The role of strategic supply chain management in liquor retail

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THE ROLE OF STRATEGIC SUPPLY CHAIN

MANAGEMENT IN LIQUOR RETAIL

BY

GEORGE OPPONG

Submitted in partial fulfilment of the

requirements for the Master’s degree in

Business Administration at the Nelson Mandela

Metropolitan University

DATE OF SUBMISSION

SUPERVISOR

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i

DECLARATION

This is to certify that this dissertation represents entirely my own work and that all relevant sources are duly acknowledged.

SIGNATURE DATE

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ii

ACKNOWLEDGEMENT

The completion of this dissertation would not have been possible without the support and encouragement of many others. My outmost gratitude goes to the Almighty God for seeing me through my studies in the face of many challenges.

I should like to thank:

My supervisor, Dr Margaret Cullen for her support and guidance throughout the preparation of this dissertation

Mr Nico Pitsiladi, the director of the Big Daddy’s Group and his staff at Prestons Liquor for their co-operation during my field research exercise

My family and friends who have been quite inspiring and supportive throughout my studies

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ABSTRACT

The underlying objective of this research was to assess the extent to which an efficient supply chain can help retail businesses; particularly liquor businesses to manage their business risks. The case study firm for the research was Big Daddy’s Group, one of the leading independent liquor distribution and retailing firms in South Africa.

In order to achieve the objective of the research, a review of relevant literature was done. It began with literature review of retailing in general, highlighting on the major roles they play and the modern trends in the industry. Afterwards the literature was narrowed down to liquor retailing. This was done to ascertain the unique characteristics of that aspect of retailing including the regulations guiding the industry and the specific business risks in that business. The final part of the literature review was on specific concepts and management models such as value chain, supply chain as well as business risk and its management.

The literature highlighted the means by which the retailer creates value for the customer and the inherent risks in the industry. There was the indication of supply chain being a key component of the value creating activities (value chain) of the business, and serving as a tool in mitigating possible risks. The literature provided the theoretical proposition (hypothesis) for the assessment of the case study findings from the Big Daddy’s Group.

The data collection exercise was done by means of a questionnaire complimented by personal interview. Due to the nature of the firm, in terms of structure and operations, two persons, with considerable insight into the business, the director and the sales/area manager were interviewed for the exercise. The questions posed were categorised into seven key areas of retail

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iv operations such as product range, imports, customer awareness, marketing and advertising, supply chain and human resource.

The findings were compared with the theoretical propositions developed in the literature review, and the pattern matching logic technique was used to determine the existence or not of any similar predictions or differences. The risks identified in the findings were analysed with the logic of an efficient supply chain as the mitigating tool.

The conclusion was that supply chain management is key to the value creation activities and hence the survival of the business. The recommendation therefore is that the retailer should ensure the efficient management of the supply chain network since it has the potential to reduce the inherent risks in their operations.

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TABLE OF CONTENTS

CHAPTER ONE

BACKGROUND AND PROBLEM STATEMENT

1.1.1 Introduction 1

1.2 Definition of Problem (Research) Area 1

1.3 Sub-problems 2

1.4 Purpose of the Research 3 1.5 Significance of the research 4

1.6 Delimitations of the research 5

1.6.1 Retailing 5

1.6.2 Consumer behaviour 6

1.6.3 Value chain 6 1.6.4 Supply chain 6 1.6.5 Risk management 7 1.6.6 Case study firm 7

1.7 Research methodology 7 1.8 Chapters review 8 1.8.1 Chapter one 8 1.8.2 Chapter two 8 1.8.3 Chapter three 8 1.8.4 Chapter four 8 1.8.5 Chapter five 9 1.8.6 Chapter six 9 1.8.7 Chapter seven 9 1.9 Conclusion 9

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CHAPTER TWO

RETAILING AND CONSUMER BEHAVIOUR

2.1 Introduction 11

2.2 Retailing 11

2.2.1 Retailing defined 12

2.2.2 Retailing concept 12

2.2.3 Retail Mix and strategy 13

2.2.4 Types of Retailers 13

2.2.5 Major retailing activities 14

2.2.5.1 Bridging Spatial Gaps 15

2.2.5.2 Breaking bulk 15

2.2.5.3 Holding inventory 15

2.2.5.4 Providing services 15

2.2.5.4.1 Ownership 15

2.2.5.4.2 Education 16

2.2.6 The utility concept 16

2.2.7 The changing retail environment 16

2.2.8 Retailing Response 18

2.2.9 Retailing in the future 18

2.2.9.1 Multi channel retailing 18

2.2.9.2 Customer centric stores 19

2.2.10 Retailing in South Africa 19

2.2.10.1 Trends in the industry 20

2.2.10.2 Challenges facing South

African retailers 22

2.2.10.3 Future Prospects 23

2.2.10.4 South African Retailers on

International scene 24

2.2.11 Risks in Retailing 24

2.2.11.1 Inventory shrinkage 25

2.2.11.2 Supply chain Vulnerabilities 25

2.2.11.3 Image/Brand reputation 27

2.2.11.4 Volatile markets 28

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2.3 Consumer Behaviour 28

2.3.1 Factors influencing in shop

Consumer behaviour 30

2.4 Conclusion 31

CHAPTER THREE

LIQUOR RETAILING

3.1 Introduction 33

3.2 Size of the industry 33

3.3 Structure of the industry 34 3.4 Legal and Regulatory Framework 34

3.4.1 Provincial regulations 35

3.4.2 Legislation on supermarkets 36

3.5 Strategies 38

3.6 Value drivers in the industry 38

3.7 Trends in the industry 40

3.7.1 Entry of supermarkets and hypermarkets 40 3.7.2 Alcoholic fruits beverage 41 3.7.3 Demand for premium brands 41 3.7.4 Supermarkets and affiliates 41

3.7.5 Disposable income 42

3.7.6 Consumer taste 42

3.7.7 Competition 42

3.8 Risk in liquor retailing 43

3.8.2 Structural risk 43

3.8.3 Growth risks 44

3.8.4 External risk 44

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CHAPTER FOUR

VALUE CHAIN, SUPPLY CHAIN AND RISK MANAGEMENT

4.1 Introduction 45

4.2 Value Chain 45

4.2.1 Definition 46

4.2.1.1 Primary activities 47

4.2.1.2 Support activities 47

4.2.2 Value Chain and Retailing 48

4.3 Supply Chain 50

4.3.1 Definition and Scope 50

4.3.1.1 Procurement 51

4.3.1.2 Inventory management 51

4.3.1.3 Logistics/Distribution 52

4.3.1.4 Customer Service 52

4.3.2 The Value Chain and Supply Chain 53 4.3.3 Supply Chain and Retailing 54

4.4 Business Risks 55

4.4.1 Definition 56

4.4.2 Risk Management 57

4.4.2.1 Managing risk with improved supply chain 58

4.4.2.1.1 Increased Visibility 60

4.4.2.1.2 Control 61

4.4.2.1.3 Stronger supplier relationship 61 4.4.2.1.4 Synchronised supply chain 62 4.5 Conclusion 62

CHAPTER FIVE

RESEARCH DESIGN AND METHODOLOGY

5.1 Introduction 63

5.2 Research defined 63

5.3 Research methodology 64

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5.4 Approaches to research 65

5.4.1 Quantitative 65

5.4.2 Qualitative 66

5.4.2.1 Qualitative research methods 66

5.4.2.1.1 Case study 66

5.4.2.1.2 Action research 67

5.4.2.1.3 Ethnography 67

5.4.2.1.4 Grounded theory 67 5.5 The choice of a method 68 5.6 Data collection 69

5.6.1 Data collection methods 70 5.7 Population and sampling 71 5.8 Evaluating research methods 71 5.8.1 Reliability 71 5.8.2 Validity 72

5.8.3 Representativeness 72

5.9 The design for this Project 73

5.9.1 Case studies 73

5.9.2 Case study designs 74

5.9.3 Justification for single case design 75

5.9.4 Data collection 76

5.9.5 Analysing the data 76 5.9.6 Validating this research 77

5.10 Case study site - Big Daddy’s Group 77

5.11 Case study questionnaire 78

5.12 Conclusion 83

CHAPTER SIX

CASE STUDY PRESENTATION AND ANALYSIS

6.1 Introduction 84

6.2 Case study presentation 84

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x Figure 1- Organisational structure of

Prestons Liquor Group 92

6.3 Analysis 93

6.3.1 Product range 93

6.3.2 Imports 94

6.3.3 Marketing and advertising 94

6.3.4 Competition 95 6.3.5 Consumer awareness 96 6.3.6 Human resource 97 6.3.7 Regulations 98 6.3.8 Supply chain 99 6.3.8.1 Stock clearance 100 6.9 Conclusion 101

CHAPTER SEVEN

CONCLUSIONS AND RECOMMENDATION

7.1 Introduction 102

7.2 Comparism 102

7.3 Conclusion 103

7.3.1 Retail operations 103

7.3.1.1 Changing trends in retailing 104 7.3.1.2 Responding to the trends 105

7.3.2 Business risks 106

7.3.3 Supply chain and risk management 107

7.4 Recommendations 108

7.5 Opportunities for further study 109

Reference list 111 Appendix 1 118

Appendix 2 119

Appendix 3 120

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1

CHAPTER ONE

BACKGROUND AND PROBLEM STATEMENT

1.1

INTRODUCTION

The major role of retailers is to make goods available to consumers in desirable quantities and volumes. As is the case with all businesses, they aim to create value to customers by giving them what they want. This is the surest way of getting customers satisfied and retaining their patronage (Oakland, 2003: 4-5).

The need for customer satisfaction and retention has driven the activities of retailers to be very much customer focused, emphasising on such elements as quality, reliability, price and delivery (Oakland, 2003: 4-5).

Whiles all functions of the retail business are equally important and need to work as a team, the role of finely tuned procurement and supply chain strategies cannot be under estimated. A core activity in the retail business is to acquire products to the points of sale efficiently and at a lower cost of risk. For instance, a key aspect of keeping customers content is purchasing the right products and ensuring they are available on the shelf when they need them. This implies that procurement need to be consumer led, and that the processes involved should be well structured and risk resilient to guarantee success. Getting it right first time is thus a non-negotiable issue if retailers are to avoid and minimise the nuances that give them bad image (Dennis-Jones, 2007).

1.2 DEFINITION OF RESEARCH PROBLEM

The value that retailers create involves the process of breaking bulk for the customer. It involves the movement of goods from producers’ premises through a host of intermediaries such as distributors, wholesalers, agents to their business premises. At their premises, the other activities of receipt, storage and issues for stacking on shelves complete the supply chain. These in addition to

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2 the other activities of order processing and expediting sum up the major role of procurement. (Levy & Weitz, 2004:6, Terblanche, 2002:3).

Disruptions in this chain of activities constitute the risks that might jeopardise the realisation of corporate goals. Supply chain disruptions can arise from external sources, such as natural disaster or occurrence in outsourced locations, and internal sources, such as a failure to efficiently integrate all functions in the supply chain. Over ambitious efforts to create value to customers through cost conscious supply chain practices can also create disruptions (Christopher & Lee, 2004).

The risk to the business is the uncertainties and unpredictable events that affect any of the partners in the supply chain, or its business setting. These can negatively influence the realisation of corporate goals.

The main problem therefore would be to determine “what role can strategic supply chain management play in managing the possible risks of the retailer”?

1.3

SUB- PROBLEMS

For a retailer, the specific case of creating value to the customer in all areas of quality, reliability, price and delivery in very competitive environments lead to much greater exposure to risk. Customer perception is very significant to such businesses, hence any disruptions that results in poor product and service quality is a calamity (Oakland, 2003: 4-5).

Procurements critical role in the retail business has a big influence on both customer and shareholder value. It has the capacity to create good results and vice versa. According to Sir Terry Leahy, the chief executive of United Kingdom’s retail giant Tesco, “retail buying mistakes pose many challenges. If a range of products is misjudged, not only will it not sell well, the store is also likely to get a negative reputation for not hitting the mark” (Dennis-Jones, 2007).

There is therefore the need to understand the important issues involved and the processes, and then device the appropriate mechanisms to address any inherent risks. In addressing the main problem, the research would aim at providing

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3 responses to the following hypothetical questions as the case may be in certain supply chain practices of a retail business:

 How does the retailer create value for the customer

 What role does supply chain management play in the retailer’s value creation activities

 Do they have enough information on customers’ buying habits and their preferences?

 What is the risk of not being able to meet a hike in customers demand for products?

 What are the costs of over-stocking and obsolescence situations?

 What is the risk of not having real-time inventory information from suppliers?

 What is the risk to their brand if an undesirable incident occurs at a supplier’s or distributor’s end?

 How far should the business go in their supplier relationship and development policies?

1.4

PURPOSE OF THE RESEARCH

For supply chain, risk management represent the process of measuring and assessing all possible disruptions and developing the right strategies to mitigate them (Christopher & Lee, 2004).

Strategic supply chain’s role in managing organizational risk therefore involves a structured and synergy approach throughout the entire supply chain to optimize the totality of processes, technology, human resources etc. The aim would be to control, monitor and evaluate supply chain risks to ensure organisational continuity and maximise profitability (Christopher & Lee, 2004).

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4 In order to address the main and sub problems, the research would try to address the following:

 Examine the role of supply chain in the operations of retail businesses

 Identify the risks inherent in their operations, narrowing down to those related to the supply chain function.

 Make an assessment of the supply chain related risks to get a better understanding of their occurrence and impact on the business

 Undertake a study of the possible strategies suitable to mitigate the risks

1.5 SIGNIFICANCE OF THE RESEARCH

The industry in general is beset with several problems. Retailers have a variety of business needs and production requirements to attend to in order to stay competitive and profitable. The attempt to meet these requirements exposes them to numerous risks that need to be managed to stay profitable in business (Marsh Risk Consulting, 2004). The rule in the industry is what the customer picks up from the point of sale. The quicker/faster information travels through the value chain so that the same product is made available in optimum time and quantity at the point of sale, the higher would be the level of customer satisfaction and profitability (Imptek Management Solution, 2008).

Supply chain play a key role in the general operations of the retailer, and its proper management could help in mitigating the risks inherent in the business, if not eliminate them (AMR Research, January 3, 2007). In particular, a strategically managed supply chain can help mitigate retail risks in the following instances:

Respond to changing consumer needs; this means that all activities of the business would be based on consumer trends. This includes that procurement is consumer led, by bringing the products that the consumer wants and make them available on the shelf at the right time. In addition, consideration could be

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5 given to other trend on supply chain such as having to make simple choices in minimal time (Dennis-Jones, 2007).

Risk-adjusted supply chains; retailers could better understand the vulnerabilities in their increasing supply chain networks and adopt strategies to minimise any inherent disruptions. This could be increased communication or information flow in the entire supply chain to create more visibility and take measures to arrest any disturbances in logistical and distribution activities (Marsh Risk Consulting, 2004).

Reputational risks; reputation is a key corporate asset and it is important that retailers develop strategies to maintain a good impression among stakeholders like customers, suppliers, media, employees, shareholders and the public at large (Marsh Risk Consulting,2004). For example, retailers could better understand the need to have symbiotic relationships with suppliers to secure good, ethical and reliable supply base and not to be seen to bullying/manipulating suppliers. This is because “if a retailer has a problem with a supplier on the other side of the world, customers would get to know in quick time and this could affect their patronage, depending on how it is handled” (Dennis-Jones, 2007).

Generally, the essence of the research would be to help identify and manage any risk that has the potential to reduce profitability (Marsh Risk Consulting, 2004).

1.6 DELIMITATIONS OF THE RESEARCH

Delimiting a research project is to make it controllable and give a focus area to solve the problem/issue at stake. It therefore aims at dealing with only the areas that are very essential to the problem and objectives of the research/project. To address the relevant issues in this project, it is thought that the research should be focused on the following:

1.6.1 Retailing

Retail refers to the sale of goods and services in small quantities directly to final consumers. Therefore, a retailer refers to an organisation that purchases

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6 products from other companies and producers with the intention of reselling them to ultimate consumers (Ogden & Ogden, 2005: 6).

1.6.2 Consumer Behaviour

Consumer behaviour refers to the factors that motivate consumers to buy. This could be due to several elements including price, quality, and safety or to gain social status. To remain competitive on the market, retailers need to consider consumer purchasing motives and behaviour. This would put them in better position to appeal to their “clients’ base and prospective clienteles” (Diamond & Litt, 2003: 101).

1.6.3 Value Chain

The value chain relates to the activities that take place in business and subjects them to an analysis of the competitive strength of the business. It is a means of identifying the activities that are best performed by the organisation in question and those that which are best provided by others. The kind of business activities a firm undertakes is very much linked to its competitive advantage, and analyses the means by which the business creates value for the customer (http://www.tutor2u.net, accessed June 4 2008).

1.6.4 Supply Chain

Supply chain management is the process of integration of key business practices and processes from the final user through the suppliers that provide the commodities and the information that adds value to “customers and other stakeholders”(Stock & Lambert, 2001: 54). Supply chain refers to the steps and firms in the network performing activities in the transformation processes, such as from raw material to finished goods bought by customers. It is based upon the establishment of a long-term relationship to ensure the speedy delivery of quality product and services at competitive prices (Davies & Heineke, 2005: 104).

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7 1.6.5 Risk Management

Business risk is the uncertainty associated with key business drivers. It includes factors like the state of the economy, fluctuations in demand, supply disruptions, competitive actions by rival firms, technological changes, legal liabilities and regulatory changes. These can occur anywhere in a firm’s extended value chain, and can affect and be affected by all of the organisation’s business processes (Abderrahim, 2005: 4-5).

Risk management is therefore a process of measuring or assessing risk and then developing strategies to manage the risk. These strategies could include the transfer of risk to another party, avoiding risk or mitigation and channel risk sharing (http://www.amrresearch.com/content, accessed July 26, 2008).

1.6.6 Case Study Firm

The empirical study will be done in the form of a case study. A single case study approach will be used, and the case study firm will be the Prestons Liquor Group, a subsidiary of the Big Daddy’s Group.

Prestons Liquor Group is a leading liquor retailer in South Africa with operations in the entire Eastern Cape, Johannesburg in Gauteng and George in the Western Cape.

1.7 RESEARCH METHODOLOGY

This research will be done using a combination of primary and secondary data. The secondary data involves a literary review of the subject matter. It will include textbooks, journals and articles written around the subject as well as electronic sources like the internet. Management reports that are relevant to the topic will also be considered. These would provide the necessary theoretical background for the research.

The objective of this research is get an-depth knowledge of business risks of retailer, particularly liquor retailers and assess the extent to which an effective supply chain can mitigate these risks. For this reason, the single case study approach to research will be adopted. This would allow for the profiling of a

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8 particular organisation in terms of the relevant issues of the research topic. Primary data will be collected with the combination of a questionnaire and personal interview, and the findings will be compared with the theoretical propositions from the literature review. This will allow a realistic conclusion to be drawn in line with the objectives of the research.

1.8 CHAPTERS REVIEW

1.8.1 Chapter one:

Background and problem statement

This chapter dwells on the introduction to the research in general. It explains the background to the research, states the main problem as well as the sub problem involved. It also discusses the purposes, significance of the research and gives an outline of the methodology and structure of the project.

1.8.2 Chapter two

:

Retailing and consumer behaviour

This the first of three chapters on literature review. This chapter reviews literature on retailing in general and concludes with a look at the retailing situation in South Africa.

1.8.3 Chapter three: Liquor retailing

The second chapter on literature review. This chapter is wholly devoted to liquor retailing, the focus of this research. It discusses the retail of liquor globally with emphasis on legal and regulatory requirements, structure and trends. It concludes with a closer look at the situation in South Africa.

1.8.4 Chapter four:

Value chain, supply chain and risk

management

This is the final part of the literature review. It focuses on three models of management namely value chain, supply chain and business risk and its management, highlighting on their relevance to the research question.

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9 1.8.5 Chapter five:

Research design and methodology

This chapter focuses on the research design for this project. It begins with a general literature review of the various methodologies and approaches to research. This provides the platform to establish the appropriate method and design for this research. It discusses the design of this research such as the approaches to research, the methods of gathering of data and how this can be validated to represent a true a picture of the situation on the ground.

1.8.6 Chapter six:

Case study presentation and analysis

The findings from the empirical study would be presented in this chapter. This would form the first part of this chapter. The second part would analyse the findings in the context of the theoretical propositions developed from the literature study.

1.8.7 Chapter seven:

Conclusions and recommendation

This final chapter makes a conclusion of all that has been done in the research. It gives a summary of what exists in literature for the research problem and the situation as found in the case study organisation. It concludes with recommendations on how best to address business risks with an improved supply chain and related areas for further research.

1.9

CONCLUSION

It is expected that after going through the above meticulously, an appropriate framework and strategies will be unearthed and recommended to help retailers in their supply chain activities

It is hoped that an adequate and thorough analysis will lead to a much better insight into the potential danger spots in the supply chain. This will form the basis to unearth the right strategies that suite procurement practices in retail businesses, enabling them to:

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 To be able to anticipate and respond adequately to external and internal trends and developments;

 Give them a sense of direction and focus on uncertainties rather than just the certainties;

 To be able to have a greater influence on their supplier chain partners;

 Give them a competitive edge through the process of controlled risks. The next chapter will attempt to discuss retailing, highlighting on the trends on both the global and local scene as well as consumer behaviour.

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CHAPTER TWO

RETAILING AND CONSUMER BEHAVIOUR

2.1

INTRODUCTION

In order to have a good outcome for the problem area of this study, there is the need to review relevant literature on the specific topics of concern. These areas form the sub-foci of the bigger research problem.

Since the study focuses on the retail industry, this chapter starts with a review of retailing in general. It covers the conceptual meaning of retailing as well as the policies and strategies adopted by businesses to win the market. It then follows with the major types of retailers based on their characteristics; the changing and challenging trends in retailing and the response of retailers to these challenges.

The second part of this chapter focuses specifically on the retail industry case in South Africa, highlighting the structure, trends, challenges, prospects and its position on the international scene.

The chapter ends with the third section with a study of the behavioural patterns of consumers. The emphasis is on the processes of making a purchase decision, the factors that influence consumer-buying patterns in general and the specific elements that influence in-shop buying decisions.

2.2 RETAILING

Manufacturers produce goods and services with the satisfaction of consumers in mind. In other words, they manufacture products that would satisfy the needs of the consumer. The manufacturer rarely has any direct contact with the consumer and relies mainly on the distribution channel, of which the retailer plays a significant role. The retailer remains the penultimate player in the

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12 distribution channel and is the visible and immediate representative of the manufacturer to the consumer (Levy & Weitz, 2004:6).

2.2.1 Retailing defined

Retailing refers to the combination of activities required to sell goods and services (products) to final consumers for use by themselves, families and other households (Terblanche, 2002:2). Lynda Gamans Poloian (2003) also refers to retailing as that aspect of marketing conducted at the level of the final consumer, implying that it is the selling of products to the customer for personal and non-business use (Poloian, 2003: 8).

According to Levy and Weitz (2004), products in this wise include both tangible goods like cars, foodstuffs, and cosmetics as well as intangible ones that consist of services. Therefore, the activities of a medical officer in examining a patient, a hairdresser, a video rental and so forth can be seen as retailing.

It can therefore be argued that any business that focuses its strategies, marketing activities and efforts on the sale of products to the final consumer can be deemed as a retailer.

2.2.2 Retailing concept

This works on the same line as the marketing concept and has been implemented over the years in the business world. The retailing concept justifies a retailer’s existence by re-emphasising his focus on the satisfaction of consumer needs and wants whilst striving to meet their business objectives. It demands the identification and establishment of consumer needs and developing ways to satisfy such needs (Terblanche, 2002:7).

The concept can be summed up in three ways as:

 An integration and co-ordination of the retailers’ operations to meet the needs and wants of the consumer;

 An orientation to achieve financial and non-financial objectives by meeting consumer requirements through an integrated approach

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13 A successful application or implementation of the retail concept leads to the provision of excellent and satisfactory levels of service quality. The consumer enjoys a total retail experience, leading to the establishment and development of a long-term relationship with the retailer (Terblanche, 2002:8).

2.2.3 Retail Mix and strategy

Retailers engage in various activities in their attempt to satisfy consumers. These pertain specifically to store, service and non-store settings and can be seen as the retail mix, much the same as the marketing mix. Physical facilities, planning, merchandising, pricing, promotion and distribution are important aspects of the mix (Poloian, 2003:8).

Each retailer prospers by satisfying a group of customers’ needs more efficiently than competitors. This they are able to do by designing and implementing strategies that appeal to the particular segment of the market. Specifically, retail strategy refers to how a firm plan to focus its resources to accomplish set objectives (Levy & Weitz, 2004:149). These can be seen in three different areas:

 The target market to focus on;

 The type and nature of products to offer to customers to satisfy their needs;

 The building of a sustainable long-term competitive advantage (Levy & Weitz, 2004:19-20).

These three focal points form the basis of what has come to be commonly referred to as retail strategy; namely store design and display, location, product assortment and variety, customer service and communications mix (Levy & Weitz, 2004:19-20).

2.2.4 Types of Retailers

These elements in the retail strategy mix constitute the characteristics from which one can derive the various types of retailers (Levy & Weitz, 2004:36). Broadly, retailers can be differentiated on the following criteria:

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 Type of merchandise sold;

 Assortment of Merchandise- which consists of all the products offered by the firm, defined in terms of its breadth and depth;

 Price-cost trade off; which refers to the price cost relationship on merchandise sold and services offered to customers;

 Customer service; the extent of customer orientation the firm operates;

 Type of ownership; whether they are independent, single or multiple outlets like chain stores.

Based on these criteria, various retail types can be identified, the most common of which are discount Stores, general merchandise, chain Stores, franchisers, departmental houses, food retailers, supermarkets, and speciality stores

(Levy & Weitz, 2004:41-53; Terblanche, 2003:119-144; Poloian, 2003:8).

2.2.5 Major retailing activities

The major role of retailing can be summed up as a link between production and consumption. This is because what the consumer wants might not necessarily be the same as what the manufacturer produces. There arises therefore a discrepancy between the two parties and this is overcome by the activities of the retailer as an intermediary between the manufacturer’s production and the demands of the consumer to satisfy their needs (Terblanche, 2002:3).

The major activities / functions played by retailers include:

2.2.5.1

Bridging Spatial Gaps

Production and consumption of products virtually take place in different geographical locations. Retailing helps overcome this spatial gap by acquiring products from producers and selling them at locations convenient to the consumer. The location of businesses in central business districts, neighbourhood communities and regional shopping centres can be seen as evidence of the role of retailing in closing the spatial gaps (Terblanche, 2002:2).

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15 2.2.5.2

Breaking bulk

This function is also referred to as bridging the quantity gap. Manufacturers produce goods in bigger quantities, whereas consumers buy in smaller quantities. Economically it suites the producers to ship products to wholesalers and retailers in large quantities as it helps optimise transportation costs. The retailer buys and offers the products in bits to suit the consumption patterns of the consumer. This function of the retailer is what is generally referred to as breaking bulk (Levy & Weitz, 2004:6).

2.2.5.3

Holding inventory

Periods of production and consumption differ very often. Manufacturers sometimes produce goods at periods most convenient to their operations. However, consumers demand these products in smaller quantities as and when they need them. The retailing function helps overcome this time gap and storage problem. Retailers buy in bulk, store the inventory in smaller

user-friendly quantities and make them available when needed by consumers (Levy & Weitz 2004:6; Terblanche, 2002:5).

2.2.5.4

Providing services

Besides the foregoing function of the retailer in direct relation to the availability of the products, it can be said that retailing brings increased value to customers in the products they buy. They provide other services that enhance the accessibility of consumers to products for purchase and usage. This is seen in the area of ownership, as well as information and education (Fernie, Suzanne & Moore. 2003:220).

2.2.5.4.1 Ownership

Retail makes it possible for consumers to own products through the acceptance of credit cards issued by banks and the provision of credit facilities that enable consumers to buy on credit and on hire purchase as well as other credit (Fernie et al, 2003:220-223).

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16 2.2.5.4.2 Education

Retailers supply information on products through advertising, promotional and educational activities. They provide the opportunity for consumers to test products, and well-trained personnel who educate customers on the use and other knowledge about products complement this. This helps to put consumers in the right picture in deciding on their purchases (Fernie et al, 2003:220-223).

2.2.6 The utility concept

Another view of the role of retailing is seen in the economic utility concept. The concept stresses that consumer satisfaction forms the basis of all retail activities. Utility in this sense refers to the ability of a product to satisfy the needs of consumers. Utility is seen in the following four areas, their satisfaction of which brings the needed value and satisfaction to the consumer (Poloian, 2003: 17):

 Time: when retailers provide merchandise needed by customers exactly when they need them;

 Place: the location of the retailer is easily accessible to the consumer;

 Form: the ability of retailers to create satisfying merchandise assortment in their stores;

 Possession: When retailers make it possible for consumers to own products by selling to them (Poloian, 2003: 17).

2.2.7 The changing retail environment

The business environment provides the arena within which retailers operate. The future of any firm in an industry is determined by its ability to obtain information about the environment and analyse it to get a better understanding and its effects on its operations and act accordingly. The retail industry is not different, and it is influenced by several environmental elements. It is thus essential for retailers to have a clear understanding of this to identify any possible threats and opportunities and re-act accordingly (Kent & Omar, 2003: 33).

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17 Macro environmental elements like economic, social and demographics political and legal factors that describe the wider contextual arena that the retailer operates are very important. Equally significant are the microenvironment issues that are more directly influential on the firm’s operations. These issues dwell on competitors, suppliers, customers, labour markets, financial institutions (Kent & Omar, 2003:33).

In the case of the retailer, change has been driven by the interaction between the consumer, retail technology and the government (Fernie, 1997:384).

The changing trends in the consumer environment are largely influenced by: Demographics Trends; which describe the structure of a country’s population in terms of growth rates and distribution of the different age groups;

Socio-Economic trends; which deals with the labour market, the level of productivity and the income levels and ultimate purchasing power;

Lifestyle Trends; these results from a combination of the two factors enumerated above, resulting in a complex set of consumer behavioural practices, and the importance attached to their surroundings, beliefs, attitudes (Fernie et al, 2003:22).

The influence of government is seen in this area as it being the manager of an entire economy, therefore its policies and regulations has direct bearing on business planning and strategic management, health and safety at work, hours of opening, employment laws competition laws, especially on pricing (Kent & Omar, 2003:36).

The technological environment refers to the influence of information technology and innovation, augmenting modern production, business administration and management and offering the consumer increased access to information on products (Kent & Omar, 2003:36).

2.2.8 Retailing Response

The interaction of retailing in the environment is seen from the response the retailer provides to these challenges enumerated above. Given the fact that the

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18 business environment keeps changing, retailers have and continue to adopt measures and strategies that provide response proactively and shape the environment (Dunne & Kahn, 1997).

Among the trends that have emerged as a response to the changing business environment are:

 Strategic sourcing; with emphasis on global sourcing to secure products at competitive prices,

 Development of relationships within the channels through more and effective collaboration with members within their channels with the hope of reducing costs,

 The development of more direct formats that reduces costs and gives more value to customers,

 Continued use of private labels as a means of differentiation to maintain lower prices and increase profitable margins (Dunne & Kahn, 1997).

2.2.9

Retailing in the future

The initial practices in the retail business had been to sell to customers within defined buildings through single channels of exchange. Retailers now face the dilemma of differentiating themselves to provide the kind of shopping experience that meets the needs of modern day consumer. This is would continue to be the challenge of retailers in the future (Levy & Weitz, 2004:6). In response to these new developments, retailing organisations have come up with what is referred to as multi channel retailing and create customer centric stores and shops (IBM Business Consulting Services, 2005).

2.2.9.1

Multi channel retailing

Multi channel retailing is the practice of selling products through more than a single channel, and most previously single channel retailers continue to adopt this phenomenon. This is seen as a means of providing more value to customers by giving them more avenues by which they can shop. Thus besides

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19 the traditional channel of selling through the stores, retailers are now exploring the option of selling through catalogues, internet etc. These new channels provide more value to customers by way of convenience, safety, accessibility and visual presentation (Levy & Weitz, 2004:6; IBM Business Consulting Services, 2005).

2.2.9.2

Customer centric stores

In meeting the growing demands of the industry, retailers would need to do more to build customer centric businesses. They would have to provide more qualitative shopping experience from the perspective of the customer. In this wise, the entire retailing environment should be more customer centred by addressing the following issues:

 The organisational set-up should be done from the customer’s perspective, and not that of the retailer;

 Provide easily comprehensible shopping process that give customers more control over the retail experience;

 Better usage of customer information by both the retailer and customers to stimulate the shopping process

 Provide a variety of shopping experience tailored to meet the needs of

different customers and to suite varied shopping occasions (IBM Consulting Services, 2005).

2.2.10

Retailing in South Africa

The industry is dominated by several large South African holding companies owning the majority of the major retailing brands. These holding companies operate in various sectors ranging from groceries, clothing, footwear, furniture and furnishing brands. In addition, they position themselves in peculiar manners to capture specific core buyer markets in the lower, middle and upper income consumers. This trend is however likely to end when big international players enter the market (Euromonitor International, April 2008).

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20 The retail structure in South Africa covers the entire spectrum of retail outlets. In this context, there are neighbourhood convenience stores, small general dealers, speciality stores handling a single product line, exclusive boutiques, chain stores, department stores, cash and carry wholesale-retail outlets and co-operative stores serving rural areas (Brand South Africa, June 2004).

The major retail chains are Pick n Pay Holding Limited, Spar Group, Shoprite Holdings Limited, Woolworths Holdings Limited, Metcash Limited, Massmart Holdings, Edgars Stores, Clicks and Mass discounters amongst others.

2.2.10.1

Trends in the industry

 A phenomenon in the industry has been the evolution of supermarkets and hypermarkets selling large quantities of almost all consumer goods on a self-service basis. These hypermarkets are located in the suburban shopping centres, and have disrupted the traditional distribution chain by bypassing the wholesaler and sourcing directly from the manufacturer, with low margins to achieve high turnover. This practice places a sought of pricing pressure on competitive retail formats. Another significant factor is that about 90 percent of the consumer trade inventories or merchandise of these outlets are domestically sourced (Brand South Africa, June 2004).

 In addition, there has been a rise in the number of independent stores and rural stores, and in response, large corporate are currently tackling the rural townships and rural markets with the opening of more corporate, franchise and voluntary shops. In addition, there has been an increase in the number of specialist stores like Mica Hardware, Mr. Price Home, Hi-Fi Corporation etcetera, owing to the increased demand of consumers for specialist service (Biz- Community .Com, November 15 2004).

 Globally there has been a shrink in the number of grocery stores, with Europe experiencing a decrease of 27 percent since 1998. However, during the same period, Europe has witnessed an increase in the emergence of hypermarkets attracting the highest quanta of consumer

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21 spend. Compared to South Africa, major stores have the bulk of retail sales, accounting for 54 percent in 2004, with the expectation of increasing to 60 percent by 2008. The informal sector is known to record an estimated turnover of R 34billion. However, this sector is believed to have peaked, as most major or formal shopping centres continue to spread to disadvantaged areas. The future prospects point to an increase in corporate stores as well as franchise and voluntary stores. This is likely to ride on the back of certain developments projects that are likely to impact positively on retail such as increased urbanisation, development of disadvantaged areas and the development of the central business areas (Biz- Community .Com, November 15 2004).

 Despite the fact that Kwa-Zulu Natal commands the highest population in provincial terms, the Western Cape and Gauteng command the spending power, and these two provinces register the highest percentage of retail sales. Johannesburg and Cape Town are seen as the country’s two biggest spinners, and the Western Cape and Gauteng are known to account for 50 percent of the country’s retail sales (Biz- Community .Com, November 15 2004).

 Convenience stores continue to register the highest growth compared to other retail formats. This is believed to be so because either the other formats have reached their peak or saturated, and secondly as a response to the changing demands of the consumer. Franchising is also on the rise and would become increasingly popular as a means to obtain a cost-effective and organised retail for the unorganised retail sector (Market Reaserch.Com, May 2007).

 Another feature of the industry is the continued rise and popularity of store based retailing. Notwithstanding the rise and penetration of information technology and the use of computers and internet, this is very much restricted to the middle and upper income earners. Therefore, even though working professionals are beginning to shop on line, majority of the populace continue to buy directly from stores. This situation is expected to change if confidence is restored in the postal

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22 system and there is guarantee of security in financial card transactions (Euromonitor International, April 2008).

 Again, retailers have adopted the practice of trading seven days a week. In fact, Sunday trading in particular is seen as one of the reasons for the proliferation of the convenience shops. Cumulatively the practice has given retailers more opportunity to reach out to consumers and shoppers (Biz- Community .Com, November 15 2004).

 Concerning the items consumers spend their money on, food remains a strong component, but there has been a shift in the direction of spending discretionary income, particularly since 2000. The shift has been on the arrival of the casino culture, with increased spending on entertainment, and significantly, on the cell phone market, which has seen an increase in consumer spending as evidenced by the number of customers, 8.3 million in 2001 and 18.2 million in 2004 (Biz-Community.Com, November 15, 2004).

2.2.10.2

Challenges facing South African retailers

 A trend on the global retail arena is the concept of commoditisation. According to Rodger George, Delloitte Consumer Business leader, consumers see products such as fashion, electronics and processed food as commodities, and this is forcing prices and margins downwards. “Avoiding commoditisation is becoming the key challenge facing retailers.” Differentiating on the basis on something else other than price will be a challenge retailers need to overcome, “be it through store and business formats, customer experience or focusing on the niche markets” (Delloitte & Touche, South Africa, January 2008).

 Another challenge is a shortage of the requisite work force to work in the industry. The industry has grown tremendously in the past five to six years, leaving in its wake an alarming amount skills shortage. This is very prominent in the specialist areas like the fresh produce and butchery as well as store managers and other in store senior staff. A similar scenario in other associated sectors such as the logistics and

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23 manufacturing sectors compounds the situation (The retail exchange- fastmoving.co.za, accessed September 20, 2008).

 The deregulation of the plastic bags is a concern to retailers, knowing the impact it might have on their business. Also shoplifting, shrinkage and most importantly crime is one of the biggest challenges of the retail business (The retail exchange- fastmoving.co.za, accessed September 20, 2008).

2.2.10.3

Future prospects

The industry is projected to experience growth in the coming years. The following would drive this growth:

 The increase in education is likely to boast disposable income to give consumer spending more power. This is expected to rise on the back of the positive economic conditions, evidenced by the rise of the black middle class that is expected to grow at an estimated rate of 30 percent per annum (Euromonitor International, April 2008).

 Real disposable incomes, which is the main driver of consumer spending is expected to grow at moderates between 2007 and 2011, and this is expected to impact positively on retail sales (Market Reaserch.Com, May 2007).

 Durable retail sales like cars, furniture, and cell phones continue to benefit from a booming middle class. The greatest opportunity for retail sales would continue to be food and groceries (Market Reaserch.Com, May 2007).

 The organic food market is the fastest growing sector in the grocery segment after baby food and is expected to grow at 30 percent during the period from 2007 to 2010 (Market Research.Com, May 2007).

 In addition, the number of South African households is estimated to increase from 9.8 million in 2001 t0 11.2 million in 2008, which presupposes an increase in spending to cater for these households. In addition, South Africans are not known to have good saving habits,

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24 accounting for as little as 0.6 percent of their income, 54 percent going to debt servicing and the rest being spent. This then gives hope for increased and sustained retail sales (Biz- Community .Com, November 15 2004).

 The deregulation of the liquor industry is a major boast to the major chain stores and supermarkets as it gives them more depth in terms of merchandise, though to the detriment of the independent and informal outlets (Biz- Community.Com, November 15 2004).

2.2.10.4

South African retailers on the international scene

On the global scene, South African retailers continue to make significant recognition in terms of performance. Four retailers achieved a ranking in the list of world’s top 250 retailers in 2006. Pick n Pay was ranked 123, Shoprite 131, Massmart 150 and Metcash 230. Significantly three of these companies outpaced the top 250 retailers’ five year compound annual grow rate, and interestingly Massmart and Pick n Pay were among the world’s top 50 fastest growing retailers. This was measured by the compound turnover growth rate over the period 2001-2006 (Delloitte & Touche South Africa, January 2008).

In addition, emerging markets continue to enjoy above average returns. According to Dr. Ira Kalish of Delloite’s consumer business research (January 2008), “there is evidence of consolidation and modernisation in emerging markets that would continue in the coming years. This is emphasised by the facts in 2006, which showed that Africa and the Middle East as a region, with South Africa as a key player recorded the highest year on year retail growth sales at 12.5 percent, ahead of North America’s 11.70 percent and Asia Pacific is 8.1 percent (Delloitte & Touche; South Africa, January 2008).

2.2.11

Risks in Retailing

Retailers encounter a host of risks that threaten their bottom line. The retail industry faces many challenges in the form of business needs and requirements, and this they need to address to remain competitive and increase profitability. On a regular basis, retailers are confronted with the management of

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25

these business risks that greatly reduce their overall profitability (Marsh Risk Consulting, 2004). Most of these emanate mainly from their

attempt to meet changing consumer trends in the globalised business environment.

Generally, the risks encountered by the retailers include market turbulence, increased supply chain vulnerabilities, image and reputation as well as theft and inventory shrinkage.

2.2.11.1

Inventory shrinkage

This happens to be one of the most significant and emerging trends in the risk profile of retailers. This has come about because of the resolve of business in general to streamline cost in all forms, including labour. In the end, less labour is engaged in retail shopping floors and this is against the background of businesses struggling to implement and maintain quality security systems at their businesses. This situation increases the exposure of displayed merchandise to theft from customers and sometimes employees. Shop lifting and inventory shrinkage is therefore on the increase as evidenced by the 2000 National Retail Security Survey of the US, which showed that retailers lost more than $13.2billion from employee theft for that year. This stood for 45 percent of inventory shrinkage, whiles shoplifting represented 32.7percentage, the combination of the two accounted for 75 percent of overall retail shrinkage (Marsh Risk Consulting, 2004).

2.2.11.2

Supply chain vulnerabilities

A primary concern to every retailer is to give customers what they want. A key part of keeping customers satisfied is procuring the right products and ensuring that they are available on the shelves where and when they want them (Dennis-Jones, 2007). However, this cannot be possible without a finely tuned risk resilient supply chain and procurement strategies.

Interestingly the risks that accrue to the retailer from their operations emanate sometimes from their anxiety to over simplify their activities in this regard, or disruptions and disturbances that happen in the supply chain. Many retailers in

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26 their bid to excel in this field tend to adopt business strategies that sometimes influence negatively on their business fortunes. For instance, some encounter supply chain risk because of changing their business models, such as the adoption of “lean” practices, sometimes leading to the reduction of their supplier base and the move towards outsourcing (Christopher & Lee, 2004).

Supply chain vulnerabilities is seen as an exposure to serious disturbance, arising from risks within the supply chain as well as risks external to the supply chain (Christopher, 2005: 234). Vulnerabilities in the supply chain emanate from the following practices:

 A focus on efficiency at the expense of effectiveness. Businesses tended to seek greater efficiency in the supply chain through the minimisation of cost by focusing on inventory reduction approaches like Just in Time (JIT). This is what lean practices is all about, but unfortunately, it exposes the firm to an over dependence on suppliers. The danger to this otherwise good practice in a stable market is that it becomes less viable in volatile market situations when demand increases.

 Increased globalisation of supply chains coming out of the tendency to do offshore sourcing. Supply chains of some firms extend from one part of the globe to another. The motivation for this offshore sourcing is usually that of reduced purchase cost. However these are often counterbalanced by higher risks in extended lead times, greater buffer stocks and the potentially higher levels of obsolescence (Christopher, 2005; 235).

 Focused factories and centralised distributions centres increase the cost of transporting the goods to the various retail outlets. Even though production and stockholding cost may be low from this practice, products may have to be transported over very long distances, sometimes making them inflexible to changing demands (Christopher, 2005; 236).

 The trend to outsource previously internally performed activities to outside parties. Almost all parts of the value chain have experienced this phenomenon, ranging from manufacturing to distribution, accounting,

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27 and information systems etcetera. The logic for this is the benefits that accrue to firms for focusing on these activities where they have a differential advantage over competitors. This practice creates a wider network of activities for the business exposing the firm to a lot of risk, most importantly that of a potential loss of control and a failure or under performance by any party in the network (Christopher, 2005: 236).

The potential risks that result from these vulnerabilities are best identified by auditing the main sources of risks around the network of activities. The potential risk arising from the disruptions can be accessed from:

 Supply risk- to determine the vulnerability of the business to disturbances or disruptions in supply chain arising from global sourcing, dependence on few suppliers and poor supply management;

 Demand risk- to assess the volatility of demand arising from whether the bullwhip effects or a case of complimentary demand for different products;

 Process risk- the resilience of the firm’s processes to inherent variabilities, bottlenecks and additional capacity;

 Control risk- the extent to which their own internal control systems like batch sizes, safety stock, order opportunities can cause distortions for example in real demand;

 Environmental risk- the vulnerabilities of the supply chain to external forces because of its exposure to external events (Christopher, 2005: 238).

2.2.11.3

Image/Brand reputation

The success story of the retailer is also closely related to its reputation, because they do not only sell products, but also eventually create an image. They face the increased pressure of operating to a higher level of corporate social responsibility. The products and brand they sell are not assessed on price and performance alone, but also with reference to their social impact. The modern sophisticated consumer does not only demand a good product but also a

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28 socially and ethically responsible behaviour from business as a whole. According to Marketing and Opinion Research International (2003), the percentage of consumers who considered social responsibility in making their purchase decisions doubled between 1999-2002, an increase from less than 25 percent to 50 percent (Marsh Risk Consulting, 2004).

The issue of responsibility extends to their relationship with suppliers that are under constant scrutiny from customers. If a retailer has a problem with a supplier on any front at any part of the world, customers would hear it in quick time and would expect to know what the retailer is doing about it. In the same way the activities of suppliers in terms of ethical and social responsibility has a bearing on the retailer’s reputation (Dennis-Jones, 2007).

2.2.11.4

Volatile markets

The market place is characterised by increased turbulence and uncertainty. These can be attributed to a number of reasons. First, the demand in almost all forms seems to be more uncertain, particularly due to the changing consumer trends as exist now. They have become so sophisticated and are prepared to trade money for time. Retailers are constantly at a full stretch to stay in course for these changing trends to stay competitive in the market.

Also product and technological life cycles have significantly been shortened “whiles competitive product introductions make life cycles demands difficult to predict” (Christopher & Lee, 2004).

2.3 CONSUMER BEHAVIOUR

The primary aim of retailers is to provide service to customers at a profit. It is therefore imperative that the consumer is placed at the centre of the activities and efforts of the retailer if business objectives of profitability are to be realised (Johnson & Weinstein, 2004:5; Fernie J, et al 2003:220).

In the specific case of the retailer, their survival and continued competitiveness on the market lies very much on the extent of their awareness of consumers’

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29 behaviour. This would then form the basis of any policy on customer relationship management and customer retention policies to be adopted (Terblancle, 2002: 53).

Consumer behaviour has been defined as the activities people (customers and consumers) undertake when obtaining, consuming and disposing of products and services. It is basically to understand “why people buy” with the belief that having this information puts the organisation in a better position to strategise and influence its customers (Blackwell, Miniard, & Engel, 2006:4).

From the study of consumer behaviour has emerged consumption analysis, which refers to why and how people use products in addition to why and how they buy. This concept extends the focus of consumer behaviour because it brings in issues arising after the purchase- issues affecting how people buy as well as the satisfaction they receive from their purchase (Blackwell et al, 2006:4).

From the standpoint of the retailer, the study of consumer behaviour should lead to the extraction of vital behavioural practices and principles in the store selection and store patronage processes that are relevant to their line of operation. Information gathered from this process can then form the basis of grouping consumers into market segments (Kent & Omar, 2003: 158). This is so because the central part of a marketing or retailing business is to understand the reasons of for which a customer or consumer makes a purchase. This will then serve as a guide for the business in its attempt to meet the needs of the consumer. More importantly, it would be in a better position to influence and predict consumers’ reasons for purchases and more importantly lead to the establishment of a competitive advantage (Wright, 2006: 7).

These beliefs are complimented by the views of Hawkins, Best and Coney (2004) who argue that a successful strategy to be employed would not be complete without extensive information on the behaviour of consumers. It would be of great importance for example to ascertain responses to hypothetical questions like:

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 What they think of improvements in their product offerings?

 How they perceive of their business premises and surroundings?

 Their attitudes about their advertising and promotional activities;

 Their beliefs about their roles in families and societies;

 Their hopes and dreams individually and their families.

(Hawkins, Best & Coney, 2004: 7-8).

2.3.1 Factors influencing in shop consumer behaviour The sort of behaviour the consumer displays in the shop floor could be influenced by several factors. The stages in the decision making process as enumerated from the consumer behaviour model should therefore provide the retailer with a clue as to the areas to manipulate to influence consumers behaviour. These factors, referred to as in-shop behavioural factors include the following (Terblanche, 2002: 65):

In shop information – this refers to the availability of information that can influence the buying decisions of customers such s news on any special sales offers, markdowns, discounted items, promotions etc. (Terblanche, 2002: 66).

Displays – this is mostly at the point of purchase, especially on shelves. The proper arrangement of products, and at vantage levels of the shelf, especially the third tend to attract customers and may eventually influence them to buy.

Store layout – this deals with the design of the shop in terms of the positioning of products according to categories and brands, pathways and access routes for traffic. This tends to encourage customer movements and makes shopping exercise easier and interesting (Terblanche, 2002: 66-67).

Pricing and promotions – consumers are not usually fully aware of the pricing offerings of retailers. Therefore, when retailers emphasise any special price offers and promotions in shops through proper and attractive displays,

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31 especially on the most popular items, this tends to have great influence on the decisions of buyers (Terblanche, 2002: 67).

Personnel – this refers to the availability of highly skilled sales personnel to assist shoppers, especially in the purchase of highly technical items. Sales personnel are the first and direct point of the shop with the customers, and the impact of their selling skills on customers cannot be overemphasised (Terblanche, 2002: 68).

Stock availability – it is essential that a shop have products available at all times. Consumers develop bad experience if they enter a shop and to their dismay find the item intended to be purchased is out of stock. The customer may at best reconsider the purchase decision by:

 Buying the same item at a different store;

 Switch to a new brand;

 Delay the purchase to a later date in the shop when the product is available;

 Forego the purchase altogether (Terblanche, 2002:68-69).

2.4 CONCLUSION

Retailers play two major roles in their business, by serving customers or serving people who do, so they can better serve customers. This role of the retailer is the customer service aspect, and by this, the retailer adds value to the product bought by the customer (Daffy C, 1999, cited in Fernie J. et al 2004:219). The level of service delivered is the determinant of the level of satisfaction enjoyed by the customer. Service quality implies the “ability of the organisation to meet and exceed customer satisfaction” (Martin, Payne & Ballantyre, 1999).

Retailers serve to people of different backgrounds, with varied tastes, preferences and behaviours. A precursor to retailing excellence is therefore to understand customer behaviour. This however is one of the challenges facing

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32 the retailer because customers have become more unpredictable. Society is more enlightened with more information from the influence of technology and people continue to adopt different lifestyles (Poloian, 2003:280).

This chapter dealt with retailing, discussing relevant issues like types and role of retailers, the prevailing trends and prospects in the industry. It also discussed consumer behaviour and its relevance in the retailing environment.

The next chapter will deal with the specific aspect of liquor retailing, with emphasis on the size of the industry, legal and regulatory framework, trends and risks in the business.

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CHAPTER THREE

LIQUOR RETAILING

3.1 INTRODUCTION

The liquor industry, specifically the retailing aspect is the reference study for this research and this chapter is entirely devoted to that.

It starts with a brief overview on the size and nature of the industry. The legal framework that governs the operations in the industry, with some reference to the international scene and the situation in South Africa follows this.

Finally, it looks at the strategies appropriate to create value in the industry, prevailing trends and the risks inherent in the business.

3.2 SIZE OF THE INDUSTRY

The South African liquor industry has experienced a period of consolidation arising partly from polarisation in which the bigger firms have become powerful whilst the small ones struggle to make it (Who Owns Whom, January 2004).

It is characterised by few companies with high levels of horizontal and vertical integration. In addition, there is a sizeable informal sector, mainly operating in retail. These two scenarios do not fit into the government’s plan of ensuring competition. It for these reasons that the government, in its role as regulator, proposed the following policy shifts to deal with the situation (Reality Research Africa, March 2004):

 To restructure the liquor industry and give priority to facilitation of entry and empowerment of new entrants;

 To reflect all cost associated with liquor including alcohol related problems in health and other fields.

Figure

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References

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