CODRON:
CODRON:
CODRON:
French Large-Scale Retailing
and New Supply Segmentation Strategies
for Fresh Products (Meat and F&V)
Jean-Marie Codron/ Eric Giraud Heraud
/Louis Georges Soler/
INRA France Montpellier/Paris
Washington, February 14th
Introduction
• Retailer brands (RB) are quite new in France, in the
meat and fresh produce sectors
– food scares and environmental concerns have led retailers to
create their own brands
• RB in fresh products aim at
– providing consumers with safety and quality guarantees
– creating value rather than increasing their bargaining power
• RB strategies differ
– Over countries
– Over categories of fresh products
Plan
• I. Segmentation strategies :
more advanced in meat than in fresh produce
• II. Impact on supplier relationships: towards
more cooperation
• III. Segmentation and Standards : retailers play
a strategic role
I a : segmentation in the meat department
Organic Labels
of producers
120-140
« Chain »
Private Labels
110-120
« Substitution »
Private Labels
<105
100
Standard
Food Safety
Food Safety
Quality
Food Safety
Quality
Environment
I a : segmentation in the meat department
Prices
FQC (Chain RB)
« Jean Rozé » (Substitution RB)
Carrefour
Intermarché
Standard
0%
Shelfspace sharing
100%
I b . Segmentation in the F&V department
• Substitution RB
– quite new, less % of shelfspace than for meat
– price differenciation is almost absent
– false segmentation (only 1 SKU by type or variety)
• RB are launched thanks to the IPM movement
– Environmental quality is put to the fore front
– Food safety (pesticides residues) is implicit
– Organoleptic quality remains the main focus
I.c: comparing segmentation
in the meat and F&V departments
• Similarities
– Due-diligence requirement (Food Safety Act in UK
1991, hygiene law in EU 1993, NRE law in France
2000)
– Key departments for consumers to choose a retail
outlet
I.c: segmentation in the meat and F&V
departments : comparison
• differences
Meat
Fruit and Vegetable
Sanitation crisis
Open
Not yet
Consumer
perception
Quality
main focus
Well informed
Poorly informed
Innocuity
(credence)
Taste and conservation
(experience)
Supply
constraints
Weak
Distribution
constraints
Easy
(prepacked)
Strong
(Volume/quality
fluctuations)
Complex
(bulk service)
II a . Impact on Vertical Coordination
in the meat industry
Producers
Two party contracts
- Specification
Retailer
owned
by the retailer
- Retailer Control
- Selection/Sorting logic
Producers
Three party contracts
Slaughterer
Slaughterer
Retailer
- Co-design of the Specification
by the association
- Third Party Control
- Partnership
II b: impact on vertical coordination in the
fresh produce industry
• although RB are mostly of the substitution type
– Classical contracting is not the only governance structure
– mix of partnerships and classical contracting
• Adverse selection is the main reason for partnership
– adverse selection is a major issue for retailers who try to
build a reputation in their F&V department
– Long term agreements are an efficient governance structure
to solve this contractual hazard
– This is true with or without RB
II b: impact on vertical coordination in the
fresh produce industry
• RB must solve another contractual hazard
– compliance with the new specifications (GAP and IPM)
is not easy to measure;
• two alternative strategies to reduce TC (adverse
selection + moral hazard)
– classical contracting: minimizing control costs
– partnership: control + learning which allow for better
quality
II c: what can we infer from the two cases?
• Creating value rather than bargaining power
– no grower brand, high fragmentation at the grower level
– creating value to increase consumer loyalty rather than
trying to extract higher surplus from the grower
• cooperation will be more likely when
– there is potential for quality improvement
– quality enhancement is a shared goal (a priority on both
sides)
– organizational features are favorable both on the grower
and the retailer side
– Thus cooperation is not a unique function of RB
– Cooperation also depends on standards
III a: Segmentation and standards
• Public standards are questioned or weakened by
– Food safety crises and consumer distrust
– globalization and the rise of private standards
– consumers new expectations
• retailers adapt to the evolving public standards
– by adjusting segmentation (meat)
– by creating or integrating alternative standards (fresh
produce)
III a: Segmentation and standards
in the meat industry
• Classical configuration
– a single public minimum quality standard
– clearly perceived and trusted by consumers
• Upgrading the public standard
– Raises differentiation costs
– Leads retailers to segment more toward niche markets
and less toward the back of the shelf
– Hence to pull away from their upstream partners
– Due to their economic weight and influence on
consumers, retailers influence public standards
III b: segmentation and standards
in the fresh produce industry
• Complex configuration
– An international market where public and private
standards coexist
– With little transparency for consumers (communication
on MLR is forbidden)
• To bypass such a prohibition
– Retailers adopt IPM standards
– Among the many private standards, EUREP GAP is the
more extensively adopted;
• Two attitudes as regards to EUREP GAP
– Adopt the standard so as to minimize control costs and
differenciate on the sole basis of organoleptic quality
– Keep away from Eurep so as to be able to differentiate
at lower costs and not only on the basis of quality
Conclusion
• Meat and fresh produce sectors have long been
reluctant to branding
• Retailers’ own brands are now soaring
– Along different strategies: substitution vs chain RB
– Leading to significant change in VC
• However, segmentation is still fragile and reversible
– Segmentation on food safety will depend on changes in the
level of consumer distrust
– Segmentation on the basis of organoleptic dimensions is
still costly, especially on ”picky” consumers’ markets