the Bank of New South Wales and the Taranaki Scholarships Trust Board , along with a grant made by the New Zealand Produce Growers ' Federation was responsible for this course of study ' s being followed to its logical conclusion . A primary obligation to the Banking institutions , ' Wales ' and C. B. A., is recognized for their interest and material assistance in the initial investigations . A further note of appreciation goes to those people whose co- operation and courtesy enabled the realisation of the results arrived at here , but who for various reasons must remain anonymous . Finally , a special vote of thanks goes to Bill for his wholehearted assistance , to my mother for her persistent help , and to Anne whose unfailing support and hard work as an editor in the limited time available to her made possible this final copy . -ooo- C O N T E N T S PAGE INTRODUCTION ix CHAPTER ONE THE SUPERMARKET 1.1 Introduction 1.2 The supermarket defined 1.3 Factors facilitating the growth and development of supermarket operations 1.4 The development of supermarketing . CHAPTER TWO SUPERMARKET PROCUREMENT POLICIES AND PRACTICES FOR FRESH FRUIT AND VEGETABLES 2.1 Introduction 2.2 Sources of produce in America and Western Europe 2•3 The situation in New Zealand 2.4 Conclusion CHAPTER THREE SUPERMARKET SELLING POLICY, ORGANISATION , AND THE PLACE OF THE FRESH FRUIT AND VEGETABLE DEPARTMENT Introduction 3.1 The contribution of the produce department to supermarket operations 3.2 Pricing policy 3.3 Sales promotion 3.4 Prepackaging 3.5 Competition in ·selling v 1 , _ 4 - 24 52 53 60 79 80 81 86 92 102 -- 104 4.1 4.2 4.4 CHAPTER FOUR THE IMPACT OF SUPERMARKETING ON THE RETAIL SECTOR Introduction The situation in the United States and the United Kingdom The situation in New Zealand Conclusion CHAPTER FIVE CHANGES IN PRODUCER ORGANISATION AND SELLING UNDER SUPERMARKETING Introduction Direct sales and implications for the wholesaler The present extent of the grower 's marketing of his produce and his orientation towards supermarket requirements Bargaining power and price formation The grower's attitude to direct selling The grower ' s present need for countervailance 5.7 Present forms of co-operative grower action and countervailance A suggested marketing form for the grower's acquisition of market power Conclusion 110 110 113 142 144 145 149 152 163 167 169 175 185 CONCLUSION 187 INTRODUCTION The Study: Since 1958, supermarkets have been selling fresh fruit and vegetables, (otherwise known as fresh produce), in New Zealand. Their merchandising policies differ in many ways to those which characterise the traditional market structure of grower , wholesaler and greengrocer. Accordingly, the subsequent effects of these policies upon the three parties mentioned have been many and varied. Of paramount importance in this respect is the practice which involves the supermarket's bypassing of the wholesaler and purchasing his supplies directly from the grower . Obviously, this must adversely affect the wholesaler, and it is for this reason that the constraint upon the extent of direct procurement by supermarkets receives particular attention. The determining legislation behind this constraint is enforced by the wholesale industry, and it limits the realisation of cost economies by growers and supermarkets from purchasing direct. Furthermore, the grower views a laissez-faire policy of direct sales as a step towards his domination by monopoly interests at retail. This is a point of conjecture, but its importance lies in the fact that auction is viewed by growers as the means whereby this possibility can be prevented. The wholesale industry unequivocally determines certain activities of the growing and retailing industries for fresh produce. Whe ther or not it should possess this right is a further po~t of . \ conjecture, because by virtue of its operations and the present lack of competition, it engenders monopsonistic-monopolistic practiees, and carries a negligible amount of the risk involved in the distribution process. Study Plan: The writer is first concerned with giving an overall impression of the supermarket, explaining what it is, and how it operates. This is followed by the factors which led to its inception in the United States of America, and its subsequent adaptation in Western Europe and New Zealand. Consideration is then given to supermarket merchandising policies as they apply to fresh produce in New Zealand. Chapters Two and Three detail procurement and selling policies while Chapters Four and Five discuss the effects which these policies have had, and are likely to have, upon both the greengrocer and the grower, particularly if the constraint on direct procurement were lifted. Data relative to the New Zealand scene was largely obtained from personal interviews with supermarket chainstore executives, grocery store operators, wholesalers of fresh produce, greengrocers, growers, shoppers•, and others having a direct interest in supermarket development (e.g. real estate agents, bankers, butchers and drapers). This extensive nature of interviews was necessary because of the paucity of literature available on the subject, and the very limited amount of statistical data, often of dubious value, which has been published in New Zealand. Consequently, much of the statistipal data and general information that was made available to the writer was done so on the understanding that it would be treated as confidential with respect to identification of source. -ooo- - - - - - - - --- - .... - - - -- - .. - - - .... .... - - - - - - - - - - - - - - • Some 100 housewife-shoppers were interviewed in supermarkets, grocery stores and greengrocery stores, using a questionnaire which inquired after reasons for patronage. 1 . 1 Introduction. 1. CHAPTER ONE THE SUPERMARKET The inception of supermarketing has caus ed a revolution in food retailing over the past 35 years . These changes were initiated in the structure of distribution and led to the dissolution of lines of demarcation distinguishing the traditional forms of retailing. The aim of this chapter is to introduce and define the supermarket and , in so doing , to put into perspective its position in the market structure of food distribution . The reasons for , and factors behind , the growth and development of supermarketing in various market structures, are discussed at some length . Emphasis is laid upon the United States because supermarketing evolved in this country . In other parts of the world it has adapted to the prevailing market conditions , and has subsequently tended to orientate the respective environments into which it is introduced, towards its own merchandising policies . This is evidenced by the rapid adoption of self service merchandising activities in all fields of retailing besides that of food . The development of supermarketing is further shown in Western European countries , along with the factors in a nation ' s "total environment" which facilitate its adaptation . Accordingly , from this point it is a natural step to consider the New Zealand general market structure since this is a combination of conditions to be found in both America and estern Europe . For example , New Zealand has a standard of living similar to that in America , whereas it retains , in fresh produce marketing , much of the British and West European form and mental attitude . 2 . Therefore , although supermarketing evolved in America , a description of its growth and development in other countries is necessary in order to account for past and current trends , and to postulate the possible future effects of its establishment in New Zealand . - oOo- 1 . 2 The Supermarket Defined. "The feature characterising the supermarket is not turnover . but what it purports to do. namely , to bring together under one roof and channel , thru ' one money transaction , the wares of the specialised food stores , which were once the only outlets for provisions . " - (Abbot) . For the purposes of this analysis , a supermarket is a self- service retail outlet of 4 , 000 sq . ft ., or more , selling space , and whose inventory includes a complete range of food products - meat , produce , grocery , frozen foods , dairy , delicatessen , dry goods , bakery , and some non- foods , soft goods and general merchandise . The grocery and meat departments must be self- service , and adjacent car parking facilities provided . There is no general agreement as to the definition of a supermarket because such institutions differ between countries , to the extent of having only the name in common . 1 • The accepted United States trade definition is ' a retail food store which carries food in various departments , provides a parking lot for customers , does an annual volume of business of at least S(U . S . )500 , 000 , and in which there is self-service in the grocery department' . In contrast to the American definition , a supermarket in the United Kingdom is defined as ' a store of not less than 2 9000 sq . ft . sales area , with three or more check- outs , and operated mainly on self- service , whose range of merchandise comprises all food groups including fresh meat and fresh produce , plus basic household requirements' . Nevertheless , the basic retail operating methods are the same , e . g . 2 self- servic e and the price- inventory- stock turn relationship . The prime 1. O. E. E. C. The Economic Performance of Self Service in Europe , p .1 13 . 2 . Refers to the following basic features of supermarketing operation: a high rate of stock turn , discriminatory pricing , and a large di•ersified inTentory . 4. requirement of its makeup is that it be a departmentalised retail food store, co prising the five departments of meat , produce , dairy , grocery and non-foods , with the grocery department at least being self-service and check-out. The size of the supermarket (or self- service store) therefore, is really irrelevant, as many est European, as well as New Zealand self-service stores which are called supermarkets would in American terms be called superettes or bantam supermarkets. Particularly does this become apparent when the 2,000 - 6,ooo sq . ft . selling area of the West European •supermarket ' is compared with the 25 ,000 sq.ft. and more , of its American counterpart. As a consequence of this difference in size , m at and produce departments in American •type' supermarkets virtually beco e self-contained butchery and greengrocery stores.3 1.3 Factors Facilitating the Growth and Development of Supermarket Operations. Introduction. The growth and development of supermarketing (as with any innovation), is determined by the environment into which it is introduced. In this instance, a highly deTeloped marketing syste and faYourable total environment are the two factors determi.ning the successful adoption and adaptation of this retail entity. By •a highly deTeloped rketing syste • is eant one which approaches 1 fulfil ent of the definition of erchandising - the name given to the operation which en urea that the corr ct goods are at the right place, at the right time, and at the right price. The term •total enYironment• compri es the syndrome of economic nd social factors as ociated with the ace ptance of Supermarket merchandising policies. - - - ._. - - - - - - ... - _. - -- -- - - ... - .... - - ... -- - - ..... - - - - - .... ._. - - 3. In the larger •• Zealand supermarkets this ia alaoat true, as each ot these departaent•e ia di•orced from the general grocel'J' etc. operation, and must r turn a certain gross and net profit ~ on sales. The modern supermarket has gone a long way towards satisfying the inherent desire of customers for attractive and convenient shopping facilities, as nshopping convenience" no longer means simply the provision of personal service , credit, delivery and the location of the shop. It now also implies the hours which it opens, the ease with which it can be approached by car, and whether merchandise is easily visible and obtainable to facilitate quick selection. Finally, convenience implies the speed with which purchases can be wrapped up and paid for. 4 Therefore , much of the appeal of supermarketing to the consumer depends on the techniques of self-service selection , scrambled merchandising , and continual alteration of product mix in length and depth. These introduce such economy and utility values as lowered prices, economy of time in buying, and the associate usefulness of concentrating shopping under one roof (i.e. one-stop shopping) . The rising levels of living increase the ability and willingness of consumers to pay more for convenience and to adopt supermarket merchandising techniques. Through its internal characteristics the supermarket has realised the advantages of price-cutting , of displaying a wider product line and of non-price competition . 5 These competitive forces will tend to increase the elasticity of the demand function and initiate an exodus from the marketing system of small stores which possess inelastic demand demand functions. This process shall recur with a further lowering of prices and subsequent departures. However , the major determinants of supermarket growth in any market system are the factors eiternal to and characteristi~ of operations. -ooo- 4. C.Fulop. "Competition for Consumers". p. 29-30. I.E.A. 1964. 5. Price reduction and non-price competition are analagous in effect. 6 . 1 . 2 . 2 External Factors. 6 The interaction of the supermarket ' s affecting and being affected by its environment will determine its growth and deTelopment within the market system . In the first instance , the environment within which the supermarket operates , must favour its particular form of operations . One classification of the forces comprising the total environment could be demographic- geographic factors; technological factors; the economic environment; and psychological factors. Markin calls such "the forces of demand" . Demographic- Geographic Factors. A large potential and homogeneous market for the individual supermarket based upon either a high population density or transportation facilities to shoppers , is necessary . Important here are the spatial changes in urban structure . As Zimmerman states , "Supermarkets have from their inception been a suburban phenomenon . "7 Population growth leads to location shifts to suburban areas ('' the race to the suburbs") . Here are found higher income leve1s8 and , consequently , transportation which increases the individual ' s mobility , thereby further dispersing population and decentralising industry. The popularity of suburban living has weakened the functional links between city centres and their adjacent suburbs . However , associat ed with these developments is a strong demand for goods and services . Fulfilling this demand has caused the suburbanisation of retailing , namely , shopping centre development in which the supermarket plays the major role . The suburban environmental charact eristics of low rentals , relatively affluent and mobile consumers , and reduced competition , facilitate 6. Those factors over which the supermarket has little if any control , and which are conducive to this type of shopping . 7. Zimmerman . "Supermarketing0 • P. 141. 8. E. M. Hoover . "Motor Metropolis" . Journal Industrial Economics , June 1965. supermarket development , which is an adjunct to the suburban movement of population. Technological Factors . The following developments initially facilitated the development and growth of supermarket retailing , and ensure its continued growth and expansion . 1 . The Automobile . As already stated , the acceptance of this as a shopping aid gives the consumer mobility , thereby decentralising retailing. This is the American pattern , where 86 . 6 per cent . of all food shoppers always use an automobile , an additional 1 . 8 per cent . using it only part of the time.9 Such is not the case in Great Britain, where only 10 per cent . of all shoppers arriving at a supermarket use the car as their means of transport . Reliance is on public transport (47 per cent . ) and foot traffic (43 per cent . ) . 2. Refrigeration . This is essential for the merchandising of perishables (and complementary supermarket merchandising techniques , namely , self- service) , from refrigerated display units . Through this was fostered the rapid expansion of frozen food lines , its influence on shopping habits furthering the concept of one-atop- shopping. 3 . New Processing and PreserYing Techniques . Quick freeze , instant mix and dehydration also facilitat ed self-service operations . Such market orientated innovations provide the housewife with a year-round supply , qua1ity maintenance being assured . Furtheraore , there is the growth of pre- packaging of perishable products which , besides complementing self- serTice , improves presentation and adds convenience . 9 . F. J . CharYat . 11Supermarketing" . 1961) . P. 48 . (The Macmillan Company . New York 8. Consumer Income - the Economic Factor. Consumer income per capita is the main concern of this section, the level of economic development, and whether the economic environment is favourable to change being its determinants. These apply as much to the modern supermarket which requires that its customers have a high standard of living and a high per capita disposable income, as 10 they did to the early 11cheapy" supermarket , associated with a lo• standard of living. In this regard, the rising standard of living, post World War II, was the major contributing factor to the growth of supermarket merchandising operations, particularly in North America, and latterly in Western Europe . The increase of a country's overall economic activity, (as reflected by its gross nation.al product , personal disposable income and personal consumption expenditure), and the consequent increase in consumer purchasing power, narrows the ' gap' between the high and lo• income groups resulting in the increasing size of the middle income class. This group is the dominant supermarket customer, ae it is alert to change, responsive to ba rgains, and possesses the major percentage of consumer 11 purchasing power. The Spanish Government overlooked this point in its "Operal:ion Supermercados", in that a1though the Spanish market possesses the wide extremes of income, (as reflected by the successfu1 establishment ----------------..----------------------- 10. Ana1agous in form and operation to the Discount House of the 1960's. 11. The growth of supermarkets in Puerto Rico illustrates these points, in that a fortuitous economic climate has been present from the mid­ fifties. Thia increase in the island's economic activity is reflected in the rise of per capita 1.ncomes from Slt-31.00 p.a. in 1955 to $750.00 p.a. in 196lt. In addition Puerto Rico's supermarkets (25 in· 1964) are spotted throughout the middle class neighbourhoods. Business Week. May 16th. 1964. 'Food Chain with a Latin Flair'. 12 of supermarkets in high income areas ) , the average per capita disposable income is only S360 . 00 per year . 13 Except for Portugal , this is the lowest level in Western Europe , the figure being only one- quarter of that possessed per capita in leading West European countries such as the United Kingdom , West Germany , Switzerland , Denmark and the Netherlands . If the number of automobiles per thou$and head of popu1ation is taken as a measure of a country ' s standard of living , Spain ' s position as compared to that of the United Kingdom and to the United States can be illustrated by the following figures taken in 1960 - Spain 10 United Kingdom 98 United States 335 . The Spanish housewife , (and to a lesser extent the West European housewife) , does not have the discretionary buying power of the American . Consequently there is a lesser desire for convenience in produce use and preparation , and a slower acceptance of ' convenienc e foods '. In addit ion , cooking in West Europe is still regarded as an art , a fact which places emphasis 14 upon staple food items . On the other hand , the American housewife , as well as desiring labour saving products , can afford the associate expense of convenience foods , and she is highly susceptible to those merchandising techniques designed to promote impulse sales . This is because the relatively higher income leTe1 means fewer budget restrictions , and an 12. J . R. Guerin . ' Limitations of Supermarkets in Spain'. Journal of Marketing. Oct. 1964 . p . 23 . ' Supermarkets in Spain are located in the high income districts'. 13 . E. H. Lewis . •Marketing in Spain'. Journal of Marketing . Oct .1964 . pp. 17- 21. 14 . J . R. Guerin. op . cit . p .• 23 . "Even in Madrid where per capi t a income is about 50% above the national average , ;4~ of the popu1ation in 1960 spent only 28 cents ( U. S. ) per person per day for food . Over 27'/I of this was spent for i t ems (bread , sugar , oil , eggs) whose margins are low , and in Spain are kept t very low levels by Government controls . "For these low income customers , purchases of high margin items would be negligible . " 10. increased willingness to buy frills and variations, the consumer becoming increasingly vulnerable to competitive forms of selling. Price has become subordinated in the buyer's mind by other utilities such as variety and quality of merchandise offered, more food items available under one roof, and courtesy shown by supermarket personnel. The fact that the family of the typical American shopper possesses a car, has an inco e of $5850.00 per year, and spends about s1125.oo in super arkets each year, further illustrates the difficu1t economic situation that the super arket operator has to face in Western Europe. Thus, the number of supermarkets in a country can be said to be an index of the size of its middle class since successful supermarket operation requires consumer income to be at or above a level which permits the purchase of commodities possessing high as well as low margins. Psychological Factors. It is difficult to determine whether changes in consumer purchasing behaviour preceded, and as a result induced changes in supermarket operations, or whether it was the changed selling techniques themselves which brought about the different outlooks and methods in food retailing. According to Charvat~5 the changes in shopping habits occurred concommitantly with the development of the supermarket. Such develop ents initiated the concept of 'simplified ' 16 selling', with self-service and cash'n'carry merchandising the basic precepts. The housewife in the supermarket is able to roam at will through the varying types of merchandise 'taking-in' the attractive present tion of items which are displayed to their fu11 st advantage. ~~------------------------------------ 15. F.Charvat. op.cit. p.46. 16. Cash paid by customers for purchases. no credit given by retailer, and customers usurp retailers• traditional delivery function. 11. There is independence in the buying process, and opportunity to compare and contrast different commodities inter- and intra-generically. Consequently there is complete relief from sales pressure, (unless other- wise desired), in that the housewife can make her own selection without haTing to ask to be shown a cheaper item. There is also an inherent desire to purchase whatever catches the eye and always the temptation to buy more than was intended, and thus to over-spend. The mass presentation of merchandise coupled with self-service selection complements the length (number of items stocked), and depth (varieties of each item stocked) of inventory. AttractiTe advertising17 , creates an in-store atmosphere which stimulates the tendence to impulse buying. This practice is defined as "the purchase resulting from a decision made on the spot in the retail outlet where the consumer sees the product displayed." Various consumer research studies18 state that this has become a significant practice among supermarket shoppers, accounting for 51 per cent. of United States retail grocery purchases in 1959. The consumer's total demand curve is moved out and upward to the right by this practice, whilst the elasticity of demand for each commodity presented for sale is increased. These are actions which indicate a reduction in the rigidity of adherence to traditional tastes, preferences and habits. hile impulse buying and its increasing incidence demonstrates the effect of supermarket merchandising upon consumer purchasing behaviour, the supermarket's inventory appeals to the housewife's vanity and induces the feeling that she is buying wisely, and to the needs of herself and family. 1?~ Serving to create fayourable brand images and to presell commodities through price and non ... price appeals. 18. See: Dupont Consumer Buying Habits Study• 1959; Impulse Buying Release. No.131; Markin. op.cit. p.52; and Shopping in Suburbia . J. Walter Thompson Co. Ltd. London .1. 1963. 12 . Other Factors . Various other external forces have contributed toward supermarket growth and development . Three , which initiated and continue the demand for '' convenience foodsn are : 19 (1) The steadily increasing percentage of married women employed outside the home . 20 This increases disposable income per household and reduces time for preparation of meals . (2) The increase in the number of people living in flats and small households who prefer to buy food in small standard portions . and , (3) The scarcity of cheap household help . In addition , promotional activities , which identify manufacturers and supermarkets with their respective brands , serve to presell the customer and facilitate further self- service operations . Furthermore , with respect more to Western Europe and the United Kingdom , population shifts a.re of importance , as migration has the effect ot watering down restrictions of habit and tradition . 21 Final.ly , aggressive retailing leadership determines supermarket growth . Two examples of this are the MIGROS chain of supermarkets in Switzerland , and the initiation of supermarketing by the American fir of WESTONS in West Germany and the Uni t ed Kingdom. -------------------------------------- 19 . F. J . Lunding . Progress . Summer & Autumn Issue for 1959 . ' The Revolution in Food Distribution in America•. p . 14<>- 1 . 20 . C. Fulop. op . cit . p . 27 . {"In 1961 more than half the women in paid employment in the United Kingdom were married" . i . e . 4 million in a total female labour force of 7.8 million. 21 . Business eek . May 16th. 1964. op . cit . Post- orld War 11 migrations to Puerto Rico aided the establishment of aupermarketing there . 13 . I nternal Characteristi cs of Supermarket Operations. 22 The supermarket successfully entered marketing systems at the expense of the resident retailer s . For this reason , concern is with those characteristics which induced consumers to patronise the supermarket rather than its competitors - (the chain store , country store , small store and specialty store) . The basis of the supermarket ' s competitive advantage is its ability to operate on a low gross and net profit margin ; 23 both taken as a percentage of sales . One way in which this is demonstrated is in its ability to feature products at prices which on an aYerage are less than those of its competitors . Major emphasis is placed on turnover to bring the supermarket 'into- line ' with its capacity and optimum profit potential . The reason for this is that capacity is a direc t function of inventory size . Consequently , possession of excess capacity makes possible an inventory increase without a large increase in marginal cost . This requires that inventory and sales be increased to the point where marginal cost equals demand . In this way the optimum profit potential of the supermarket can be approached . The correct manipu1ation of the following variables making up the merchandising mix is necessary if the supermarket is to maximize i t s co petitiTe advant age : 1 . Pricing Behaviour . 2 . Inventory policy . 3. Promo t ional techniques . 4. Shopping facilitating services . 22 . Factors which characterise supermarket operation and draw custom. 23 . Colonial Study. Progressive Grocer . c . 74 . Gross Profit 18 .8 per cent of Stor e Sales . Ne t Profit (before tax) 4. 8 per cent . of Store Sales . 14. ~ricing Behaviour: The supermarket is a multi-product firm. Accordingly, to maximize its profits, prices must be set so that a greater contribution to overhead costs and profits comes from products facing a relatively inelastic curve, than from thos e commodities stocked whose demand is more elastic. Tha t is, profits can be maximized only if a form of price discrimination is practised, (in the sense that different profit percentages are realised on several commodities). As mentioned previously, fixed costs are high. This requires operating as close to capacity as poss ible. Pricing policy takes into consideration the varying demands for commodities making up the supermarket's inventory. Consequently that supermarket operators set prices relative to price and cross elasticities is evidenced by staple foods possessing low mark-up mar gins over direct cost, whilst non-staple foods possess high mark-up margins. The demand for the former items is inelastic, the latter elastic. Most important in this issue is the image of cheapness which the supermarket created, and has maintained, by virtue of the structural makeup of its pricing and promo tional policies. Variable mark-up policies, facilitating "specialling" and advertising, for ever emphasise the low price policy of supermarkets - a constant endeavour to sell for less. Such strategies as leader pricing or specialling, (the price cutting of fast moving lines), and multiple unit pricing, use price as an aggressive tool in supermarket merchandising, to project this image of cheapness , (as well as utilising the benefits of cross elasticity of demand fro m increasing store traffic). These policies are actual evidence of price discrimination. 24 Conspicuous staples, such as potatoes and 24. The price awareness of consumers is greatest for these commodities due in part to their high frequency of purchase . 15. coffee , are those utilized in specialling . The margin reduction on such commodities is a promotion cost , which serves to increase the firm ' s spatial monopoly over consumers , even though this influence may be limited to the short run . Exploitation of the principle of cross elasticity of demand is a further aim. The commodities specialled often possess a highly negative cross elasticity of demand relative to other commodities . Accordingly , the function of specialling is dual in nature : (1) To increase custom , and (2) To increase sales of complementary items . - A positive inter- store and negative intra- store cross elasticity 25or demand effect . These techniques are accepted as part of the •normal rules of the game ' . That is , ' special ' price cuts are accepted as being short term (for only a few days) in nature - (apart from permanent price reductions . ) This is so , because the gains accruing from such an activity are increasingly negated over time through ' erosion' by rivals meeting competition , and consequently , specialling , has the two functions of retaining present custom and increasing custom . Thus an offsetting effect results , with all firms (of necessity) taking part . Accordingly , in this instance , the fear of retaliation is non- existent . The firm moves down the lower segment of its demand curYe , The short term gaias acquired in so doing are a function of the speed with which rival firms , in meeting competition , bend the lower segment of the initial firm ' s demand curve back to the lefthand side toward the lower segment of the kinked demand curve - the generic demand curYe . ·, _________________________________ ..., ____ _ 25 . If the demand for two commodities A and B is complementary , a lowering of the price of B will cause the demand curYe for A to rise to the right . ( Assuming a horizontal short run marginal cost curye . ) 16. Retaliation , however , does not take the form of retaliation on an identical commodity which the firm is featuring , for this is price competition of the clearest form and anathema to the oligopolist . Rather are different commodities utilised toward the same end . Inventory Policy . A further , and dominant , characteristic of supermarketing is the mass presentation of goods. The offering of the full range of products required in normal consumption under the one roof , apart from serving to enhance the already present aura of cheapness , serves as a means of attracting custom . It does this through creating an atmosphere conducive to impulse purchasing , and facilitating the concept of one- stop shopping , 26 (self-service selection playing a dominant role) . As Cassady states 27 •one of the most important factors in the success of supermarkets is the combination of lines , qualities , varieties , brands and sizes of items which the vendor carries ' - that is , the Product Mix . The constant revision of inventory items due to new products , broadening of the product mix , and diversification to include non- food items can , in the first instance , be attributed to the highly competitive nature of the supermarket business . Operating on reduced margins , with the desire to increase returns , leads to the introduc tion of non- food lines which possess relatively higher margins , thereby u~ilizing the • traffic pull ' of basic food lines - leader pricing etc. to increase overall sales . Through increased di~ensions the supermarket increases its share of the consumers ' purchasing power and , as a 26 . R. Cassady . "Competition and Price Ronald Press Co pany , Ne• York 10. and the subsequent diversification one- stop shopping concept .• Ibid . P. 98 . Making :i.n Food Retailing" . (The .Y. 1962) . ' Large inventories into non- foods facilitates the 17. consequence, enhances its competitive position in the market structure. Therefore , owing to the nature of its operations, namely a trading policy of high turnover and relatively low margins, associated with a large . t 28 . t li . f l . t d 1 inven ory, i can rea se economies o sea e in procuremen an sa e. This facilitates cost reduction because, in the first instance, advantageous buying prices are associated with bulk orders and a strong financial position. Economies (oligopsonistic by nature) are obtained through the heightened bargaining power arising from t he increased degree of vertical integration. Secondly, mass merchandising introducesreduced costs of physical handling for the supermarket as a buyer and a seller . As the greater percentage of total supermarket costs are fixed and invariant to turnover changes, costs must be lowered by spreading overheads and operating expenses over the large sales volume transacted. Functional 'al' t• 29 . . t t f l d "bl b thi speci isa ion is an impor an economy o sea e ma e possi e y s merchandising form. Both economies of scale serve to lower the costs of buying and selling incurred by the supermarket operator. As a consequence the average cost curve is lowered to the lefthand side, with marginal costs moving downward in sympathy. These actions allow the supermarket to pursue its peculiar pricing policy (of lowered prices). 28. Progressive Grocer. April 1965. Annual Report. P.48. Growth in average number of items handled. 1959: Progressive Grocer, April 1966, Annual Report P.166. Number of items stocked. 1964: 1965: 1975: 5,800 6,900 7,100 9,200 29. Functional specialisation is made possible and, as with other activities, Purchasing (and Selling) becomes a highly skilled operation, to the extent which has been reached in the United States, where Buying Committees (and field offices for Produce), perform this function. (For a discussion on the purpose of these committees see - Cassady. op.cit. P.2. , Markin. " P.98 Charrat. " P.78) The extended use of said committees is said to have resulted in a more unified merchandising program, giving greater co-ordination of Buying, Selling and Promotion. 18. In consumer research studies , one of the prime characteristics of a supermarket mentioned is the variety of merchandise offered for sale. The characteristic is further put forward to account for patronage of particular supermarkets. Accordingly, the size of inventory of a supermarket has an influence on the demand curve which it faces. Nowhere is this demonstrated more clearly than with impulse sales and the response of consumers to specialled commodities. Thus , the product mix of a supermarket determines the elasticity of the demand curve it faces relative to that faced by its competitors - (other supermarkets and specialist retailers etc.30) Promotional Techniques. These are of two forms, out-of-store and in-store, wi th two functions, attraction and retainment, respectively, of customers. As volume is a necessary facet in the success of the supermarket's operations, the purpose of promotional techniques is to promote sales. This is accomplished by co-ordination with other strategies, e.g. specialling and loss leader pricing. The principle is to attract with advertising, (newspapers31 have the greatest penetration), sell with in-store displays, and retain with in-store characteristics and promotional activities (namely, courtesy of store personnel, store appearance, trading stamps , contests and premium plans). Display techniques, from the point of view of presentation of the individual item and siting of the merchandise, utilize the point-of-contact concept, (as with special displays), which is facilitated by self-serYice and serves to increase sales and profits. }O. Suggested that relative to sales, small-size stores operate in an inelastic region of their demand functions, whereas large stores in urban markets are operating in the highly elastic region of their demand functions. 31. Percentages of the Retailers Advertising Dollar O Prog. Grocer, April 1966. Newspaper Advertising 45 to 6°" Sales bills 15 to 2}% Point of Purchase 15 to 2°" 19. For this reason, special displays are a prominent in-store promotional activity. The Dillon Study indicates that the average special display boosts sales 536 per cent. over normal shelf position movement.32 Furthermore, in this regard, Markin makes the point that 'because of the inherent features of its operation the supermarket offers one of the greatest opportunities in the retail field to capitalize on the psychological displaying of products•. (That is, the impact upon the customer of mass display and special discount offers). The section 1.2.2.4 bears this point out. Amongst the reasons given for the success of special displays is the creation of a buying psychology on the part of the customer , through psychological techniques of mass, colour and arrangement. This serves to create a "price" atmosphere which stimulates impulse purchases, as well as increasing the sales of related line products. Advertising, in the sense of presenting a product for sale, has the tendency to move the demand curve to the right . Thus, in differentiating his product-service from the generic product-service, the supermarket operator increases the elasticity of the demand curve he faces , relative to that for the generic product. Shopping Facilitating Services. These are further forms of non-price competition, (apart from advertising and variety-of-merchandise-offered), which serve to enhance the position of supermarketing in the aarket structure , as well aa being effective intra-supermarket competitive devices in the form of providing convenient and attractive shopping facilities . Store Location . One of the most fundamental non- price factors is store location , 33 the choice of which must fulfil one precept of merchandising , --------------------------------------- 32. The Dillon Study. Progressive Grocer, Oct. 1960. 33 . Cassady . Op .cit. P.86/7. 'If you've got location , you 've got customers which is the first requirement, because without people you ' ve got nothing.' 20. namely, ensuring merchandise is at the right place. The right place, relative to sales volume, is determined in part by convenience to the consumer, for whether the supermarket is located in the city centre, or an adjacent suburban area, customer convenience as regards ease of access and egress is essential. A high density of foot and car traffic are the respective requirements sought. Accordingly, selection of location involves reviewing community features such as diversification and permanence of industry, characteristics of potentia1 consumer trading area, and site features - for example, foot and car traffic arteries. The location problem in the United States differs from that in the United Kingdom and Western Europe. American consumers utilize the automobile as their shopping aid, whilst the British consumer arrives on foot at the supermarket, or uses State transport services (buses or rail) as an aid in shopping.34 Consequently, the supermarket is more of a suburban entity in the United States {as it is in Auckland ); whereas , in the United Kingdom and Western Europe it evolved in the city centre. However, in the latter areas there is an increasing trend toward suburban establishment to avoid the high rentals associated with city trading - typified by shopping centre development. The limited number of s ites in the city or town centres contributes to this. In addition, suburban sites allow for the necessary supermarket adjunct, a parking area, for there is no doubt that sales may be directly reflected by the size of the pa.rking area. Consequently, the provision of 'adequate• parking space is essential if the potential of specialling is to approach full realisation. ___________________ _.. _________________ _ 34. Shopping in Suburbia. Ibid. P.56. Table 5. Method of travel to sh;§i• Question - 'Bow do you go there' - Wal.king Car 14~ Bua 15% Train 1~ Other means 5% Notes The percentages add to more than 1~ because eome uaed more , than one means of travel or sometimes travelled one ••1 and sometimes another. 21. Thus, location and size of parking area are contiguous factors in the determination of sales volume, (the former prime , the latter contributing.) Self Service.35 Self-service selection, as aptly put by Cassady,36 is the sine qua non of supermarket operations. The strategies comprising the merchandising mix are sufficient facets, but none, as is self-aerYice, is the necessar~ facet for supermarketing growt h and development. Techniques of mass merchandising complement self-service supermarket operations by reducing operating expenses and increasing the volume of sales , thereby giving eupermarketing a competitiYe advantage on two fronts. As regards the reduction of operating expenses, there are economies to be obtained from the advanced techniques of inventory handling and checkout operations. Moreover, the resulting rationalisation and specialisation of functions facilitate the division of labour with the consequent reduction of wage costs in relation to sales as self-service transcends the difficulties inherent in counter-service.37 For example , the operation of price listing and adding is mechanised , and the processing of goods is separated from that of attending customers. Furthermore, a more economic use is made of selling area by self-serYice, in that a wider and deeper range of merchandise can be stocked. Therefore, this is a method which reduces the average total cost of selling merchandise, as well as 35. May be defined as a s1stem in retail stores whereby the customer chooses her OWll merchandise and waits on herself while shopping. 36. Cassady, op.cit. P.100. 37. P.G. Thomae. 'Modern Retailing Techniques'. Average weekly sales of £95 per head of staff using counter-serTice; corresponding figure for superaarkets is £177; many stores, particularly in the London area, &Terage £250 and oYer. Whi.lat wages as a percentage of turnoYer range from 8 to 10 per cent. for counter­ serYice stores to 5 per cent. for supermarket type outlets. MoreoYer, the aYerage increase of sales with self-eerYice is about 50 per cent; with the average transaction being 4/- to 5/- and 12/6 for counter-service and self-serYice respectiYely. 22. reducing the marginal cost of stocking and selling an extra line. As mentioned , self-service is an effective means for increasing sales, in that the act of browsing induces an emotional appeal which initiates impulse purchasing. Moreover , the time-saving attribute, the conferred ability to select at will and on own volition prior to purchase , with relief from sales pressure and the fear of brand substitution, are characteristics of self- service selection which customers appreciate.38 All of these factors serve to increase the elasticity of the demand curve facing the supermarket , an action which has given and continues to give the supermarket a competitive advantage over its rivals. Others. Finally , with regard to shopping facilitating services , consumers desire: 1. Courtesy and friendliness. These two important characteristics can constitute a competitive advantage through the personal approach , for consumers reapond markedly to friendly and courteous service.39 2. Attractive and Convenient Shopping Facilities. The trading up, or improvement of stores in appearance, and the in-store facilities, e.g. powder room; kiddy corner; information, 'phones and courtesy counters, all further enhance the supermarket's competitive image. 38. ' Self Service in Retailing'. W.J. Regan. Journal of Marketing, April 1960. "Self Service the substitution of creative problem solving activity, for defensive negotiatory activity." 39. Proaressive from 'Colonial Study'. ' The quality and personality of store personnel and the services they perform tor customers stand out as the greatest difference among supermarkets. 73~ of all customers interviewed gave this as their reason for shopping at the particular colonial supermarket.• Financial Considerations in Supermarket Development and Growth. Financial economies of scale accrue because the degree of risk associated with investment is lower. There is a wider variety of sources of credit available, more particularly in the sale ot securities to the public , whereas the independent relies largely on retained earnings. Economies of scale also accrue in market risk management , because risks can be reduced or eliminated by grouping them. The diverse nature and size of supermarket operations as regards output, sources of supply markets , and processes of manufacture, serve to nullify to a large extent the adverse ramifications of market change. Thus the large organisation, (as a unit and/or a member of a corporate chain), can hedge against incorrect decisions which would cripple the small independent firm. Particularly is this the case in merchandise selection, for the large retailer can spread the risk of error over a diverse number of lines and variety of trading areas. Furthermore , large units can acquire the personnel required for market research studies . These studies can be conducted at low cost to sales , their use lying in their ability to serve as a partial counter to chance market changes, an opportunity which is not available to the small firm. -ooo- To summarize , the integration of the multifarious actiYities inherent in supermarket grocery retailing, facilitates the realisation of various economies of scale . Operating economies are real.ised from the integration of wholesaling 8lld merch8lldising activities with retailing, especially as regards linked processes. The prementioned elements of competitive strategy give rise to the competitiYe adYantage 24. which is possessed relative to the limited line specialty retailer. The aggregate effects of these elements of competition - economies and merchandising strategies - account for the success of large scale grocery retailing; in this instance, supermarketing as opposed to limited- line retailing . They reduce the average and marginal costs of operation below those levels characteristic of the conventional retailer , and increase the elasticity of the demand schedule faced by the supermarket . 1.4 The Development of Supermarketing . 1. 4 . 1 Introduction. Although corporate chains , e . g . in the United States - The Atlantic & Pacific Tea Company: The Kroger Company; and in New Zealand - Woolworths ( N. Z. ) Ltd. were the main initiators of supermarketing, (subsequent to its inception by individual companies , viz., King Kullen Ltd . in the United States and Foodtown Ltd . in New Zealand) , they are not the only organisations behind its growth and development . Affiliated chains contribute as well, and have come to assume a dominant position . 'l'his has been the case in most countries where supermarketing is present , regardless of the environment into which it was introduced . This section commences with a brief discussion on affiliated chain development . (Having a knowledge of these ' chains ' will enable the reader to better understand the following subsections which make mention of them . ) The history behind the establishment in the United Stat es , Western Europe and New Zealand , is brought up to the present day , and future developments hypothesized . Furthermore , the forces behind inception, adaptation , and development are compared in each nation , along with the reasons for the supermarkets subsequent success or failure . -ooo- 1.4.2 Retail Buying Groups and Voluntary Chains. The affiliated independent chains are of two kinds: 1. The Voluntary Chains. A wholesaler sponsored group of five or more stores each individually owned, possessing the same trade name. Operated by independent retailers as franchised units of a group of similar stores which follow the same advertising, buying and merchandising patterns, e.g. In New Zealand, the Independent Grocers' Alliance, I.G.A. 2. The Co-operative Chain - (Often called a retail co-operative). Differs in that it is a wholesale operation jointly owned by retailers who are the customer stockholders. Four Squa re Organisation. [fl e.g. In New Zealand, the The financial and market position of the food wholesaler was jeopardised by direct selling arrangements between the supermarket 40 retailer organisations and the manufacturers. Abbot supports the opinion that the wholesalers were the most important force in initiating the voluntary chains, as their survival is dependent upon the survival of their customers, the independent retailers. Accordingly, with the ovement of corporate chains into supermarketing, and the attendant i n tensification of competition, these affiliated groups encouraged their members to adopt self- service techniques and enter into super arket merchandising. The formation of affiliated groups in food marketing strengthens the wholesalers• position and enables the s all and independent retailers to take advantage of bulk buying discounts and a new means of price and non- price competition, as well as other economies precluded to them as individuals, but available to the corporate chains. At the same time, - - - - - - - - - - - - - - - - - - - - ~-- - - - - - - -- - - - - - - - - - - 4o. J.C. Abbot. "Food Marketing in Western Europe Today" . Journal of Karketing, Vol.27, No.2, April, 1963. 26. their position in the market structure is enhanced. Thus, pressure from the food wholesaler gave birth to voluntary chains which have interjected themselves between the manufacturer and retailer, and in which the separate strengths of the independent members are combined . Their successful growth is due to three characteristics of their market . 1. The inherent power of the independent retailer due to his location, shopping tradition, personal contact ith consumers , and large numbers . 2 . The relative marketing weakness of small food manufacturers, which has created the opportunity for s trong distributive organisations. 3. The growing desire of the housewife to concentrate her food purchases in one store - a trend which has strengthened the retailer's willingness to expand his lines, and caused the wholesaler to parallel this move. In the ,_, Netherlands , ?a% of independent grocers belong to 41 such chains, which in 1960 accounted for ~ of all retail grocery sales. In Canada, voluntary groups transacted 5% of food sales in 1951 and 36.7% in 42 1965 , whilst non-affiliated independents• sales fell from 62.8% to 17.3% . In Australia, wholesalers and independent retailers have combated co petition from the large retail food chains in the same two ways, viz. by opening up their own self-service wholesale warehouses and setting up their own manufacturing facilities and retail outlets. The same trend is present in New Zealand with the difference that such wholesaler and retailer sponsored organisations have 41. See "Grocers in Groups" . The U.K. Economist, July 30th. 1960. 42. A. Lerner & T.S. Patil. "Changes in the Market Structure of Grocery Retailing". Canadian Journal of Agricultural Economics. No .1, 1965. See also Table 10, p.32. been present in the market structure for some thirty years . These organisations have encouraged their members to adopt self- service and supermarket merchandising techniques. Consequently, they occupy a dominant place in food retailing, accounting for over 60% of the total grocery sales in 1965, the heightening competition from supermarkets and supermarket merchandising operations forcing more and more independent retailers to become affiliated to such voluntary chains. Self- service food warehouses43 are also present - a scheme which offers an alternative to and/or supplements the voluntary chain . 1. 4.3 The United States. The supermarket is an American innovation, therefore, as effects of its growth and development are most marked in the United States, the American supermarketing industry is used as the basic model for prediction and explanation in other marketing systems . In the United States of America there has been a change from a system dictated to by the small corner s tore to one dominated by the supermarket. Such a radical "about face" has not been experienced elsewhere in the Western world , yet the trend is a present and growing one. 44 The American supermarket is a ''depression product". Its successful entry into food retailing was made possible by its ability through low cost merchandising of food to answer the heightened consumer demand for cheapness at this time. The econoaies inherent in aasa 4}. These wholesale food warehouses are designed primarily to deal with the independent grocer who can neither afford to buy in bulk nor cut prices . Their main advantage is that all prices can be adjusted to the economies of bulk buying and special price offers made periodically by manufacturers. Grocers serve themselves , pay cash, and personally remove goods to their stores . 44. Hepner, p. 274/5. The first real Supermarkets were products of the Depression - housed in barn- like structures and stock- piled on crude pine tables. 28 . distribution enabled supermarket operators to cut costs and prices , and thereby complement the econo ic environmental factors of low per capita income and unemployment . Cassady states the following successive developments as having led to the genesis of the supermarket as a new retailing institution: 1 . The growth of chain store operations . 2 . The increasing acceptance of self- service . 3 . The expansion of retail outlets to large-scale size . 4 . The widening of merchandise offerings to include non- food lines such as soft goods , hardware and drugs. In evolving to its present form , however, supermarketing passed through four main stages . 1 . Prior to 1930 . The growth of large retail stores and the inception of self-service with its associated aspects of check- out and cash ' n ' carry . 2 . 1930 to 1935 . The inception of "cheapy supermarkets'' (by independent individual operators who foresaw the financial advantages arising from heightened rates of turnover and drastically reduced margins) , reflected the depressed conditions of this time . 3. 1935 to 1946 . The period of experimental growth and deTelopment in supermarketing saw the entry of chain organisation into this sphere of retailing . 4 . 1946 to present time . supermarket deTelopment and expansion. 45 The post- war period of modern 45 . Tables of Supermarket Growth . Progressive Grocer . April 1965 , p . 5 9 . April , 1966, P• Charvat, op . cit . p . 3 . O. E. C. I> . Bulletin No . 68 , p/18 . 29. As the supermarket was a depression product, it was expected to disappear wi th the subsequent improvement in economic conditions. However, its approach to food retailing gave it a major competitive advantage over the associated groups of the market structure. This was demonstrated by supermarket's acquiring in a relatively short time the 46 major proportion of grocery sales in their market areas. The marked increase in supermarket sales as a percentage of Food-store sales in the U.S. for the decade 1935 to 1945 , shown in table 1.1 below bears this out. TABLE 1.1 Tho Grouth of Supcroarketa• in the United States, in Store Uuobcra and Dollar Salea for the Years 1935 - 1965 Year llucbcr of Sales Superi:iarket Snlea as Supernarketa l!illiona $ ! Food Store Sales 1935 1940 1945 1950 1955 1960 1961 300 6, 175 9, 575 14, 217 24 ,700 33, 300 .30 , 100 27 ,1 25 30, 900 31, '750 150 2,000 4, 500 10, 250 23, 535 36, 175 38, 200 37 , 975 43,150 46 , 510 • Uote: Prior to 1951 Superoartet definition sales of owr ~,ooo 1952-61 OYer ~3'15 ,000 1962- OTCF ~500,000 Sources: ProgreoaiTO Grocer. A.nnual Reports April 1965 , April 1966 Supornarket orcbandiaiJ:lc. 1.7 18. 3 22.7 31.3 59 .7 Gs.a 70 .1 67 . 6 69 .6 7-0 . 'I Increasing awareness of the enhanced financial returns which could be realised from this for of food retailing gave rise to a continuing increase in supermarket numbers . The consequent heightening 46. Charvat. op.cit . P.153 . From its genesis in Los Angeles in 1928, by 1953 there were some 250 supermarkets, accounting for about 40% of the total grocery business of the territory . 30. of the competitive effects which this had upon the re t ail grocery market structure; 47 caused chain stores and independent operators to reorientate their operations accordingly . This was reflected in the subsequent chain domination of supermarketing and the rapid adoption of self-service by independent retailers . The big swing to supermarketing commenced in 1946 , with affiliated independents attaining a major operating position as their members shifted into supermarket operations (38 .5% of total supermarket sales in 1965). Small corner stores selling mostly dry groceries with limited lines of fresh meat and other perishables became organisations of supermarkets offering for sale .5 1 000 and more different items (1964 aTerage number of different items stocked for sale was 6 , 300) . The rapidity with which this movement from product- line specialisation to scrambled or mixed merchandising has occured is indicated by the increase in supermarket numbers and grocery sales , illustrated in table 1 . 1 . In 1964 the voluntary and co- operative groups' form of operations had succeeded to the point where the affiliated independent retailers ' share of the total market available to independents was 34%. This was equivalent to .50% of total food sales for the same year . In 196.5 these , and corporate chains , all possessing centralised procurement and merchandising policies , controlled 90% of the food sales made through retail stores . The trend in American food retailing is one of concentration . This continuous merger a c tivity , has led to a reduc tion in the number of outlets and an increase in the ayerage size of outlet. From 19.50-1964 corporate chains reduced their store numbers by 12~ , and .... - - - - - - - - - - - - - - - - - - ... - - -- - -- - - - - - - - - -- - - - 47 . CharYat , p . 21 - for example in 1935 a stud7 of adYert ised staple merchandise prices in 16 cities throughout the U. S . found t hat Supermarkets undersold the chains on comparable products from 4.8 - 22 .~ . 31. increased sales per outlet by 300%; independents reduced their numbers by 48% and increased their sales per outlet by 400%. A further outcome of supermarket operations has been the emergence of discounting as a competitive force in food retailing. The term "Discount Housei' is the name given to a retail store which offers large savings to consumers on items it sells. It has taken the place of the 'cheapy' and early American supermarket of the thirties through its low pricing techniques. The modern supermarket of the 1960•s has become more concerned with non-price competitive measures which increased operating expense ratios, raising gross margins (as a percentage of sales) from 12% - 18%. As a consequence of this, the Discount Bouse, through eliminating trading stamps and reducing advertising premium plans and customer convenience, was able to price stock lower than the supermarket and so penetrate the market structure. It retained the same high volume, low overhead principle that gave rise to the supermarket industry. Its normal markup on groceries approaches 12%, as compared with the 18% margin imposed by supermarket operators. Accordingly, its appeal to the consumer is price, (as compared with convenience). That supermarket operators have become aware of this is demonstrated by the combination of a Discount House with a supermarket in a shopping centre. Therefore, the present situation suggests that the American supermarket has run its full cycle; from cheapy supermarket to the modern supermarket of today, and back to the cheapy supermarket typified by the Discount Bouse. To conclude, the place occupied by the supermarket in present American food distribution is further illustrated in Table 1.2. HoweYer, the place which it possesses in the American economy is quickly realised in that it ranks second on a $ sales basis to the automobile -------------------------------------- 32 . indus t ry . In 1965 t he 51,750 supermarkets48 making up the "industry" transacted an estimated volume of $46 . 5 billion , which represented 71% of all grocery stores sales49 and 65 . 5% of the total food store sales50 in this country . TADLE 1.2 Unit!d Stat~3 Retnil Food Store Se.lea by Olmerahip and Sise . 1965. Superoa.rketa Chain Affiliated Independent UllllftiUated Independent Superettoa Chnin !ttiliated Indopondont Unaffiliated Independent Sl:lall Stores Chain Ind pendent 'lOO'AL GROOERY S'lCRE SALES Specialty sto"a ?OO'AL Rm'AIL FOOO S'l 175 286 367 572 1962 1963 1964 1965< 2 > 996 1366 N.A. 1750 Sources: ' Self-Service & Super arket Directory•, London. 1. 750 according to Boyd & Piercy. "Retailing in Great Britain". Journal of Marketing . January 1963. 2. Aa at 30th. March 1965, reported by the Supermarket Association of Great Britain, London. 42. Another effect which supermarket activity had upon food retailing in Great Britain (and elsewhere) was (and is) its catalytic action in the initiation and subsequent growt h of voluntary (or affiliated) retail food chains. 58 As was stated for the United States , these organisations main t ain the competitive position of the independent operator, by making available to him many of the economies in purchasing and functional specialisation . In 1961 60% of retail food sales was transacted by multiple chains with central wholesale buying departments. Buying terms similar to those offered to multiple stores enable the independent operator to purchase more cheaply, whilst a reduction of sales promotion expenses is made possible through collective action . These chains are of two types : wholesaler sponsored and retailer sponsored. The former type shows the greater development , a direct contrast to the United States where the latter type is the more dominant. The last ten years since 1954 have seen the successful introduction and growth of both these types of chains , to the point where they now transact 18~ of total food sales in Great Britain.59 McClelland hypothesizes that by the end of 1966 supermarkets will have 22% of food shop sales; by 1976, 50%; and 1981, two-thirds , assuming growth and development is comparable with that which occurred at 60 the corresponding stage in America. Accordingly, the situation in which the independent British retailer increasingly finds himself must be reminiscent of that of his erican counterpart in the 1950's, as each supermarket has the turnover of 20-30 smaller units. 58. This has also happened in the U.S. Canada, Australia; N. Z., Germany and France , where chain organisations, co-operative ( oolworths in N.Z.), and voluntary (Four Square in N.Z.) have come to dominate the supermarket industry because of the financial economies accruing to them which facilitate horizontal and vertical integration, and the consequent reduction of expenses from co-ordination of functions. 59. See ' Grocers in Groups •. The U.K. Economist July 30th. 1960. 60. .J.McClelland. 0 studies in Retailing". P.22 & 24. Supermarketing is becoming increasingly acceptable to the United Kingdom 61 consumer because: 1. 2 . 62 It is cheaper to shop in supermarkets. It has under one roof those articles which the consumer needs regularly . 3. The size of the supermarket allows a much larger number of different varieties of an item to be stocked in the same shop . However, the subsequent growth of supermarketing the United Kingdom is subject to the following factors (which may influence favourably or adversely supermarket growth relative to that in the United States) : 1 . Population density is ten times greater in the United Kingdom (536 : 53 persons per sq . ml . ) 2 . As a consequence of the first , land is relatively scarce for such building projects , so costs , e . g . rent , are heightened . 3. A highly developed civic transportation system (buses etc . ) takes the place of the American automobile for consumer mobility . 4 . Consumer loyalty to the traditional forms of retailing is very strong (as in other Western Europe countries , e . g . Spain) . Of the four factors mentioned , the last is the major deter ining one of the supermarket growth in the United Kingdom . It is a question of wheth r or not consumer tastes and preferences will re-orientate toward the supermarket type of shopping , such that consumers are switched en mass t o 61 . Shopping in Suburbia . J . Walter Tho pson Coy . Ltd . 1963 , p . 13. 62 . D. H. Briggs & R. L. Smyth . ' Economies of Scale and Grocery Prices in Western Australia.• The Economic Record . June , 1965. p . 248- 253 . See Table III , p . 250 for the average prices paid for 51 items purchased in self- service s t ores . 44. supermarkets. Finally , supermarket development in the United Kingdom shall continue to increase, as overheads (particularly wages) rise, and the difficulty of staffing increases. These factors will further change from service to self-service shops. It is felt that individual supermarket size will not increase to that of its American counterpart, because the problem of space for parking , the risk of pilfering , and economies of scale are less important at more than 5,000 sq.ft. and are likely to keep the United Kingdom supermarkets to a more modest 10 1 000 sq.ft . or less . 63 As there is the risk of being too large for the demand at a particula.r site to support , there is likely to be, relatiYe to the United States , a greater number of supermarkets per 1 1 000 head of population , but smaller in size (to compensate for such factors as the limited amount a housewife can carry - bus versus own car - and the inability to provide adequate parking space.) 64 Shopping Centre development shall also promote supermarketing as it has in the United States , New Zealand and West Germany , 65 because the supermarket is the major "draw card of the centre" and shopping is more pleasant here than in the city. The attracting features of these institutions are easy access by car, abundant parking , a wide assortment of offerings and pleasant surroundings . 63. The U. K. Economist. October 21st . 1961. 'Growth Pains in Supermarkets •. Maxillum sizes of Supermarkets in 1962 . - the United States: 100 1000 sq . ft., the United Kingdom: 10,000 sq.ft. 64. Cassady. op.cit. p.88-9. "Traditionally, firms choose locations on the basis of independently made studies, but some firms now prefer to locate al.ong with other stores in a shopping centre, thus obtaining the adTantage resulting from the drawing power ot several met•chandising institutions rather than just one . " 65. See Business Week. Issue August 15th. 1964. 'Germans Park and Buy• . In conclusion , the rising level of consumer income and the standard of living over time will give rise to an economic climate more conducive to such shopping behaviour , as the degree of consumer mobility increases, limited refrigeration facilities are overcome , and 66 traditions are broken down . In the latter regard , the younger generation is that which shall determine the subsequent growth and status of supermarket merchandising, as their "way-of- life" shall better complement this form of retailing and its requirements . New Zealand . In New Zealand , as in Western Europe , supermarketing was initiated {in 1958) , by retailers other than those in the grocery trade - greengrocers. This lead was followed in 1961 by a national variety chainstore organisation, which has subsequently come to dominate the s upermarket scene , possessing 40% of the total numbers in New Zealand by 1966. Group wholesaler voluntary and retail co- operatives did not commence supermarket operations until 1963. The speed with which these groups of independent grocers adopted supermarket- type merchandising methods was evidenced by the rapid change-over from counter-service to self- service . Concomitant with this was the increase in supermarket numbers from 1963 , which Table 1.8 below indicates . 1 . Source : TABLE 1.8 NEW ZEALAND SUPERMARKET NUMBERS Year . 1958 . 1961. 1962. 1963 . Estimat e . No. 1 . 3 . 5 . 11 . Year . ~- 1965. 1966. 1967 . 1 1970 . No . 28. 50. 72. 108. 200. Compiled from communications received from Supermarket organisation executives . ------------------------------------- 66. R. T. Davis. ' The Changing Pattern of Europe ' s Grocery Trade '. Stanford UniTersity Press . "Once past the stage of purchasing basic commodities , the shopper is faced with multi-product choices - cake mixers , frozen specialities , all of which invite expenditure not specifically planned. " 46. Self- service retailing and supermarketing have been accepted by the New Zealand consumer , the trend tending to follow that of the United States, e . g . using the automobile as a shopping aid because the New Zealand standard of living approaches that of the North American shopper . 67 'United Stat ... ~ Ifft Zecl-4. (1965) . Australia. s..den. Fl'al:loe. United ~oa. TABLE 1.9 Pri Yn.te 'i"roupon Illeoac per Food CODP11PUon. COlmWlicntiom. (can, per 1000 oapi-to.. (Caloriee,lbea.a/day) . ('l'elephonea/1000 pop.) £!§!2!!ttl on1 ]~Jl I e. 22~. l~U~l. 122Jl 2!. 3(;2. 7 1, 870 3,090 362.7 253.0 1,310 3,060 253.0 238.3 1,000 3,510 2;3G.3 263.7 22:9.3 950 3,140 229. 3 2().4.6 950 204. 6 166. 2 166. 2 700 3,290 lJnited ~- statiatical Tear Dook. s .. alao, Arlicl• by Cant-erbury Chocber at Coisae:roe EoonG11ic Bulletin IJo. «8. ..Standard at Liring" , J . B. l!climley, who alao atatea thet a point. vhioh abauld not ~ OYei-1.oohd iAI that il1 11n Z-.lud the diriaicm ot inco~ iAI tnirly uniton ooapared with llOllY ocnm\rtu. Demographic characteristics - population per square mile - and suburban development al.so approach those of the United States . Nowhere in New Zealand is this better found than in the Auckland urban area . Supermarketing commenced here and in 1966 contained 35~ of all New Zealand supermarkets . These environmental factors favour continued supermarket growth and development in New Zealand , the one constraint being market size as regards population densit y . This is reflec ted in the nation- wide growth of superette-cum- supermarket type stores called "supermarkets" . This is a psuedonym , for although similar merchandising 67. The term "North American Shopper" refers to the countries of Unit ed States and Canada. The purpose of linking these two is demonstrated by t he indices used above in Table 1.9 to highlight New Zealand ' s position in an international comparison of standards of living . practices ( including self- service) are utilised , and implemented , the physical size of such stores (viz . three check- outs and an average selling area of 3 , 000 sq . ft . ) is much less than the modern American supermarket of some 12 , 000 sq . ft . selling area . A further point is that this type of self- service store , or superette , makes up the affiliated co- operative chains , whilst the larger supermarket , possessing an average of 8 check- outs and a selling area of some 10 to 12 , 00 sq . ft . is financed and operated by national and regional corporate chains - the initiators of supermarketing in New Zealand. The actual size of the New Zealand supermarket varies in selling area from about 6,ooo sq . ft . to 12 , 000 sq . ft . with up to 10 check- outs possible and a sales turnover between £200 , 000 and £800 , 000 per annum . Its growth to date has been due to its ability to fulfil a need for lowered prices and to provide greater ease and convenience in shopping . In this way , development followed that of the more advanced West European countries , ( West Germany , United Kingdom , Denmark , France and the Netherlands) , rather than arising from depressed conditions as happened in America . In all these parts of the world , however , the driving force behind inception and adaptation was the increased net returns and competitive advantage which could be gained from increasing the turnover of stockholding up to fifteen times per annum . The effects of this upon the small grocer differ between America and New Zealand and Western Europe . The affiliated chains of America arose because of this , whereas in New Zealand and estern E rope , where they were already present , membership increased. Generally , however , the supermarkets financed by these chains in New Zealand are smaller than those of the corporat e chains , and approximate in size the British - est European type of supermarket . 48. Moreover, in New Zealand they are characteristic of smal.l urban areas, as the market populus (or size) cannot support the larger supermarkets to be found in the four main centres (Auckland, Wellington, Christchurch and Dunedin), and major secondary areas (Hamilton and Tauranga). Associated with the growth in numbers of supermarkets in New Zeal.and is the movement of large volumes of retail trade into Shopping Centres, away from what might be thought their natural locations. The importance of supermarkets in these centres is the ability to draw customer traffic, apart from benefitting from the numbers of shoppers which the centre itself attracts. In addition, as the size of the centre increases so does the number of supermarkets contained, e.g. Lynmall possesses one large supermarket and one superette, whereas Pakuranga possesses two large supermarkets and two superettes. This association of up to forty odd retail outlets ranging from small specialty stores to department stores and supermarkets, and possessing an adjacent parking area capable of accommodating up to 1,000 cars at any one time, is in fact an extension of the "one-stop-shopping" concept. The advantages offered are: 1. Easy access by car. 2. Abundant parking. 3. A wide assortment of goods and services. 4. Pleasant surroundings. As with supermarketing, shopping centre developaent commenced in the Auckland urban area, and has since then been conceived in other major urban areas of New Zealand, Tiz. Christchurch and Wellington, extensive suburban development and population being the major contributing factors. For obviously, when a shopping centre of the size of Pakuranga and Lynaall in Auckland, or Bishopdale in Christchurch, is contemplated the density ancl affluence of immediate shopper populus within a market radius of , say , three miles , must be sufficient to make such an undertaking economic . The most recent development in New Zealand food retailing is the Discount House . This self- service form of operation , as described in section 1 . 3 . 3 , has been operative since 1964 , but for two reasons has achieved only limited success . First , customers are offered a minimum of service and convenience when shopping these stores . Second , margin widths have not been sufficient to permit the Discount House to achieve any degree of market penetration . For whilst the cost reductions associated with the first point allow economic operations at lowered prices , size of selling area (which averages above 1 , 200 sq . ft . with 1/2 check- outs) , and presentation of stock (dust covered and poorly displayed) , has detracted from what price appeal the Discount House possesses . This is evidenced in the close similarity of prices of self- service stores and supermarkets with those quoted by Discount Houses , as shoppers are prepared to forego the small difference in price in return for greater ease and convenience in shopping at self- service stores and supermarkets . Initially , most supermarkets did encounter difficulties in total management , particularly in meat and fresh produce operations·. Problems such as these , however , have been 1 rgely overcome with experience . Looking ahead , the growth of superm.arketi.ng up until 1970 , (on information received from those organisations concerned) , appears likely to follow the trend of the past two years , provided the present ' tight-money ' policy of the Government does not prove a hindrance (as considerable capital for supermarket establishment is required) . The current tendency in the establishment of supermarkets , particularly in the main and larger secondary urban areas (viz . Auckland) , is a doubli.ng- up in those suburban areas which were previously supplied by only one of the 50. larger type of supermarket. A continuation of this must lead to increased competition over time on a supermarket-to-supermarket and supermarket-to- limited line retailer basis. Lowered prices would result and would haYe increasingly adverse effects on small grocery and speci