Competition from large-area and discount stores has made unassociated traditional trade unable to match the offer of so-called modern distribution channels in terms of price. Such a situation simultaneously accelerated the formation and development of the still new franchise-based trade chains. These quickly proved largely able to withstand not only price competition with discount stores but also – or above all – competition in terms of quality and customer service.
Price Balance
A strength of hypermarkets and discount stores at the first phase of their functioning on the Polish market was the scale of purchases performed by those chains. It enabled them to obtain favourable trade conditions from manufacturers and suppliers, particularly in terms of price and promotions, which traditional stores were unable to achieve, whether individually or through purchasing groups comprised by relatively small numbers of trade outlets, or through fledgling franchise chains.
However, as franchise chains comprised by as many as several thousand stores developed on the Polish market over the years, it became possible for traditional outlets associated in such chains to procure goods at prices comparable to those offered by discount stores. Especially that franchise chains also started developing their private labels and improving the quality of such goods over the years, modelled after what discount stores did. Such brands comprise a significant part of Biedronka’s or Lidl’s offer until today.
Given that the so-called modern trade’s possibility to take advantage of its dominating position with regard to suppliers and manufacturers has been limited by law, it turns out that the price advantage of discount stores over the largest franchise chains has been, in fact, almost completely levelled over the recent years.
“Currently, we are facing a situation in which discount stores are building their position in relation to the customer on the basis of promotional activities covering a narrow group of 2-5 products, whereas other products offered at the store have similar prices as those offered by associated franchise chains. Our chain also conducts such ‘point’ promotions through leaflets, billboards, or posters, while the remainder of our offer has prices similar to those in nearby discount stores. Suffice it to say that before Easter, our leaflet offer of Winiary mayonnaise was the most price-competitive on the market, due to which we might have recorded a record-breaking sales level of this product,” says Marian Zych, the General Director of Livio, one of the largest chains on the Polish market.
Major franchise chains are connected with large wholesale distributors. Lewiatan, Delikatesy Centrum, Groszek, and several others have ties with the Eurocash Group. Nasz Sklep, Livio, or Rabat Detal are connected with the Specjał Group. The broad chain, Chorten Group cooperates with several significant distributors, while preserving full independence. On the other hand, gone are the days when it was food wholesale that created a franchise retail infrastructure guaranteeing the sales of products acquired from suppliers and manufacturers. Currently, its goal is not so much to guarantee its own sales and profit but, above all, to ensure the functioning of traditional distribution through franchise chains without which wholesale would largely become irrelevant. As a result, wholesalers frequently bring their margins down to the necessary minimum, improving the condition of associated traditional trade and allowing them to compete with discount chains.
Not only prices
Therefore, in recent years, most franchise chains have fared excellently in price competition against modern channels of retail distribution. It is worth keeping in mind that traditional trade, including entities associated in a franchise structure, has natural possibilities of efficient competition against large trade chains. The latter, with their central management, are unable to offer their customers a rich selection of fresh products, often procured from local suppliers. The freshness and local nature of an offer corresponds to the needs and expectations of local consumers putting traditional outlets at a distinct competitive advantage over discount outlets. Bread from a local supplier, cheeses and cream from local producers, vegetables and fruit from nearby orchards and gardens, and above all, cured meats, most appreciated by local customers – these are products that may largely decide the success of a traditional franchise store.
Such an advantage is fully utilized by franchise chains. “Meat counters in our stores appeal to Livio customers much more than the offer of the nearby Biedronka shops. We offer top-quality fresh products, largely from local suppliers, so, in fact, our assortment is better adapted to local needs than those in centrally managed discount stores,” Marian Zych tells us.
When one adds the increasingly better quality of franchise chains’ private labels (naturally less expensive than their counterparts among the so-called branded products), discounts lose another aspect of their competitive advantage. For producers, including those supplying private labels to franchise stores, this is an opportunity of marked differentiation to their portfolio, resulting in greater flexibility of price negotiations concerning supplies of other products into franchise chains.
In spite of the growing competitiveness of franchise chains, the number of stores discontinuing their operations remains high. One should be aware of the difficult times in which retailers are forced to conduct their business. Increased store operating expenses – above all, the increased prices of energy, fuels and labour – make traditional trade outlets see their future in dark colours. However, retailers associated in a franchise may count on the chain’s support even in such difficult situations. This is why many trade outlets are still functioning, despite extreme external conditions. Such a collective operation also evidences the competitive strength of franchise chains on the Polish retail market.
Thinking about the future
Tomasz Wilkoń, the Deputy President and Chain Development Director of Rabat Detal, stresses that even today, an optimally organized supply chain helps obtain purchase prices low enough to make a chain competitive in terms of price, even against discount stores. Especially that the price policy of the latter is based on offering the lowest prices only for a narrow group of selected products attracting the customers. However, if one takes a look at a broader scope of products, prices in a franchise chain associating independent retailers can often match up to the offer of discount stores. And in the case of Rabat Detal, the categories in which the chain has the strongest position and can negotiate the most competitive prices are in beer and beverages, these products are even less expensive than in discount chains.
This is how the current reality looks like. However, one should also think about the future and the conditions of preservation of the hitherto achievements, and even about further improvement of the current form of competitiveness. “The preservation of this competitiveness and its future largely depend on the course of competition, mainly on the consumer market, i.e. on the form of the chain’s communication with its customers – starting from traditional leaflets, through posters and information in the media, to digital forms which are currently capable of tying a customer to a chain with the most efficiency,” Tomasz Wilkoń notices.
Specjał Capital Group (which includes Rabat Detal) is at the stage of designing a mobile application for smartphones. This, on the one hand, will allow consumers to obtain information on the offer and promotions available at the chain’s stores, and on the other hand, will let the store obtain knowledge about its customers, their expectations and needs. Such an application will also enable the consumers to participate in loyalty actions and create a possibility to properly position customers, both of the chain as a whole and in the local aspect.
For some time, similar solutions have already been functioning successfully in discount stores, hypermarkets or supermarkets alike, so it is also necessary to introduce them in franchise chains associating stores of traditional nature. Tomasz Wilkoń admits that the introduction of such a solution will require much effort, mainly in training retailers in the operation of the system, as well as certain amendments and supplementations in the hitherto agreements. However, the benefits seem attractive enough that over time, an increasing group of retailers associated in a chain would be interested in such a solution. “Regarding our application, we are currently at the stage of design, and I predict that at the turn of this and the next year, we will be able to offer it to retailers. I believe several hundred stores will join the system during the first phase, and the number will systematically grow,” Tomasz Wilkoń adds.
Therefore, preservation or even increasing the competitiveness of franchise chains will be enabled by in-depth sale process digitization, also including contacts and communication with store customers. So far, digitization of traditional stores, especially of franchise ones, included, above all, software related to purchase and sale processes, cash registers, cashless payment systems, or retailer training systems. Currently, franchise is facing a difficult task of introducing new forms of customer contacts, which will help a trade outlet meet the tastes and expectations of their customers better and enable the store to acquire information about such needs, and thus to adapt its trade offer, including promotions, to customers.
Similar systems have already been in place for several years in large hypermarket and discount store chains, but when similar forms of digitization of customer relations come into use in franchise chains, the potential advantage of modern trade in this aspect will be eliminated as well. Of course, introduction of such a system in a franchise is more difficult than in strongly centralized chains, yet the experiences of Rabat Detal show this is not impossible. Further improvement of competitiveness of a franchise seems worthy of the efforts taken by the chains.
Witold Nartowski,
Editor
Price Balance
A strength of hypermarkets and discount stores at the first phase of their functioning on the Polish market was the scale of purchases performed by those chains. It enabled them to obtain favourable trade conditions from manufacturers and suppliers, particularly in terms of price and promotions, which traditional stores were unable to achieve, whether individually or through purchasing groups comprised by relatively small numbers of trade outlets, or through fledgling franchise chains.
However, as franchise chains comprised by as many as several thousand stores developed on the Polish market over the years, it became possible for traditional outlets associated in such chains to procure goods at prices comparable to those offered by discount stores. Especially that franchise chains also started developing their private labels and improving the quality of such goods over the years, modelled after what discount stores did. Such brands comprise a significant part of Biedronka’s or Lidl’s offer until today.
Given that the so-called modern trade’s possibility to take advantage of its dominating position with regard to suppliers and manufacturers has been limited by law, it turns out that the price advantage of discount stores over the largest franchise chains has been, in fact, almost completely levelled over the recent years.
“Currently, we are facing a situation in which discount stores are building their position in relation to the customer on the basis of promotional activities covering a narrow group of 2-5 products, whereas other products offered at the store have similar prices as those offered by associated franchise chains. Our chain also conducts such ‘point’ promotions through leaflets, billboards, or posters, while the remainder of our offer has prices similar to those in nearby discount stores. Suffice it to say that before Easter, our leaflet offer of Winiary mayonnaise was the most price-competitive on the market, due to which we might have recorded a record-breaking sales level of this product,” says Marian Zych, the General Director of Livio, one of the largest chains on the Polish market.
Major franchise chains are connected with large wholesale distributors. Lewiatan, Delikatesy Centrum, Groszek, and several others have ties with the Eurocash Group. Nasz Sklep, Livio, or Rabat Detal are connected with the Specjał Group. The broad chain, Chorten Group cooperates with several significant distributors, while preserving full independence. On the other hand, gone are the days when it was food wholesale that created a franchise retail infrastructure guaranteeing the sales of products acquired from suppliers and manufacturers. Currently, its goal is not so much to guarantee its own sales and profit but, above all, to ensure the functioning of traditional distribution through franchise chains without which wholesale would largely become irrelevant. As a result, wholesalers frequently bring their margins down to the necessary minimum, improving the condition of associated traditional trade and allowing them to compete with discount chains.
Not only prices
Therefore, in recent years, most franchise chains have fared excellently in price competition against modern channels of retail distribution. It is worth keeping in mind that traditional trade, including entities associated in a franchise structure, has natural possibilities of efficient competition against large trade chains. The latter, with their central management, are unable to offer their customers a rich selection of fresh products, often procured from local suppliers. The freshness and local nature of an offer corresponds to the needs and expectations of local consumers putting traditional outlets at a distinct competitive advantage over discount outlets. Bread from a local supplier, cheeses and cream from local producers, vegetables and fruit from nearby orchards and gardens, and above all, cured meats, most appreciated by local customers – these are products that may largely decide the success of a traditional franchise store.
Such an advantage is fully utilized by franchise chains. “Meat counters in our stores appeal to Livio customers much more than the offer of the nearby Biedronka shops. We offer top-quality fresh products, largely from local suppliers, so, in fact, our assortment is better adapted to local needs than those in centrally managed discount stores,” Marian Zych tells us.
When one adds the increasingly better quality of franchise chains’ private labels (naturally less expensive than their counterparts among the so-called branded products), discounts lose another aspect of their competitive advantage. For producers, including those supplying private labels to franchise stores, this is an opportunity of marked differentiation to their portfolio, resulting in greater flexibility of price negotiations concerning supplies of other products into franchise chains.
In spite of the growing competitiveness of franchise chains, the number of stores discontinuing their operations remains high. One should be aware of the difficult times in which retailers are forced to conduct their business. Increased store operating expenses – above all, the increased prices of energy, fuels and labour – make traditional trade outlets see their future in dark colours. However, retailers associated in a franchise may count on the chain’s support even in such difficult situations. This is why many trade outlets are still functioning, despite extreme external conditions. Such a collective operation also evidences the competitive strength of franchise chains on the Polish retail market.
Thinking about the future
Tomasz Wilkoń, the Deputy President and Chain Development Director of Rabat Detal, stresses that even today, an optimally organized supply chain helps obtain purchase prices low enough to make a chain competitive in terms of price, even against discount stores. Especially that the price policy of the latter is based on offering the lowest prices only for a narrow group of selected products attracting the customers. However, if one takes a look at a broader scope of products, prices in a franchise chain associating independent retailers can often match up to the offer of discount stores. And in the case of Rabat Detal, the categories in which the chain has the strongest position and can negotiate the most competitive prices are in beer and beverages, these products are even less expensive than in discount chains.
This is how the current reality looks like. However, one should also think about the future and the conditions of preservation of the hitherto achievements, and even about further improvement of the current form of competitiveness. “The preservation of this competitiveness and its future largely depend on the course of competition, mainly on the consumer market, i.e. on the form of the chain’s communication with its customers – starting from traditional leaflets, through posters and information in the media, to digital forms which are currently capable of tying a customer to a chain with the most efficiency,” Tomasz Wilkoń notices.
Specjał Capital Group (which includes Rabat Detal) is at the stage of designing a mobile application for smartphones. This, on the one hand, will allow consumers to obtain information on the offer and promotions available at the chain’s stores, and on the other hand, will let the store obtain knowledge about its customers, their expectations and needs. Such an application will also enable the consumers to participate in loyalty actions and create a possibility to properly position customers, both of the chain as a whole and in the local aspect.
For some time, similar solutions have already been functioning successfully in discount stores, hypermarkets or supermarkets alike, so it is also necessary to introduce them in franchise chains associating stores of traditional nature. Tomasz Wilkoń admits that the introduction of such a solution will require much effort, mainly in training retailers in the operation of the system, as well as certain amendments and supplementations in the hitherto agreements. However, the benefits seem attractive enough that over time, an increasing group of retailers associated in a chain would be interested in such a solution. “Regarding our application, we are currently at the stage of design, and I predict that at the turn of this and the next year, we will be able to offer it to retailers. I believe several hundred stores will join the system during the first phase, and the number will systematically grow,” Tomasz Wilkoń adds.
Therefore, preservation or even increasing the competitiveness of franchise chains will be enabled by in-depth sale process digitization, also including contacts and communication with store customers. So far, digitization of traditional stores, especially of franchise ones, included, above all, software related to purchase and sale processes, cash registers, cashless payment systems, or retailer training systems. Currently, franchise is facing a difficult task of introducing new forms of customer contacts, which will help a trade outlet meet the tastes and expectations of their customers better and enable the store to acquire information about such needs, and thus to adapt its trade offer, including promotions, to customers.
Similar systems have already been in place for several years in large hypermarket and discount store chains, but when similar forms of digitization of customer relations come into use in franchise chains, the potential advantage of modern trade in this aspect will be eliminated as well. Of course, introduction of such a system in a franchise is more difficult than in strongly centralized chains, yet the experiences of Rabat Detal show this is not impossible. Further improvement of competitiveness of a franchise seems worthy of the efforts taken by the chains.
Witold Nartowski,
Editor
