Unit 8
Chain Operation
Text A
The Characteristics of Chain Stores
Chain stores (also called retail chains) are a range of retail outlets which share a brand and
central management, usually with standardized business methods and practices. They are a type of
business chain. Such stores may be branches owned by one company or franchises owned by local
individuals or firms and operated under contract with the parent corporation. 1Features common to
all chains are centralized marketing and purchasing, which often result in economies of scale,
meaning lower costs and presumably higher profits.
2
The displacement of independent businesses by chains has generated controversy in many
nations and has sparked increased collaboration among independent businesses and communities
to prevent chain proliferation.
Types of Chains
Chain stores can be divided into several big categories, such as Business Chains, Restaurant
Chains, Supply Chains and so on.
Business chains
A business chain is a network of physical business locations, which all provide similar
services or products, and share a brand. A retail chain is a type of business chain. They inevitably
also share some degree of central management, supply chains, training programs, personnel, etc.
They tend to either be parts of a single company or franchises, in which individual store owners
license the use of the shared brand, training, and know-how.
Restaurant chains
A restaurant chain is a set of related restaurants, usually with the same name in many
different locations either under shared corporate ownership or franchising agreements. Typically,
the restaurants within a chain are built to a standard format and offer a standard menu. Fast food
restaurants (McDonald’s，KFC, Pizza Hut) are the most common, but there are also mid-scale and
upscale establishments. Restaurant chains are often found near shopping malls and tourist areas.
The proliferation of chain restaurants (and other chain businesses) is becoming an
increasingly controversial trend worldwide. A common concern is nation-wide homogenization of
culture, low wages often paid to employees of chain restaurants, and the furthering of suburban
sprawl.
Supply Chain
A supply chain, logistics network, or supply network is a coordinated system of organizations,
people, activities, information and resources involved in moving a product or service in physical
or virtual manner from supplier to customer. Supply chain activities (i.e. value chains or life cycle
processes) transform raw materials and components into a finished product that is delivered to the
end customer. Supply chains link value chains.
3There are a variety of supply chain models, which address both the upstream and
downstream sides.
4The SCOR (Supply Chain Operations Reference) model, developed by 5the Supply Chain
Council measures total supply chain performance. It is a process reference model for supply-chain
management, spanning from the supplier’s supplier to the customer’s customer. It includes
delivery and order fulfillment performance, production flexibility, warranty and returns processing
costs, inventory and asset turns, and other factors in evaluating the overall effective performance
of a supply chain.
6The Global Supply Chain Forum (GSCF) introduced another Supply Chain Model. 7This
framework is built on eight key business processes that are both cross-functional and cross-firm in
nature. Each process is managed by a cross-functional team, including representatives from
logistics, production, purchasing, finance, marketing and research and development. The customer
relationship management and supplier relationship management processes form the critical
linkages in the supply chain.
The eight key processes are:
 Customer relationship management
 Customer service management
 Demand management
 Order fulfillment
 Manufacturing flow management
 Supplier relationship management
 Product development and commercialization
 Returns management / 8reverse logistics
In the 1980s the term Supply Chain Management (SCM) was developed, they express the
need to integrate the key business processes from end user through original suppliers that provides
products, services and information that add value for customers and other stakeholders.
The primary objective of supply chain management is to fulfill customer demands through the
most efficient use of resources, including distribution capacity, inventory and labor. 9Various
aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks;
implementing JIT techniques to optimize manufacturing flow; and using location/allocation,
vehicle routing analysis, dynamic programming and, of course, traditional logistics optimization to
maximize the efficiency of the distribution side.
Starting in the 1990s several companies choose to outsource their supply chain management
by partnering with a 3PL, Third-party logistics provider.
Text B
The Development of Chain Stores
Chain Stores are groups of retail stores engaged in the same general field of business that
operate under the same ownership or management. Chain stores have come to epitomize the
vertically integrated big businesses of modern mass distribution, and their strategies have shaped
mass consumption.
Modern chain stores began in 1859, the year in which the Great Atlantic & Pacific Tea
Company opened its first grocery store (A&P). F. W. Woolworth, the innovator of five-and-dimes,
opened his first variety store in 1879 in Utica, New York. Chain-store firms grew enormously
over the next few decades, both in sales and in numbers of stores, and by 1929 accounted for 22
percent of total U.S. retail sales. Growth was most dramatic in grocery retailing and in variety
stores. But chains also proved successful in other fields, including tobacco stores, drug stores, and
restaurants, like beer stands and 1Howard Johnson’s.
The popularity of chains was not the result of extensive choice or services; executives limited
the range of goods stores sold and kept tight control over store design and managers’ actions in
these relatively small-sized stores. Low price was the biggest drawing card, and ads prominently
featured sale items. Lower costs and lower prices were the result of these firms’ investments in
their own warehouses and distribution networks and of “economies of scale”— lower unit costs
through high-volume sales.
Growth also depended on several other important strategies. Chains lowered labor costs by
adopting self-service, encouraging customers to choose goods for themselves. Firms also
developed specialized techniques for choosing store sites that would attract the maximum possible
number of potential customers — so-called 100 percent locations. These actions won them the
loyalty of shoppers who appreciated 2the chains’ standardized practices generally translated into
more equal treatment of customers. Promises of autonomy and independence were especially
attractive to the women customers targeted by grocery-store chains.
Retail chain stores in the United States expanded in the early 1900s, but 3A&P grocery，
4Woolworth’s and 5Sears Roebuck had their origins in the late 1800s. In the early 1900s,
mail-order companies began taking retail business from local stores, which tended to be expensive
and offer limited selection. Department stores also expanded during this period, taking business
from small specialty shops. In 1929, North Carolina and Indiana taxed chain stores (defined as a
second store owned by a single owner), and other states followed.
A more serious threat was the growth of a new kind of store—the supermarket. Supermarkets
were often run as very small chains or as single-store independents and were physically much
larger than chain stores. A single supermarket sold many more goods, and many more kinds of
goods, than did most chain stores of the interwar era. These stores were often located in outlying
urban areas and in the suburbs. 6Large chain-store firms at first balked at the notion of building
fewer, but larger stores. By the 1950s, however, most chain grocery firms were building
supermarkets, and chain firms in other fields, particularly variety and housewares, also came to
adopt these strategies. Large self-service stores built on the fringes of cities or in suburbs came to
define mass retailing.
By 1997, the U.S. Census Bureau determined that “multi-unit” firms — firms that consisted
of two or more retail establishments—made more than 60 percent of all retail sales. Even
independently owned retail businesses were often affiliated through voluntary chains, cooperative
wholesalers, or 7franchise systems that clearly recalled chain store firms. 8Thus many stores,
regardless of the type of ownership, came to resemble one another in terms of the way they looked
and the strategies they employed. Americans’ experience of shopping had been transformed by the
rise of chains.
Text C
China’s Supermarkets Present Export Opportunity
The explosion of supermarkets over the 1990s may be the final piece of the China market
puzzle. Rising incomes and an expanding urban middle class are setting the stage for China’s
development as a market for imported foods.
Until recently, many exporters aiming at the Chinese market fled in frustration after
encountering a fragmented market made up of thousands of mom-and-pop shops; old-style,
open-air markets; and old wholesale and logistics systems. 1The old marketing system, controlled
by various provincial and city marketing organizations, consisted of small, fragmented wholesale
and retail segments selling local produce; multiple layers of small brokers, wholesalers,
distributors and government-licensed importers; and government-run retail outlets.
The good news for food suppliers is that “supermarketization” is transforming China’s food
sector into a modern retail system. Modern supermarkets, convenience stores, hypermarkets and
warehouse clubs — retail formats nearly non-existent in China in the early 1990s — have now
captured an estimated 30% of the urban food market and are growing at rates of 30-40% annually.
Chinese supermarkets skyrocketed from just one outlet in 1990 to approximately 60,000
stores, with an estimated $71 billion in sales, by 2003, according to 2the Chinese Chain Store and
Franchise Association. Growth in the industry that took several decades in the United States and
Europe has occurred in a single decade in China.
Sources of supermarket sector momentum
The sector includes a number of different store formats: small chain convenience stores;
standard supermarkets; hypermarkets. The large formats account for the 3lion’s share (95%) of
sales in the modern retail sector; convenience stores make up only 5%.
Supermarkets began developing in the early 1990s in Shanghai and several other major cities,
where they were encouraged by local governments. Multinational chains from Europe, Japan,
Hong Kong and America provided a second major impetus in the development of the sector in the
mid- to late 1990s in the most prosperous coastal cities, including Shanghai, Guangzhou and
Shenzhen. Supermarket development took off in other large cities such as Beijing in the late
1990s.
Although about 80% of China’s supermarkets are in the eastern region, 4all major chains have
aggressive expansion plans targeting medium and small cities, central and western provinces, and
rural areas. And while multinational companies at present have about 40% of the sector’s sales,
domestic companies such as Lianhua and Hualian have developed quickly. Local governments are
actively encouraging the transition to supermarkets by shutting down wet markets (traditional
street markets) and in some cases converting them into supermarkets.
Supermarkets displace traditional markets
Supermarkets enjoyed initial success with packaged foods and processed food staples like rice,
flour and cooking oil. Supermarkets and convenience stores have also played a key role in
promoting consumption of milk products, other beverages, snacks and convenience foods. Chinese
consumers have traditionally bought most of their fresh foods — vegetables, fruits, and meats
— from wet markets and purchased canned and packaged foods from small stores, roadside
kiosks or the food product sections of government department stores.
Supermarkets are rapidly gaining a competitive advantage over these traditional retailers and
wet markets. They offer a cleaner, more comfortable and convenient shopping environment, better
and more standardized quality, and a wider range of products.
Imports arrive
Imported foods, once a rarity in China, are now widely available in Chinese supermarkets,
such as Washington apples, California oranges and wines, lychees from Thailand, butter from
New Zealand and so on.
China’s growing middle class (about 200-300 million persons, from a population of 1.3
billion) has the purchasing power to afford imported foods, but this crucial market segment has
been kept largely out of the reach of food exporters by the combination of China’s old marketing
system and high trade barriers. Multi-national chains are now operating in China, whose 5WTO
commitments mandate that the country open its market to foreign companies engaged in
wholesaling and distribution in 2004.
The integration of China into multinational retail chains may open more means to its market.
The world’s largest food retail chains — such as 6Wal-Mart, 7Carrefour, 8Metro and 9Tesco —
are now buying from and selling to China. The largest Chinese food retailer, Lianhua, has started
to open stores in Europe with the intent of developing into a retailer that can buy and sell in both
domestic and foreign markets.