When size matters

Neo-liberal fundamentalists won’t break their first (and practically their only) golden rule: “The market is boss”. So from this it follows that the megamarket is the “megaboss”. This type of business, emerging just a few years ago in Uruguay, has already managed to position itself at the heart of public interest, and above all to capture a huge section of the retail market. In theory, you would think that if they are selling, it is because there are people who want to buy, but this is not the whole story.

Food was the first industrialized product created for a market of millions of people that needed to be in constant supply. For some experts, the industrialization of agriculture and livestock farming was the result of pressure from the food industry, which discovered the industry’s potential before having the products available in sufficient quantities. The injection of considerable financial resources into agriculture and animal farming led to the current system taking shape: agribusiness, whose key element, from a processing point of view, was the quality of its “raw materials” in its transformation into a standard end product. The agroindustrial sectors, including seed production, agrotoxins and general supplies for the agriculture and farming sectors, were able to direct everything from North American countries’ farming policies (availability of subsidies etc) to the main lines of scientific research into the subject. When the past century was half over nothing seemed to be able to halt the crushing advance of the agroindustrial sector’s influence, and yet…

Bigger than Super

This might be why it seems difficult to understand how it came about that the food manufacturing industry conceded its position of power and dominance to commercializing companies. The answer is simple - because agribusiness began to produce more than it could sell. Commercial infrastructures of the 50’s had not evolved as quickly as the industries had. In the commercial sector, supermarkets were the first result of industrial productivism. The nation-wide (and almost world-wide) expansion of the “ready to go” idea occurred at exactly the same time as the concentration of ownership that gave rise to large transnationals in the retail trade. The gradual establishing of present work habits, consumer habits and use of transport, i.e. a hegemonic way of life, led to old supermarkets gradually being renamed and increasingly larger outlets both in the commercial center and on the outskirts of large cities. That is why megamarkets selling everything from a litre of milk, bedroom sets, and cars to ready-to-move-into houses, were ousting the local greengrocer’s, butcher’s and baker’s shops along with smaller size electrical stores, shoe stores, clothes stores, perfumeries and corner shops etc.

This way of selling was the most popular in the 80’s and 90’s, especially in developed countries with high consumption, and in the large cities in less developed countries where the social groups with a higher purchasing power and which had already been incorporated into the so-called “modern” lifestyle were concentrated. The increasing concentration of ownership in the sector and the development of new negotiating strategies with suppliers and also sales strategies have led to a situation where, to a greater or lesser extent, many countries now regulate various aspects of commercialization. On the other hand, the food scares which occurred in many countries of the industrialised North such as “mad cow” disease, dioxin chickens and GM foods, made people question the food they ate, and also how they spent their money. Everyone was aware that, in general, irrespective of whether it involved fresh food or not, or meat or non-meat products, costs were kept down in industrial food production in order to maintain competitive prices and profit from increased sales. This is what is called “mass-production.” However few people suspected that this way of working, which was not only accepted but also promoted, could endanger public health. The uncontrolled race to gain maximum profit with minimum expenditure resulted in a growing mistrust of industrially produced food. Slowly but surely, consumers are beginning to demand not only value for money, but also safety of the food they eat.

Industrial food produce is most revered in hypermarkets, where even the aesthetics are based on the principle of there being a huge range on offer, with an image of abundant and never-ending stocks as well as huge variety for even the simplest product. Things that yesterday were capable of stunning people into hypnotic trances are today mistrusted and rejected by the public. In order to rid consumers of these tendencies, in megamarkets in Europe the tactic of “subdividing” the vast shop floor into numerous “petites boutiques” is becoming more and more common. The aim is to stage a more personal shopping experience for the consumer in a “handcrafted” environment, which in reality provides the same retail offer as before, just in a different guise. Therefore, corporate strategies are beginning to adapt to this new state of affairs and are trying out various ideas. The one which seems to be bringing them the best results is to spread out retail outlets, having supply stores for each area. This is how these same corporations create new “brands” of chains of “minimarts” which hold a limited range of basic foods, and which are supplied by nearby warehouses across the town (the Superfresco chain in Montevideo being an emerging example of this).

Megadisaster

The effects which the arrival of these transatlantic companies have had on the run-down local town square became quite well-known a couple of years ago when the merger between the Casino-Disco group and Devoto strengthened the so-called “French group”. This merger, costing $200 million, enabled this transnational corporation to assemble 65% of the country’s network of hypermarkets (previously made up of Ta-ta, Tienda Inglesa and Multiahorro), and take up more than 50% of all supermarket sales in Uruguay. The phenomenon did not only affect storekeepers and small business, but it also drew in large suppliers and importers who began to feel the “negotiating power” of an economic group that acted as an oligopoly. The Uruguayan Chamber of Industries made its objections felt, (adding to those already expressed by CAMBADU (an association of small businesses/retailers), ANMYPES (national association of SME’s) and others) which caused the government of the time to begin to analyze the need to regulate the sector. Although specific legislation now exists and things have moved on (see box), what has changed since then is essentially the economic situation of Uruguayan society.

Internationally, the megamarket formula has brought about drastic changes in the retail sector infrastructure. A report from the consultancy firm A C Nielsen, presented in the year 2000 at the Foro del Sector Alimentacion (an open meeting of the food sector), and cited in an detailed study by Doctor Camilo Martinez Blanco, current president of the Liga de Defensa Comercial (Uruguay’s principal organization providing business information), which was published in 2001 states that “since 1980, in Europe megamarkets and hypermarkets went from holding 25.2% of food sales to 55.4%. Meanwhile, small businesses saw sales fall, dropping from 26.4% in 1980 to only 6.3% in 1999. In a decade, the number of megamarkets and hypermarkets in Europe has practically doubled: in 1988 there were 2600 megamarkets, and this number grew to 5050 in the year 2000. As for hypermarkets, in the same period their number grew from 8150 to 14500. At the other end of the scale, the report added, in 1980 there were 550 000 small retailers were in business, but this number has halved 20 years on”.

Who’s Who

Nationally, a study commissioned by the Uruguayan Chamber of Trade and Industry in 1999 showed that “the country’s five large retail chains (Disco, Devoto, Tienda Inglesa, Multiahorro and Ta-ta) this year made more than $800 million from 85 retail outlets with a total of 99 000 m² and 10 000 employees.” According to the report, Ta-ta made $90 million in 1999 from 23 outlets, Multiahorro made $97 million from 14 stores, Tienda Inglesa’s sales reached $150 million from 9 outlets, Disco raked in $250 million from 20 stores and Devoto’s turnover was $280 million from 18 stores. In the year 2000, Géant’s 11 000 m² and 64 cash tills were added.

According to Dr. Martinez Blanco, “the emergence of these companies with a considerable market power controlling demand, changed the traditional supplier-retail distribution relationship, which in general had previously been controlled by supply. The larger influence of the supermarket chains meant that, a system where it used to be the supplier who almost always fixed the price, moved to a system where prices resulted from a tough, rocky and problematic negotiation process between suppliers and supermarkets”.

In order to understand how “rocky” these negotiations can be, let’s look at the manual “Negotiation Techniques for Purchasers”, which despite having no official source, has been attributed (and the claim hasn’t been refuted) to the procurement department of a supermarket chain in Buenos Aires:

·         “The seller is our number one enemy.

·         Keep asking, they will always give in.

·         Never, ever, accept their first offer. Let the seller beg. This gives us more room to bargain.

·         Always have a superior to answer to, and bear in mind that the seller will also have a superior who will always be able to give better discount.

·         Be aware that the seller who asks for customer feedback is generally more organized and more focused. Use your time to explore more disorganized sellers who are looking for an opening or who are afraid of leaving the organization.

·         Don’t hesitate in using false arguments, e.g. the seller’s competitor is offering a lower price and better credit and payment terms.

·         Don’t forget that 80% of the terms of sale are established in the last stage of negotiations. Make the seller afraid of losing out.

·         Unsettle the seller by making impossible requests and show you would be ready to end the negotiations at any time. Leave him waiting around. Make an appointment and don’t keep it. See another seller first. Threaten to reduce their allocated display space or to remove their products from sale. Sack their product promoters and shelf-stackers, give him little time to make a decision and make false estimates. The seller will concede more.

If the seller takes his time in giving you an answer, tell him that you have already accepted a competitor’s offer”.

Mega Intrusive

Statements from suppliers to Uruguayan hypermarkets, made nearly always anonymously for fear of the commercial retaliation, confirm the use of these negotiating “techniques”. The so-called “hour-glass effect” illustrates the megamarket phenomenon. Its shape resembles the structure on which the megamarkets thrive: wide at the top, narrow in the middle and wide again at the base. At the top are the suppliers, in the center the large retailers and at the bottom the consumers. Large supermarket companies can permit themselves the luxury of choosing their suppliers from a large and diverse range of suppliers and in complete freedom in Uruguay’s case. Supermarkets are the bottleneck through which one has to pass to reach the vast majority of today’s consumers; the hypermarkets call the shots, and this in itself is their true power. In Uruguay there are still very few people who are familiar with and are trying to raise the profile of concepts such as responsible consumption, intelligent consumption, or associated consumption. Therefore most customers have been “trained” to accept a one-stop-shop shopping culture, a culture which is individualist (buy what you want, when you want, where you want) and customer-centered (everyone wants your money). Vanity of vanities, all is vanity…and sometimes deception as well. In truth, the consumer is almost always a semi-automaton whose mind is controlled by advertising, marketing, comfort and alienation. Furthermore his/her purchases are directed and predicted by a system which manages to identify its customers individually using loyalty cards, reward schemes and other tricks. Each purchase on the card is recorded on the supermarket’s computer system and from this basic information the average computer is capable of very quickly drawing a shopping profile for each customer. Do you always buy chocolate? Do you like red wine? How many condoms do you use in a week? When you go through the checkout and you hand over your card, smile because you are being X-ray photographed. Tomorrow, the supermarket will be able to produce bundles of discount vouchers bearing any customers full name and address. They would claim they are providing efficient service, although really it’s more a case of forced sales.

Mega-alive