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The Supermarket Revolution in Developing

Countries: Policies to Address Emerging
Tensions Among Supermarkets, Suppliers and
Traditional Retailers

THOMAS REARDON and ROSE HOPKINS

Supermarkets (short for all modern retail) are spreading quickly in
developing countries. The ‘take-off’ occurred as recently as the early to
mid-1990s, driven by an avalanche of foreign direct investment (FDI)
sparked by retail FDI liberalisation. A decade on, the power and
dominance of supermarkets is already felt in the food markets of many
developing countries, and tensions between supermarkets and traditional
retailers, and supermarkets and their suppliers, are emerging as key policy
and political debates. This paper analyses those tensions. It then reviews
the US and Western European history and current experience in designing
policies (regulations and support programmes) to address those tensions. It
ends with an analysis of emerging policy approaches to the supermarket
sector and the tensions its growth is creating in developing countries, and
recommendations.

Les supermarche´s (terme adopte´ pour tous les modes de distribution
modernes) s’e´tendent rapidement dans les pays en de´veloppement. Le
« de´collage » a eu lieu au milieu des anne´es 1990, conduit par une
avalanche d’IDE suscite´s par la libe´ralisation dans le commerce de de´tail.
Une de´cennie plus tard, la puissance et la domination des supermarche´s est
de´ja` ressentie sur les marche´s alimentaires de nombreux pays en
de´veloppement, et les tensions entre supermarche´s et de´taillants
traditionnels, entre supermarche´s et fournisseurs, sont en train de
devenir des e´le´ments cle´s dans les de´bats politiques et dans les choix de
politiques e´conomiques. L’article analyse ces tensions. Il retrace ensuite
l’histoire des Etats Unis et de l’Europe de l’ouest dans ce domaine et traite
de l’expe´rience actuelle dans la de´finition des politiques (re´gulations et
programmes d’appui) pour prendre en compte ces tensions. Il se termine
par une analyse des nouvelles approches du secteur de la grande
distribution, des tensions cre´e´es par sa croissance dans les pays en
de´veloppement ainsi que par des recommendations.

Thomas Reardon is Professor at Michigan State University, East Lansing, Michigan, USA. Rose Hopkins
is a Masters student, also at Michigan State University.

The European Journal of Development Research, Vol.18, No.4, December 2006, pp.522–545
ISSN 0957-8811 print/ISSN 1743-9728 online
DOI: 10.1080/09578810601070613 q 2006 European Association of Development Research and Training Institutes

THE SUPERMARKET REVOLUTION 523

INTRODUCTION

Over the past decade there has been a ‘supermarket revolution’ in developing
countries. While there were domestic supermarket chains occupying a tiny retail
niche among upper-income consumers in large urban areas in many developing
countries before the early 1990s, it was not until the early to mid-1990s that the
supermarket sector ‘took off’ to grow meteorically since then. The areas most
advanced in this trend, such as South America, Mexico, South Africa, East Asia
outside China, parts of Southeast Asia such as Thailand, and much of Central
Europe, already see supermarkets moving to dominate the food sector, displacing
traditional retail. For example, the share of supermarkets in food retail in South
Korea, Thailand, and Taiwan, Brazil and Mexico, and Poland and Hungary, is
already at 50 per cent or higher, and Brazil and Argentina have reached 60 –70 per
cent, coming close to Western Europe’s 70– 85 per cent. At the same time, there has
been rapid consolidation and multi-nationalisation of the supermarket sectors in
developing countries (Reardon et al., 2003).
There is emerging evidence that with this meteoric rise of supermarkets have
come growing tensions between: (1) supermarkets and traditional retailers; and
(2) supermarket chains and their suppliers. These tensions tend to be slight
when supermarkets are still just tiny niche players (before or in the early stage
of supermarket development ‘take-off’) – but grow as supermarkets grow to
dominate the food market. The inflection point appears to be roughly at the
intermediate stage when the supermarket share in total food retail is roughly
one-third to one-half, where for example Argentina was five years ago (when
there was explosive conflict between supermarkets and suppliers), and where
Chile, Costa Rica, Colombia, Mexico, Poland, Indonesia, and Thailand are now
– to name several countries now in the throes of major and heated policy
debates based on emerging tensions between supermarkets, their suppliers and
traditional retailers.
Witness for example the declarations and policies of Thailand in recent years to
first stiffly control and then decontrol and then re-control foreign hypermarkets.
Illustrating the emergence of conflict, on 4 October 2006, the following news came
out of Thailand:
In a dramatic turn of events in Thailand, the military-backed government has
threatened larger retailers, mostly foreign-owned groups, with prison terms of
up to three years or fines of up to THB6 million (USD156,193), in a bid to
slow down expansion plans and protect smaller stores. Karun Kittisataporn,
the commerce ministry’s secretary general, said it had drawn up guidelines
banning big supermarkets from selling goods at ‘unfairly low prices’ and
giving too-large discounts to shoppers. If giant retailers fail to comply with the
guidelines, they could face either jail terms for company representatives or
fines or both, Karun said (CIES Food Business Forum, 2006a).
Policy-makers, supermarkets, traditional retailers, wholesalers and suppliers
in developing countries are fervently searching for policy solutions to these tensions

524 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH – in particular in countries where the share of supermarkets in food retail has reached a third to a half. supermarkets spread some five times faster in today’s developing regions. our working hypothesis is that a distinct and new debate is needed on the appropriate policy approaches in developing countries – simply because the situation in the latter is. 3. . political and economics costs of these tensions. However. what Reardon and Timmer (forthcoming) call the first and second wave countries in the spread of supermarkets. 1. have far weaker governmental/administrative capacities. We proceed in three steps. in some important ways. The retail transformation has been much more of a sudden large ‘shock’ in developing countries. with a few exceptions. This paper aims to make a contribution to filling that gap. we draw on experience (and current context. we analyse. wetmarkets). This search is spurred by the social. for example. supermarkets it spread very slowly in the US and Western Europe over roughly the past five to eight decades. often under-capitalised. By contrast. with budgets and personnel to handle legal complaints. drawing on recent evidence. and arguably were much better equipped through public sector support and basic capitalisation. as tensions continue) in developed countries (using US and UK as examples) regarding policy approaches to addressing those tensions. we analyse the sources of those tensions in developing countries. catapulted by intense foreign direct investment (FDI) in retail – FDI that had been by comparison nearly absent in the US and Western Europe for much of their retail transformation. The food supply sector (farms and processing firms) had much longer to make adjustments to the transformation of retail and wholesale in the US and Western Europe. there has as yet been no systematic linking of analysis of the sources and nature of these tensions in developing countries to policy alternatives to resolve them. the policy approaches that are very recently emerging in developing countries. Third. We conclude with recommendations. and in a context comparatively bereft of public support. monitor contracts. Yet despite the emerging debate. Second. 2. the great majority of suppliers in most developing countries are very small farms and firms. Starting from a base of traditional retail (small shops. and so on. Developed country regulatory systems are administered by relatively strong governmental infrastructure in developed countries. We in fact draw on and briefly review literature on the policy approaches taken in several developed countries. and the difference of the developing country context. By contrast. First. Brazil did in two decades what took eight in the US. That search follows in the path of a similar search over the decades for policy solutions to these issues in developed countries. drawing on various evidence and then focusing on examples of Argentina and Mexico. By contrast. most developing countries today. different.

such as hypermarkets. The mirror image of the spread of supermarkets is the decline of the traditional retail sector. 2005a. Moreover. the diffusion of supermarkets also occurs in waves. China and Eastern Europe. but also because the habit of local. Even then only half of fresh produce is bought in supermarkets in places like France and Italy where shops. The second wave was primarily in Mexico. within a given country. The latter is treated further in the section called Emerging Policy Measures in Developing Countries. The third wave is primarily in India. the food retail share of supermarkets grew from roughly 5 – 10 per cent in the early 1990s to 50– 60 per cent by 2004. and south-Central Europe. from large cities. plus the liberalisation of foreign direct investment (FDI) that brought an avalanche of retail FDI into developing countries from the mid-1990s onward.THE SUPERMARKET REVOLUTION 525 THE SPREAD OF SUPERMARKETS IN DEVELOPING COUNTRIES – AND EMERGING CONFLICTS WITH TRADITIONAL RETAILERS AND SUPPLIERS The Spread of Supermarkets and Conflicts with Traditional Retailers The ‘supermarket revolution’ in developing countries ‘took off’ only in the early to mid-1990s. thence to the lower middle class and the working poor in urban areas. richest domestic consumers and expatriates). The fastest decline in the traditional sector is small general stores . Again. with the share going from roughly 5– 10 per cent in the mid. the penetration of supermarkets into product markets happens first in processed food products and non-food products. South Africa. thence to small cities and even rural towns. That take-off was created by a confluence of income growth and urbanisation that had been under way for several decades. but growing very fast. The first wave was primarily in South America. The ensuing spread of supermarkets (a term we use as a convenient shorthand for all modern retail formats. Finally. this pattern is similar to that which occurred in the US and Western Europe. much of Southeast Asia. This spatial diffusion path roughly parallels that which occurred decades earlier in Western Europe and the US. starting in earnest only in the late 1990s and early 2000s and reaching a share of some 5 – 10 per cent today. In the first and second wave countries supermarkets have already spread beyond the middle class into the food markets of the urban poor and the rural towns. Central America. Partly this is because the cost advantages of economies of scale and scope are earliest capturable in those stages. supermarket diffusion had been proceeding very slowly and only in tiny niches (largest cities. farmers markets and wetmarkets in town squares still thrive (Reardon. and East Asia outside Japan and China. Before that. and finally in fresh meats. daily purchase of fresh foods gives way only slowly to less frequent purchase and storage in refrigerators.to late 1990s to 30– 50 per cent by 2004. Other areas such as Eastern/Southern Africa and other South Asia countries appear to be in an emerging fourth wave. discount stores and chain convenience stores) took place in three waves. to intermediate cities. northern Central Europe. Reardon and Timmer. forthcoming). then in semi-processed products like dairy products. supermarkets. and from richer consumer groups to the middle class. fish and produce.

disappeared less quickly.526 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH selling broad lines and processed foods and dairy products.000 went out of business. there was a disappearance of 15. and 2. Rodriguez et al.777 small shops mainly in Santiago. this tends to increase the geographical market-shed of procurement first to the country. while nearly all Indonesians except a tiny pocket of rich consumers and expatriates shopped only in small shops and wetmarkets in 1990. Several examples follow: 1. She estimated that during the 1990s. but only a 17 per cent decline in fruit/vegetable shops (Faiguenbaum et al. The main elements of that procurement system modernisation include: 1. Price War Supermarket chains trend towards charging lower prices to consumers than do traditional retailers.. 2002). four out of ten neighbourhood shops turned into self-service stores. and degree of modernisation of the chain’s procurement system (which modernisation drives down costs). those of traditional retail decline at 2 per cent a year. There are several focal points of the competition between supermarkets and traditional retail. while fresh produce shops and wetmarkets hold out longer. 2006). (2002) note that while general-line small shops folded quickly. and fruit and vegetable shops. meat and fish small shops. and 15 per cent of produce (Natawidjaja et al. in particular bakeries. Gutman (1997) notes that from 1984 to 1993. there was a decline of small food shops from 209. a city of four million – a decline of 21– 22 per cent of general food. In Indonesia. those in a specialised niche. a shift from store-by-store procurement to centralised procurement via distribution centres.000 – roughly 64. by 2005. this also allows purchase at mass scale. fresh fish and meat.000 to 145.. 2. 30 per cent of overall food is bought in supermarkets. In urban Chile between 1991 and 1995. This trend is correlated with the stage of diffusion of supermarkets. and two closed. In urban Argentina. another four survived but with drastic drops in sales. then the region. a gain that swamps increases in transport costs. 3. allowing stronger bargaining power with suppliers and reduction of per unit fixed costs of transaction. the centralisation of procurement tends to reduce coordination costs and congestion diseconomies substantially. a shift from spot market procurement in traditional wholesale markets gradually toward procurement via specialised dedicated wholesalers and direct purchase . the type of product (supermarket prices of processed products are typically competitive much earlier than fresh foods). sales of supermarkets rise 15 per cent a year. 25 per cent in deli/meat shops and dairy product shops. then globally. in the most intense period of the take-off of supermarkets.

this increases efficiency in the supply chain and cuts costs from wholesaler margins. with larger leading chains being the main modernisers as they have the capacity to do so. situations where the wholesale sector represents a drag on development of supply chains to supermarkets (in many countries) and there is thus incentive to skirt the traditional system (Reardon et al. 2. Neven et al. (2006) show in Nairobi. with selling at unfairly low prices (below cost. the normal infrastructure of large stores such as the building and parking lots and signage. Examples of supermarkets charging lower prices include the following. controlling for the factor of relative costs of procurement. 2003). reported in Camara Nacional de Comercio. supermarkets are sometimes charged. a ‘first wave’ country (LatinPanel study for 2004. . A recent study in Chile. The ‘price war’ is an important point of conflict between supermarkets and traditional retailers in developing countries. The pace of this modernisation is sharply correlated with: 1. The riposte of the supermarkets is that the traditional retail sector does not have to incur costs associated with formality (such as registration).. D’Haese and Van Huylenbroeck (2005) found that supermarket prices were well below the prices of small shops in South Africa (a second wave country) in particular for the processed foods and staples that accounted for the top ten consumer purchase items (of rural town/village areas) as well as bulk produce items such as cabbage and semi- processed items such as dairy. 2005) shows that supermarkets. The riposte by supermarkets is that wetmarket stall owners and small shops in the informal sector usually do not pay taxes or registration fees and thus have unfairly low prices. by traditional retailers or competition authorities.THE SUPERMARKET REVOLUTION 527 from growers or grower associations. but not in general for fresh produce. either in one-off events such as promotions or in longer marketing campaigns) in order to capture market share from traditional retailers. subsidised by other earnings. the size of the chain. by charging lower prices for food compared to traditional retailers. 3. the ‘wave’ of the country (so far mainly occurring in first and second wave countries where competition in the supermarket sector spurs technology change in retail). Moreover. Kenya (a third or perhaps fourth wave country) that supermarket prices are lower than traditional shops for processed foods and non-food items. reduced the cost of the food consumption basket of the lower and middle income consumers in Chile. and often is ‘below radar’ of inspectors regarding hygiene regulations which impose further operating costs. Lower prices based on lower costs from procurement modernisation and economies of scale are an object of tension with small traditional retailers who cannot match those economies of scale except in the rare buying club or via franchise arrangements that then bring the small shops into the formal and thus modern retail sector.

supermarkets have been rapidly gaining ground over small dairy products shops in Chile (Faiguenbaum et al. For example. hypermarkets. the variety of items available at a given store. while large modern retail stores (supermarkets and hypermarkets) are typically more costly in terms of transport to visit than small traditional shops in the consumer’s neighborhood. transport. In general. as we noted. The upshot is that.528 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH This exchange of charge and counter-charge fuels the inte-segment conflicts in the retail sector.. 2002). their offering of fresh foods and personalised service to compete on convenience. and mirroring the product market penetration of supermarkets noted above. Convenience War Supermarkets and traditional retailers in developing countries also compete on convenience – specifically a set of ‘transaction costs’ – that consumers face. By contrast. store location and hours have been key battle grounds in the regulatory debates we discuss below. The first of these is the cost of a household’s acquiring (search. modern convenience store and hard discount chains are typically inserted into dense neighborhoods and easy to access. 2005) due to far wider assortment combined with lower prices. the number of trips needed to get all the items in the ‘basket’. the supermarkets in developing countries have tended to best small shops in the conveniences of wider assortments and longer hours. and thus one trip to a large store would be equivalent to many trips to a variety of small shops. Russia (Dries and Reardon. 2005) and China (Hu et al. purchase) its full set of (consume-at-home) food items. and refrigerators. small shops and wetmarkets have used the advantage of their location in inner cities. discount stores. and the shelf life of the product. This in turn is a function of several things: the distance of the store from the home. our use of the term ‘supermarkets’ simplifies what is a diversely-formatted modern retail sector. A final note on ‘transaction cost’ competition is consumer credit and other services combined with retail. motorbikes or cars or easy access to buses. the hours of the store and thus the ability of the consumer to minimise the opportunity cost of a trip to the store. just as in developed countries. which condition the overall cost of the ‘food consumption basket’ bought from retailers. its ‘food consumption basket’. hard discount shops). Thus. But the reality is more . The comparison of the modern and traditional retail sectors is complex along the lines of these costs because. Large modern retail stores also tend to have a far wider assortment of products than a small shop. in particular for processed and semi-processed products that can be bought less frequently than daily. small urban supermarkets.. having longer hours and locating as close to the urban dense centres as real estate and zoning regulations (see below) allow. and/or for consumers with high opportunity costs of time (the urban middle class). Modern retailers (particularly the retail multinationals) have pushed these advantages by having multiple formats (convenience stores. The conventional image is of the corner shop offering consumer credit and thus being more attractive to the lower income consumer – compared to the supermarket where cash must be paid.

and pharmacies to their stores. for example. modern retail. Quality and Safety War There are two dimensions of quality/safety assurance: the retailer assuring that there is quality and safety in the product via supply chain management. as for example in the case of vegetable safety in Vietnam (Figuie´. Alvarado and Charmel (2002) note that small shops offer only ten per cent of their clientele any consumer credit. via use of private standards (Reardon. There is emerging evidence that the supermarket chains’ safety claims are seen by consumers as more credible than those of the informal sector. Supermarket chains reinforce the coordination. Even the occasional . product expiry regulations and other regulations attending the formal retail sector’s interface with the consumer. 2006). as supermarkets in developing countries have also recently appended filling stations. modern retailers signalled to consumers their supply chain assurance procedures during and after the avian flu crisis. the supply chain coordination which the retail chain’s buying power and procurement modernisation facilitate increases the ability to assure correct post-harvest handling along the supply chain. while both supermarkets and traditional retailer segments can access high- quality and safe sources of fresh and processed products. The implicit or explicit signalling is a source of growing tension between retail segments as wetmarket and small retailer associations resent and resist any signalling. see Natawidjaja et al. By contrast. and the signalling of it. and banks have fought this trend. supermarket chains have recently made a heavy push to provide credit cards and even banking services. This meshes with a general pursuit of ‘one-stop shopping’ convenience for customers. 2005). With urbanisation and population mobility. in Vietnam. The supermarket chain has certain advantages over traditional retailers in both dimensions. Gutman (2002) notes that supermarket chains made important gains during the economic crisis in Argentina because they actually increased credit card supply while small shops had to cut back. PlanetRetail (2006a. For example.b. and estimate that in Costa Rica only four per cent of consumers get consumer credit from small shops. in this regard (for example in Indonesia. 2004) and Thailand (Posri and Chadbunchachai. 2007). pharmacy chains. Second. 2006). and the retailer assuring the consumer of that quality/safety via signalling. there is emerging evidence of a decline in small shops offering consumer credit. implicit or explicit. The signalling to consumers of that safety assurance procedure can and is used as a strategy of supermarkets against traditional retailers. credit card companies.c) shows that Carrefour in Brazil and Wal-mart in China recently started banking and credit card services (following a trend among retailers in developed countries). which won many consumers in Ho Chi Minh City to supermarkets away from wetmarkets (Phan and Reardon. Just as in developed countries. is the object of liability laws. such as in the dairy market in Russia (Dries and Reardon. This is a commonly signalled (to consumers) advantage of modern retailers over informal sector shops. 2005b). often politically. by definition the formal segment of the retail sector. fast-food stores.THE SUPERMARKET REVOLUTION 529 complex.. and those advantages in turn create competition and tension in developing countries. First.

. however. as well as spontaneous local. 2. translates into increasingly demanding requirements from suppliers with respect to volumes. through wholesalers and processors. except for a few products like bananas and other export sectors where large and medium farms have developed in produce. Supermarket chains tend to source from medium and large suppliers where they are available. there are various sources of tension and conflict between supermarket chains and traditional retailers in developing countries. countries and chains). several patterns of participation by suppliers in supermarket supply chains are emerging: 1. conflict between supermarket chains and small shops and wetmarkets. and training). but the channel must still rely on them. where possible. Where the small farmers are bereft of the needed assets. we explore some emerging points of conflict.530 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH enforcement of erring supermarket chains reinforces the image in the public mind that at least this formal segment can be policed and being policed. Most of the time supermarket chains thus source only indirectly. 1 In sum. combined with the demands of the formal sector such as formal registration and invoicing from suppliers. from small farmers. the power to impose requirements on suppliers. fresh products from medium/large farmers. As the supermarket sector consolidates. The latter tend to be the upper stratum of small farmers in terms of capital assets (organisation. costs and commercial practices. These represent substantial ‘threshold investments’ and relation-maintenance costs for supermarket suppliers. Supermarket chains also tend to source. the bargaining power of the retailer shifts toward oligopsonistic power. 3. quality. The consequence is that beside the normal commercial competition between the two retail segments. 2007). this is rarely possible in most developing countries. it is common for the proximate intermediary to assist with training. this typically means a tendency toward sourcing from larger meat and dairy products and other processed food companies. and partly from strategies taken by each side to increase its advantage. The Modernization of Supermarket Procurement Systems and Conflicts with Suppliers We posit that the emergence of tensions and conflicts between supermarkets and suppliers are correlated with the modernisation of retail procurement systems. there is also organised political. Recent studies show that as a consequence of these demanding requirements. and the associations representing them. Abstracting now from heterogeneity (over products. 4. there are what can be called ‘structural’ tensions between supermarkets and suppliers. and along with it. infrastructure access. equipment. First. consistency. Those sources are partly simply in the nature of conflicts between natural competitors with different advantages and disadvantages. and size (Reardon and Timmer. The modernisation of procurement systems by supermarkets (which traditionals generally do not do. as they continue to source only from the spot- wholesale market).

.) . 2005). Hence. Gutman (2002) and Brom (2002). note that in the late 1990s the highly delayed payments by retailers to suppliers were the retailers’ method of financing their expansion with ‘negative working capital’ – using the suppliers as de facto lenders. have there been explicit political tensions between small farmers/peasants unions and supermarket associations or chains. Second.) Supermarkets require a range of post-harvest services from suppliers (special packaging. hinterland producers) tend (with some exceptions of course) also to be those with the least political voice in their respective societies. For example. as the types of producers that are excluded from modern markets (very small and undercapitalised farmers and processors. for Argentina. indirectly or indirectly. see Dries and Swinnen. the more substantial tensions are present. the smallest and least capitalised farmers are typically not part of supermarket channels. Supermarkets require suppliers meet stringent quality and sometimes safety standards which can require a high degree of asset-specificity. see Berdegue´ et al. like Mexico. except where the chains are still relying on spot markets of wholesale markets. (See for example Dries and Reardon (2005) for Russia dairy sector illustrations. in Central America. 2004.. supermarkets were paying suppliers in the very long period of 60 –120 days (versus either 0 days of consumer payment to supermarket or up to 25 days for credit card payment). By 1999/2000. between supermarket chains and their suppliers. compared with the 30-day limit imposed by the law enacted in 2001 (see below). see Berdegue´ et al. It is probable that this will continue to be the main source of ‘supply side’ tension. or where they are prepared to help capitalise the small farmers. and are discretionary practices of individual chains that affect their suppliers. the National Peasant Confederation (CNC) confronted retailers. 2005). and so on (for the case of dairy in Poland. and will probably grow (barring policy solutions). We say ‘behavioural’ because they are beyond the consolidation and competition forces noted above.. and so on). Suppliers also occasionally accuse supermarkets of changing the standards when it suits them commercially. There are a number of complaints made by suppliers concerning supermarket chains that we have encountered in many developing countries. leading to a political agreement recently (see Poy. 2005. Only in some of the advanced stage countries. By contrast. as well as fees and discounts imposed for special events such as store openings. Supermarkets impose a series of regular fees on suppliers – such as slotting allowances and promotion fees. compared to traditional wholesalers who pay ‘on the spot’. Supermarkets often pay with a substantial lag. There is at present little evidence of tensions between political associations of small farmers and supermarket chains due to this process of avoidance. 2005). product delivery. for produce in Central America.THE SUPERMARKET REVOLUTION 531 credit. (See Berdegue´ et al. there are what can be called ‘behavioural’ tensions between supermarkets and their suppliers.

supermarket chains in developing countries also complain about their suppliers’ practices. and for supply chains to retailers to begin to fail. POLICY MEASURES TO ADDRESS TENSIONS: CONCEPTUAL FRAMEWORK AND TAXONOMY The policy approaches are conceptually categorised in this section. The above tensions. As competition among chains heats up. In these implicit contracts (Hueth et al. 1999) and relations. and the developing countries as our prime subject. can be identified as a ‘block’ in the below three-dimensional matrix (with the x axis being the sources of conflict. lack of counterpart- investment in supply chain logistics. such as cold chains and vehicle and package design that can efficiently interface with the distribution system of the retailer – for a Mexican example see for example Berdegue´ et al. and it is to those policy approaches that we now turn. increase fees – but at the same time expect more and more in quality. at the same time the set of buyers is shrinking (due to retail consolidation) and they are expected to make more investments. with the occasional formal contract with a large company. inconsistent quality and volumes. the y axis being the policy foci or targets. The suppliers begin to see a drop in profitability in selling to the modern market channel. (2006). scale and the technologies and commercial practices made possible by that scale). there are two basic sources of conflict between the supermarkets on one side. It is at that crisis point that governments and retail and supplier associations turn to regulations and codes of conduct to address the issues.. First. it is then common for a contradiction to take place – where supermarket chains.532 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH Supermarkets in developing countries usually use only implicit/de facto (unwritten) contractual relations (‘listing’) in most of the produce categories. and the z axis being the policy- functional axes). Brom (2002) describes a situation in Argentina where many suppliers began at that point to bankrupt. reviewed and analysed in the experiences of the US and Western Europe as comparative context on one hand. charges and counter charges have costs for the system. packaging and services from suppliers. (2006). traditional retailers and supermarket suppliers. However. This can be considered a ‘crisis point’ for both suppliers and retailers. . selling to brokers who visit the farms at harvest and offer better prices or immediate payment or both – for an Indonesian example see Natawidjaja et al. A policy or programme aimed at the conflicts – realised or potential – among supermarkets. and then in the following two sections. suppliers complain that there is scope for ambiguity which acts to transfer risk to the supplier. Chief among these complaints include: suppliers often do not comply with contracts. on the other. and the traditional retailers and the supermarket suppliers on the other: (1) inequality of power (based on concentration. trying to cut costs in their supply chains to lower consumer prices and to create a ‘war chest’ for competition with other retailers. lengthen the delay in payment.

We will use these categories to motivate our discussion below. Third. That conflict and the regulations and codes that have evolved over the decades are still important points of debate today. supermarkets have spread. prompt-payment regulations (such as that enacted in the US in 1994) (4) balance the supermarkets’ power through strengthening traditional retailers and supermarket suppliers (through technology and practice upgrading. there are several basic policy foci to address the above two sources of conflict: (1) limit the growth of the supermarkets’ power through competition policy that limits concentration and collusion (such as through the Federal Trade Commission in the US and the Office of Fair Trading and the Competition Commission in the UK). the above policy approaches can take place on two policy-functional axes: (1) Public regulation versus private codes of conduct. with them. simply at a stage that is beyond the current debate in developing countries – but not much further beyond the debate emerging in the first and second wave developing countries. and the rest of Western Europe soon thereafter. and capital asset transfer) and enable those not yet able to supply supermarkets to do so through the same actions. organis- ation. (2) limit the application of the power through limiting supermarkets’ diffusion and market penetration as well as convenience (such as through zoning and hours regulations). Second. such as perishables versus processed products) over sectors. (3) limit the use of supermarket power through policies focused on the practices which make use of their power (pricing regulations that keep supermarkets from pricing under cost to consumers (such as La Loi Galland in France). (2) General policies that affect all businesses (without specifying ‘retailers’ or other types of businesses) versus policies specific to retailers and their suppliers. and. payment and contracting).THE SUPERMARKET REVOLUTION 533 (2) practices and strategies that make use of that power (magnification of initial advantages through supermarket practices of pricing. . location. quality. POLICY MEASURES: US AND WESTERN EUROPEAN COMPARATIVE EXPERIENCE In the US and the UK since the 1920s. conflicts with traditional retail and supermarket suppliers. This conceptual model can be used to characterise the ‘clusters’ of tensions and policies extant in a given country and time (and as the issues often differ over sectors.

transporters. which led to a huge exit of the latter in the 1910s and 1920s with the advent of the laws (Levenstein. These laws were a ‘two-edged sword’ in terms of competition between large-scale food companies and small-scale traditional enterprises: the laws levelled the playing field so that any company had to meet the new requirements – but those requirements were hard to meet for small informal sector actors. 1963). First. and continuing through a series of laws to the most recent. the Food Quality Protection Act (1996).534 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH The context of the US and Western Europe might be of particular interest to readers from developing country. United States Public regulation (rather than private codes) has been the overarching approach to regulating relations among retailers. PACA is administered by the Agricultural Marketing Service of the USDA and has remained the ‘bedrock’ for public regulation of supermarket-supplier relations since 1930. wholesalers and retailers. there have been a series of laws focused on product labelling and food safety practices in food manufacturing (Levenstein. Second. there has been a series of public regulations of the relation between producers.usda. adding the requirement of written complaints but assuring anonymity of the complainer. To the present day. contract enforcement and dispute resolution. and consumers – starting with the Food and Drug Act of 1906. During the 1920s and 1930s these conflicts were partially addressed by regulations that induced voluntary codes of grades and standards. conflicts arose among producers. and then only to 30 days. retailers as intermediaries. The Federal Trade Commission Act of 1914 regulated general business practices. 1988). There were additional regulations specifically for food and agricultural commerce. meat and produce markets developed into major national commodity markets from the late 1800s. a body of regulations dealing with the interface of food producers (of processed and perishable products). and adding monetary fines to give PACA ‘teeth’ (www. it regulates quality claims. and regulates payment periods by buyers from sellers to ten days except by mutual consent. just following the start of a major wave in the late 1800s of concentration in food manufacturing. The legal base was established in the first third of the twentieth century. Dimitri (2003) notes that the increasing concentration of the retail sector in the late 1990s . The measures to address these emerging conflicts in the early 1900s were a mixture of private codes and state-level regulations (Lebhar. requires compliance of contracts on the part of suppliers and buyers. and in the 1910s in food retailing. 1988). the Perishable Agricultural Commodities Act of 1930 (PACA). wholesalers and retailers regarding quality standards. A key regulation was enacted in 1930. provides a dispute resolution institution to strengthen contracts. As grain. consumers and suppliers. PACA has evolved somewhat. as well as the creation of nationwide food and agricultural product markets. with a major amendment in 1995 that mainly clarified several issues (for example making lawful promotion fees charged suppliers by supermarkets). requires PACA licensing of transacting parties.gov).ams.

However.gouvernement. in order to limit their spread. UK standards) due to the stiff regulation and the holding back of consolidation by financial re- engineering in the 1980s. a critical period of deleveraging during the early 1990s. The Clayton Act forbade anti-competitive practices. such as has occurred in the case of restriction of entry of Wal-Mart supercenters in several locations in California (CNN. However. (This latter is equivalent to the ‘Loi Galland’ in France enacted in 1996 to prevent hypermarket chains from undercutting small local shops – see www. 1999). or under cost so as to destroy local retail competition. Third. 1963). there was still a further wave of strong regulation in the 1950s to 1970s: the Celler-Kefauver Act of 1950 strengthened the Clayton Act to forestall anti-competitive mergers. Sixty national regulations were passed limiting supermarket spread between 1923 and 1941. starting with the Board of Corporations (1903). He notes that the traditional dominance of the food manufacturers in the food system was shifted to the retailers as ‘channel captains’ only in this period. The FTC regulates competition in the retail sector at a national level. 1997: 1141). such as discriminatory pricing. 2005. . Furthermore. encouraged by the traditional retailer lobby. . flex-pricing) were an important part of regulation . states and municipalities had and have zoning and opening-hours regulations. more than a decade after the shift to retail dominance had occurred in for example the UK and the Netherlands. 2003) and the Clayton Act of 1914. Then a surge of concentration took place in the late 1990s. Zoning regulations at the municipality level have also affected chain location. In fact.premier-ministre.of the US food retail industry’ (Wrigley. He also links the surge in concentration to the response of the leading chains to the rapid incursion of an unusually powerful new market entrant – Wal-Mart. ‘From the late 1950s to the 1970s the statute had a very considerable impact on on the structure. Wrigley (2002) attributes this dramatic change to regulatory change in the second half of the 1990s (relaxation and then retightening right at the end of the decade). and of the scale-related pricing power/operating margin advantages of the major multi-regional operators. than to small individual shops. diverse products. over 75 per cent of the anti-supermarket regulations lapsed or were overturned as unconstitutional by the US Supreme Court (Lebhar. for example.fr. in particular to chains. convenient). concentration in US retail hardly shifted at all between the late 1950s and mid-1990s (and was then still very low by. Price regulations (against under-pricing. the US has had a series of public regulations of business competition and concentration.THE SUPERMARKET REVOLUTION 535 and 2000s adds the very significant threat of ‘delisting’ of a supplier due to contract non-compliance – a ‘fine’ that far exceeds a PACA monetary fine. Thus political pressure slowed: between 1941 and 1950.) In the 1920s and 1930s. and followed by the Federal Trade Commission Act (1914) (Winerman. small retailers themselves started shifting toward forming chains to capture economies of scale. 2004). and consumers became familiar with the benefits of supermarkets (low prices. many states applied a higher tax rate to supermarkets. both above normal levels to a subset of a retailer’s customers. There is a history over the past 20 years at the state level of attempted food retail mergers that is stronger than the Federal Trade Commission would have agreed to (Wrigley.

Instead. as in the US. The 1998 OFT investigation resulted in a full referral of the modern retail sector to the Competition Commission and to the famous ‘Supermarkets Inquiry’ report of 2000 by the Commission. various regulations concerning store location/zoning and hours (Wrigley and Lowe. Part of the reason for their decline was the difficulty of. The price regulations have not been significantly developed since (Seth and Randall. implemented by local governments. An early one was the Shops Act of 1950. and still are. the body of competition law in the US from the 1930s to the 1980s (FTC. unfair pricing (Cooper. which effectively resisted Sunday trading for 35 years. the Act was amended several times. keeping its original purpose intact. Third. there have been. such as the Robinson- Patman Act of 1936 (which reinforced the Clayton regulations concerning predatory pricing and thus ‘levelled the playing field’ for small retailers). Since its inception into law. and its extent may surprise developing country readers who assumed that the US has always been ‘supermarket-friendly’. and frequent lack of proof of. Now. 1999). Clayton. The primary competition regulation in the UK during most of the post-war period was the Fair Trading Act of 1973 which created an independent agency to regulate competition law.536 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH of supermarkets in the US in the first half of the 20th century. There has been a certain regulatory integration of competition regulations (regarding competition practices among retailers) and fair trade practices (toward suppliers). Robinson- Patman) tended to slow considerably the retail consolidation that was allowed to progress much faster through laxer competition laws in the UK. until repealed in the 1980s. permitting far more rapid consolidation of the retail sector. Private codes of conduct are also used in other West European countries such as Spain. 2003). In sum. The latter focused on the increasing power and market dominance of the leading retailers in the UK. several investigations of the retail sector were undertaken (1981. there has been a series of public regulations plus voluntary codes focused on competition – governing the relation between producers. First. UK A mix of public regulation and private codes of conduct (rather than just public regulation as in the US) has been the overarching approach to regulating relations among retailers. 2004). Second. . Wrigley (1992) argues that the competition laws in the UK were on balance (until the late 1990s) significantly laxer than in the US. the upshot was that the retail sector in the US was nationally fragmented but regionally concentrated by the end of the mid-1990s. the history is of sharp conflict. An example is the Food Safety Act of 1990 (Food Standards Agency. Wrigley and Lowe (2002) conclude that. Following from the Act. 2002). 1985 and 1998). in fact. it is now superseded. consumers and suppliers in the UK. wholesalers and retailers. there has historically been a body of food laws related to the quality and safety of food products from processors and farmers sold by retailers to consumers. there has been a substantial body of public regulation of the retail sector in the US in the past 80 years.

EMERGING POLICY MEASURES IN DEVELOPING COUNTRIES The Importance of FDI Policy as Retail Policy A fundamental and central difference between the retail transformation and the policy and regulatory issues surrounding it in developing countries today – versus the US and UK and other countries in Western Europe during the emergence of supermarkets – is that the ‘take-off’ of supermarkets in developing countries has been driven mainly by the immense ‘shock’ of foreign direct investment (FDI) liberalisation in the early to mid-1990s. while the economic advantages of supermarkets tend. over the 1990s. 2004). After the application of the code there was significant difficulty in getting suppliers to in fact lodge complaints against large retailers in the UK (Namnews. and applied this to the largest retailers (any chain with eight per cent or more of the market) (Office of Fair Trading. Indonesia liberalised in 1998. for example in China. the food retail industry is once again the subject of a full Competition Commission Inquiry. competition and trading regulations play definite roles in determining the speed. and the Ley de Ordenacio´n del Comercio in Spain).THE SUPERMARKET REVOLUTION 537 in 2006. With that historical (and current internationally comparative) context and lessons in mind. regulating relations between retailers and suppliers. in Mexico. and strengthening the position of smaller supermarkets to compete with hypermarkets. it is challenging to externally regulate supermarket-supplier relations in a situation where there are a small number of buyers (in a concentrated retail sector). The upshot of the above review of the US and the UK experience is that. However. with full liberalisation of the sector only by the end of 2004. partial liberalisation of retail trade occurred in China in 1992. 2003). restricting selling at a loss to undermine competitors. Wrigley and Lowe (2002) note that the 1998 investigation took place in a general context of introduction of strong legislation in continental Europe in the mid-1990s restricting the power of modern retailers (such as the Loi Galland in France noted above. a deterioration of the relations between supermarkets and their suppliers. as in the US (Dimitri. with whom suppliers (wishing and needing to stay ‘listed’) must stay in good grace in order to stay listed. In Asia. this liberalisation started in 1994. India partially liberalised in 2000 and is in 2006 debating further . Economics – and policies – count. Brazil and Argentina. nature and outcomes of the retail transformation.and bi-lateral free trade agreements and WTO accession requirements. While the UK Competition Commission (2000) in the report of the ‘Supermarkets Inquiry’ did not find a need for new competition regulations. to work against traditional retailers and to increase demanding requirements of suppliers. For example. over time. this occurred in the early to mid-1990s. multi. 2006). In Central and Eastern Europe (CEE). as a result of competitive concerns since 2000. The latter was part of structural adjustment programmes. we turn to developing regions. The upshot was that they put in place a Code of Conduct in March 2002. it did find that there had been.

which led to a ‘late’ start in the diffusion of modern retail (but for which they are aggressively making up now by having far faster diffusion rates now than is the norm). This enabled local retailers to consolidate their position and strengthen competitiveness (Cabochan. This is due to only very recent FDI liberalisation. The Philippines government enacted the ‘Retail Trade Liberal- ization Act’ in 2000.538 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH liberalisation. The multi-nationalisation of the sector is illustrated in Latin America where global multinationals constitute roughly 70 –80 per cent of the top five chains in most countries (Reardon and Berdegue´. The lateness of some of these liberalisations (relative to the initiation of trade liberalisation in their countries or regions) explains some anomalies in the relationship between socioeconomic (demand-side) variables and pace of supermarket diffusion. The ingress of FDI. in Latin America the top five chains per country . For example. The Philippine case is illustrative of the political aspects of the link between retail policy and foreign policy. the debate in India concerning the latter is currently at high pitch (with strong concern expressed for the impacts on traditional retailers (see PlanetRetail. plus the competitive investments made by domestic chains in response to the avalanche of FDI. such as the current top five (Wal-Mart. The opposition to the measure though not successful was effective in delaying the signing of the proposed bill into law. some sectors of the local retail trade together with a broad coalition of non-government organizations argued that this will put local retailers and small and medium enterprises in a disadvantageous position in terms of resources. and other policy reforms. Retail policy becomes foreign policy and vice versa. then becomes the central policy and business strategy response that affects the path of the diffusion of supermarkets. 2005). supermarket ‘take-off’ occurred later in places like China and Russia than a number of countries with similar incomes and urbanisation rates. Metro Group and Tesco) (PlanetRetail. in those countries. and regional multinationals such as Dairy Farm International (Hong Kong) and Shoprite (South Africa). 2005:1). 2006d). and smaller global chains such as Casino and Makro. Carrefour. This sequence was fairly typical in the Asia region and reflected similar sequences in other regions in terms of the political economy of the liberalisation: Prior to the passage of this law. The tidal wave of FDI in retail was mainly due to the global retail multinationals. Cabochan (2005) notes that the Philippine retail FDI liberalisation of 2000 had been resisted before that time. The policies that regulate competition and behaviour within the retail sector are then simply structures built on that basic policy edifice of FDI liberalisation. Ahold. 2002). Thailand liberalised in 2000 with the ‘Foreign Business Act’ (Manalili. 2005). The rapid consolidation of the sector in those regions mirrors what is occurring in the US and Europe. We expect the same of India as it appears to be moving to a much greater degree of retail FDI liberalisation. FDI and competitive local investment has led to rapid consolidation and multi- nationalisation of the supermarket sectors in many developing countries over the past decade. For example.

g.THE SUPERMARKET REVOLUTION 539 have 65 per cent of the supermarket sector (versus 50 per cent in the US (Kinsey. Hualian and Nonggongshang.) Where domestic firms have competed. or had to get low cost loans from their governments (e. Wal- Mart spent $660 million in Mexico to build new stores. The Importance of Domestic Policies – Both Regulations of and Support for – Supermarkets There was a further set of institutional and policy factors in the domestic markets that conditioned supermarket diffusion – either by magnifying or dampening it – and the conditions of its competition with traditional retail. One set of examples is that municipal and state governments have policies promoting supermarket development as part of commercial modernisation. First. five global retailers (British Tesco. This is done via large amounts of FDI: for example. The consolidation takes place mainly via foreign acquisition of local chains and secondarily by larger domestic chains absorbing smaller chains and independents. For example. . 2004). Municipal governments in China support chains based in their cities. Similarly. making cheap loans available to its ‘dragon head’ retail chains such as the Shanghai-based national chains) or commercial banks (in the case for example of D&S. and Belgian Food Lion) spent 6 billion bhat. the Chinese government made credit policy part of retail policy. Another set of illustrations is that active government policies exist in several countries to pressure wetmarkets either out of existence or into much reduced roles. 2005). top Chinese chains today. 2004) and 72 per cent in France). Lianhua. in the first eight months of 2002. 2002). 2005). and at the same time are profit-oriented enterprises competing with fully private firms.. State-sponsored companies get easy access to credit. (Shwedel (2003) estimates that multinationals can obtain credit three to four times cheaper than domestic rivals. 2002). the leading Chilean chain. in Thailand (Jitpleechep. these firms either had to enter joint ventures with global multinationals (as for example Brazil’s CBD did with France’s Casino in 2005). the same can be said for Russia (Dries and Reardon. various municipal and state governments in the Republic of Korea provide incentives for supermarket location in their areas (Lee and Reardon. are mixed private/public firms and are managed by the municipal government of Shanghai. French Carrefour and Casino. they have had to make similar investments.. various developing countries have policies designed to spur the spread of supermarkets. cheap real estate and other benefits – factors in the ability of domestic chains to compete with foreign chains (Hu et al. Dutch Ahold and Makro. with the more advanced-stage countries having supermarket sectors that are more consolidated. Supermarket-sector consolidation is correlated with the wave stage. or $120 million. Faiguenbaum et al. Examples include the following. These trends of multi-nationalisation and consolidation reflect the fact that multinationals have access to investment funds from their own liquidity and to international credit that is much cheaper than is the credit accessible by their domestic rivals. These de facto ‘retail modernisation policies’ are another key difference between developing countries now and the US and the UK in their early periods of supermarket diffusion. In 2002.

Zhengzhou in Henan in the central region. perhaps for similar reasons (consumer pressure. perceived as most competitive with traditional retail. first a rise and then a relaxation. that impede supermarket diffusion. This is an increasingly common policy in other parts of Asia. and others). and in 2006 has risen again (see PlanetRetail. 2006c. The central government decreed in 2002 that there would be no new construction of wetmarkets in urban areas. where 250 wetmarkets are due to be converted to supermarkets by the end of 2007 (Zhejiang Daily. 2003). Hangzhou. The policy started in mid- 2003 and is being undertaken over the next three to four years in various large Chinese cities (Beijing. retail policy is now tantamount to foreign policy – and the same kinds of external pressures (sticks and carrots) that led to trade and investment liberalisation in the first place. Second. Moreover. these regulations will undergo the same decline as they did in the US and UK. changes in the traditional retail sector. continue to act to slowly pry open the retail markets. often in particular that of hypermarkets. and of the impact of WTO on retail liberalisation in countries such as China. The policy is called ‘nonggaichao’ (literally.. in a sense. This can simply be seen. Emerging Regulations of Supermarket Relations with Suppliers One can generalise to say that most developing countries undergoing rapid retail transformations do not have strong regulations and implementation systems in place . of the succession of FDI liberalisations. taking a ‘bird’s eye’ view. Shanghai. 2004). This reduces the former ease and convenience of getting to wetmarkets (Hu et al. similar to the zoning and opening-hours regulations we described in the historical context of the US and UK. and arising from similar political pressures by traditional retailer associations. Thailand and Malaysia for example have regulations in particular on hypermarket diffusion. but also for reasons specific to the developing country experience. Hypermarkets are often associated with foreign chains. Wetmarkets are auctioned to supermarket chains. for example). various developing countries have regulations. Qingdao. Dalian. giant local presence. by contrast. As noted above. 2006e). as well as in other regions (Reardon. the municipal governments in a number of large and medium cities have banned ‘morning street wetmarkets’ (zao shi) to reduce traffic congestion. perhaps pressure by large suppliers). 2005b show this in the case of Mexico. The intensity of the regulation in these ‘strong regulator’ countries has in fact varied considerably over the past five years (the emergent regulation period).540 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH A famous case is that of China’s current efforts to convert informal wetmarkets to supermarkets in order to modernise retail. nine cities of Fuzhou province. in Thailand. This is simply an extreme version of the Chinese government’s policies countering wetmarkets. Wuhan. low prices. which they view as problematic because it is hard to collect taxes from them and they are considered unhygienic. A typical example is the city of Hangzhou. For example. and particular competition with small stores. changing farmers’ markets into supermarkets). While this is mere speculation. such regulation first rose (in 2003) then relaxed (in 2004/5). In Malaysia as well there was fluctuation. it is possible that in the longer run.

Brom (2006) argues that in many developing countries a private code may well be the most practical and useful approach in the short-medium run. Truth in Trading. and tend to be the main elements of most regulations elsewhere: (1) compliance with contracts by both retailers and suppliers. there was intense debate in congress and the competition commission . in many cases much faster than current payment periods). essentially due to the various tensions and conflicts that we discussed above. and in July 2001 retailers and suppliers signed a ‘Code of Good Commercial Practices’. Secretaria de Economia (2006). That has been at the base of the various crises in supermarket-supplier relations discussed earlier. will and resources. and can be implemented in situations where commercial laws and institutions are still in the development stage. Galindo (2006) notes that in late 2005 and the first half of 2006. and for Mexico in Galindo (2006). It was complemented by public regulation to strengthen it further. basically similar to the payment period provisions of the PACA law in the US. As noted above. such as the PACA and its amendments. (2) equal treatment among suppliers. This is similar to the private sector code also ‘encouraged’ by the Competition Commission in the UK in 2002 (which later became mandatory). a crisis emerged in terms of relations between supermarkets and their suppliers. and probably the first in developing countries (Brom. 1999) said that it would promulgate a national law to closely regulate supermarkets and their relations with suppliers – if the retail. 2006). we believe that the recent experiences of Argentina and Mexico are a fascinating microcosm of the emergence of these measures. Variants of the Argentine code have proven attractive rapidly in Latin America. the first of its kind in Latin America. the relatively sudden and extremely rapid rise of supermarkets has tested the commercial law system and shown it wanting. While it would be instructive to present an exhaustive inventory of current attempts to put in place regulations to reduce conflicts between supermarkets and retailers in developing countries. Apart from the last element. such as the PACA regulation in the US. 1993 and Competition Law. In Argentina. 1983. (3) prompt payment. in that it harnesses private sector interest. These cases are discussed in detail for Argentina in Brom (2002. and (4) cooperation in logistics development. In both Argentina (circa 2000/01) and Mexico (circa 2005). with the promulgation of Decree 1/2002 in March 2002 to limit the payment period to suppliers of perishable goods (to 30 days. The striking similarity of the Mexican process illustrates the attraction of the private code to supermarkets and their suppliers. the private code is in essence similar to the public regulations in the US. and Saldan˜a and Ortega (2006). processor and farming sectors did not formulate and implement a private code of commercial conduct.THE SUPERMARKET REVOLUTION 541 for buyer-seller relations. wholesale. as it spread to Colombia (signed in 2005) and to Costa Rica (where it is under discussion) and Mexico (signed in June 2006). 2002). Consumer Protection. We summarise the key points here. but formulated and implemented by the private sector. The terms of the private code were in essence four. There is evidence that the conflict resolution mechanism accompanying the code has been effective (Brom. the Competition Commission (calling on a legal foundation of three laws. The Argentine (and foreign FDI firms such as Carrefour) private sector responded to this ‘stick’ policy. 2006).

payment periods by retailers. as the retailers and major suppliers did not want directive regulation by the government. concerning contract compliance by both retailers and suppliers. . Andrew Mold. Its implementation system is being put in place at the time of our writing. A heated debate has recently emerged. convenience). That regulation need not yet be only public regulation. but preferred self-regulation.542 THE EUROPEAN JOURNAL OF DEVELOPMENT RESEARCH concerning potential stringent public regulation of retailers and their suppliers. Commercial practice and regulatory approaches emphasising contract compliance and fair commercial practices offer the greatest hope of moving through the current intense period of conflict and adjustment toward beneficial development of retail and supply in developing regions. Tilman Altenberg. The new code is in essence similar to the Argentina code and to the PACA regulation in the US. we briefly mention the emerging importance of policies and programmes to assist supermarket suppliers to upgrade and to link to modern market channels. Public and NGO Assistance to Suppliers and Traditional Retailers to Upgrade For the sake of completeness of treatment of the elements of our conceptual framework. as the supermarket revolution has reached a critical point in the past few years. as to what policy measures are best in order to reduce tensions and conflicts among the players and provide the greatest equal opportunity to the competitors. The importance of commercial regulations – whether public or private codes. and competition-based pricing – are crucial. and a challenge and opportunity to suppliers. to assist traditional retailers and wholesalers to upgrade both to compete with supermarkets and to form an alternative to supermarket channels. CONCLUSIONS This paper emphasises the rapid spread of supermarkets in developing countries. ACKNOWLEDGEMENTS We are grateful for comments from Jack Allen. Neil Wrigley and an anonymous referee on earlier versions of the paper. This is treated in more detail in Reardon (2005a). This has emerged as a major challenge to traditional retailers. The regulatory context affects the speed and nature of the modernisation of the food economy. and to assist small farmers in forming the capacity to pursue successful strategies of portfolios of participation in the various market channels. Supplier organisations such as CONCONACA noted that they would press for public regulation if the private code was not rigorously enforced and adhered to. The historical and current comparative context of the US and the UK and other Western European countries provides some perspective and lessons for developing countries engaged now in this debate. diversity of formats and products. and the powerful economic advantages of supermarkets (economies of scale. Colombia and Mexico suggest. ability to coordinate supply chains. as the new private codes in Argentina. By May that had been defeated. Fernando Brom.

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