assessment of caricom agri-food distribution services

8/3/2019 Assessment of CARICOM Agri-Food Distribution Services

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CARIBBEAN REGIONAL NEGOTIATING MACHINERY

AN ASSESSMENT OF THE AGRI-FOOD DISTRIBUTIONSERVICES INDUSTRY IN CARICOM

Final Draft

PREPARED BY:Robert Best and Lawrence Placide

West Indian Projects LtdTrinidad and Tobago

November 2006


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TABLE OF CONTENTS

ACKNOWLEDGEMENT........................................................................................vi

ACRONYMS .. ................................................................................................... vii

INDUSTRY TERMS ............................................................................................ viii

INTRODUTION AND METHODOLOGY........................................................... xii

EXECUTIVE SUMMARY ....................................................................................xvi

1. AGRI-FOOD DISTRIBUTION SERVICES INDUSTRY - DEFINITION & ROLE

IN THE ECONOMY 1

Introduction...........................................................................................................................1Agri-Food Distribution Services Industry ..........................................................................1

Food Retail Sub-sector........................................................................................................4Food Service Sub-sector......................................................................................................5Food Wholesale Sub-sector.................................................................................................6

Structure of Consumer Markets .........................................................................................7Traditional Retail Market ....................................................................................................8Modern Retail Markets ........................................................................................................8

Emerging Retail Markets .....................................................................................................9Policy Definition for Food Distribution Services ............................................................11Importance of the Food Distribution Services Industry ...............................................15Conclusion ..........................................................................................................................19

2. INTERNATIONAL FOOD DISTRIBUTION SERVICES INDUSTRY TRENDS .....21Introduction.........................................................................................................................21Global Food Retail Markets...............................................................................................21Global Food Retail Sector ..................................................................................................24Global Food Retail Trends .................................................................................................30

Developed Country Food Retailer Trends......................................................................30Developing Country Food Retailer Trends: Latin America ...........................................32Developing Country Food Retailer Trends: Africa ........................................................34

Global Quick Service Restaurant Industry 35


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Developing Countries ....51Conclusion ...........................................................................................................................51

3. CARICOM FOOD DISTRIBUTION SERVICE INDUSTRY.......................................53Introduction...........................................................................................................................53Contribution of Food Distribution Service Industry to the CARICOM Economy ......53

Trade and Production.....................................................................................................56Household Budgetary Data.............................................................................................58

Field Interviews with Industry Leaders and Specialist...................................................58

CARICOM Food Distribution Services Industry Size ....................................................58

Key Trends Driving Food Retail Market Changes ..........................................................60Per Capita Income ..........................................................................................................60Population .......................................................................................................................61 Demographics .................................................................................................................61

Conclusion ...........................................................................................................................64

4. CARICOM FOOD RETAIL SUB-SECTOR ...................................................................66Introduction.........................................................................................................................66Food Retail Service Sector .................................................................................................66

More Traditional Food Retail Sectors............................................................................68MoreModern Food Retail Sector...................................................................................72Emerging Food Retail Sectors........................................................................................80

Key CARICOM Food Retailers.........................................................................................84CARICOM Food Retail Industry Competitiveness Trends............................................88CARICOM Restrictions on Trade ....................................................................................98Conclusion

...........................................................................................................................99

5. CARICOM FOOD SERVICES SECTOR......................................................................101Introduction.......................................................................................................................101Food Service/Quick Service Restaurant Sector .............................................................101CARICOM QRS Sub-sectors...........................................................................................105Key CARICOM QRS Involved in ServicesTrade.........................................................112CARICOM QSR Industry & Competitiveness Trends .................................................118

CARICOM Restrictions on Trade ..................................................................................127Conclusion .........................................................................................................................128

6. CARICOM FOOD WHOLESALE SECTOR ...............................................................130Introduction.......................................................................................................................130Food Import/Wholesale Sector .......130


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Case for Food Distribution Industry Policy ...................................................................143Constraints.........................................................................................................................145

Improving Industry Competitiveness .............................................................................146Industry Organization and Associations and Participation .........................................152Future Work......................................................................................................................153 Conclusion .........................................................................................................................155

8. RECOMMENDATIONS FOR CARICOM PARTICIPATION IN SERVICESTRADE NEGOTIATIONS ..... ......................................................157

Introduction.......................................................................................................................157 Global Trade Restrictions ................................................................................................157 CARICOM Participation in International Trade Negotiations ...................................159Sensitivity of the Sector ....................................................................................................159Considerations in Making Commitments on Food Distribution Services ...................161Possible Offensive Interests of CARICOM ....................................................................163

World Trade Organization............................................................................................164Dominican Republic......................................................................................................165Central America............................................................................................................168Canada and the USA.....................................................................................................170European Union............................................................................................................170

Possible Defensive Interests of CARICOM ....................................................................171Recommendations For WTO ...........................................................................................172Recommendations For Regional Negotiations ...............................................................175

The Dominican Republic...............................................................................................175European Union (EU)...................................................................................................176Canada and the United States.......................................................................................178

Future Work......................................................................................................................178Conclusion .........................................................................................................................178

BIBLIOGRAPHY..............................................................................................................A2APPENDICES1. TERMS OF REFERENCE ........................................................................................A7

INTERVIEW CHECK LIST....................................................................................A12LIST OF PERSONS CONSULTED INDUSTRY................................................A17LIST OF PERSONS CONSULTED PUBLIC SECTOR....................................A20LIST OF WEBSITES REVIEWED.........................................................................A22

2. CARICOM AGRI-FOOD CONSUMER STATISTICS ........................................A273. CARICOM AGRI-FOOD PRODUCTS TRADE STATISTICS...........................A32


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ACKNOWLEDGEMENT

The authors greatly acknowledge the opportunity provided by the Caribbean Regional Negotiating Machinery and the Inter-American Development Bank - Multilateral InvestmentFund to conduct this study. We thank the many CARICOM food distribution services industrymembers and public sector officials for the invaluable time spent in consultations providinginformation on the industry and government policy for the sector.


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ACRONYMS

BAH BahamasBAHA Belize Agricultural Health Authority

BDS Barbados

BEL Belize

CACM Central American Common Market

CAFTA Central American Free Trade Area

CAHSA Caribbean Health and Food Safety

Agency

CARICOM Caribbean CommunityCARIFORUM Caribbean Forum includes

CARICOM and the DR

CDB Caribbean Development Bank

CET Common External Tariff

COTED Council for Trade and Economic

Development

CRNM Caribbean Regional Negotiating

MachineryCSM&E CARICOM Single Market and

Economy

CSO Central Statistical Office

DOM Dominica

ECU European Currency

ERS Economic Research Service of the US

Department of Agriculture

EU European Union

FAO Food and Agriculture Organization

FAS Foreign Agricultural Service of the

USDA

FDA Food and Drug Administration of the

USA

FSIS Food Safety Inspection Service of the

US Department of Agriculture

FSR Full Service Restaurant

FTAA Free Trade of the Americas

GATT General Agreement on Tariffs and

Trade

GDA Grenada

GDP Gross Domestic Product

HS Harmonized System (HarmonizedCommodity and Coding System)

IDB Inter American Development Bank

JAM Jamaica

MALMR Ministry of Agriculture Land and

Marine Resources

MERCOSUR Mercado Comun del Sur (SouthernCommon Market)

NAFTA Northern American Free TradeArea

NTBs Non-Tariff Barriers (WTO)

NTC Non-Tariff Concerns

OECS Organization of Eastern Caribbean

States

OIE International Organization ofEpizootics

QR Quantitative RestrictionsQSR Quick Service Restaurant

S&D Special and Differential Treatment

of the WTO

SITC Standard International TradeClassification

SKN St Kitts and Nevis

SKU

SLU

Stock Keeping Unit

St Lucia

SP Special Products

SPS Sanitary and Phyto Sanitary

Agreement (WTO/FTAA)

SSG Special Safeguard Provision

SSM Special Safeguard Mechanism

SUR Suriname

SVG St Vincent and the GrenadinesTBT Technical Barriers to Trade

Agreement of the WTO

T&T Trinidad and Tobago

TRQ Tariff Rate Quota

UR/URA Uruguay Round Agreement


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INDUSTRY TERMS

A. Agro Food Industry Terms

Product Category - A group of products of similar nature or fulfilling a similar consumer neede.g. fresh produce or soft drinks.

Category Management A distributor/supplier process of managing categories as strategicbusiness units, producing enhanced business results by focusing on delivering consumer value.

Grocery - A food store selling over 30 percent food for which food is a important part of thestore business strategy.

Independent Food Retailer/Restaurant Stores which are stand-alone and do not belong to achain.

Like For Like Growth/Same Store Growth Annual sales growth through stores that have been open for one year. A measure of performance of a fixed body of stores which is not

formally standardized and has no official definition.Market A division of retailing, devoted primarily to the sale of a singular range of goods i.e.,grocery, clothing, electronics, pharmacy.

Multiple For the purpose of this study, a food retailer or restaurant operator with more thantwo supermarkets.

Premium Pricing A proposition characterised by offering value by pursuing the highest

possible quality across all elements of the store rather than the lowest possible process; itincludes elements such as product innovation, customer service, improved food ranges, and high-income products health/organic. Low levels of promotional activity, high specification interior,and close to affluent neighbourhoods.

ProductA subdivision of a category an individual item or SKU.

Stock Keeping Unit (SKU) A product on the inventory of a food retailer, including similarproducts different sizes or types of packaging.

Sector A subdivision of a market devoted primarily to the sale of a similar store format e.g.convenience, discounting, and supermarkets.

Supply chain A product specific subset of the agro food system which is a systems in which aproduce moves from: (i) farmer and first stage processors who sort, grade, pack and do the initial

i ( i h h i ) (ii) h di ib i l di bl d h l l


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B. Traditional Caribbean Food Retail Formats

Conventional Supermarket The original self service supermarket format, normally between10,000 and 15,000 SF in sales area but can range from 6,00040,000 SF, carrying 8,00018,000stock keeping units (SKUs), with 520 check outs in some CARICOM states. These stores offera full line of groceries, meat, and produce and often offer services such as a deli, bakery and foodservice. More recently lotto, money transfer and banking services can also be found.Conventional stores will average 60 percent of sales from grocery items, 12.5 percent from thesale of meats, 10 percent from GM/HBC, 7.5 percent from frozen food, 5 percent from produce,5 percent from bakery products, deli services and other services.

Food Stores The self-service small corner grocery store, normally between 3,0007,500 SFcarrying 3,0008,000 SKUs with 25 check outs that carries a limited selection of staples, budget brands, convenience items, and a few lines of frozen meat and non-food items. Thesestores are strictly speaking a supermarket and are also called groceries in some countries.

Counter Shops These stores normally between 7502,000 SF with no cash register offering alimited assortment of basic staples, often repacked in the store from bulk packaging, very little

refrigeration and little or no fresh product. Goods are sold over-the-counter to the public andfamily members operate the store. They are also called neighbourhood shops, corner shops, andeven sometimes groceries.

Mom & Pop Store Normally 250750 SF shop located in a room in a home or attached to ahome and operated by family members providing convenience foods and non food items, snacks,beverages and cigarettes to the immediate neighbourhood. Operates extended hours.

Superstore A larger version of the conventional supermarket with at least 25,00040,000square feet in store area and 20,00025,000 items. Superstores offer a full food range,supplementary services and an expanded selection of non-foods (at least 10 percent GM/HBC)

Convenience Store (with gas) A small, higher-margin store that offers an edited selection ofstaple groceries, non-foods, convenience food items and impulse lines, i.e., ready-to-heat andready-to-eat foods. The convenience store with gas format includes only convenience stores thatsell gasoline, e.g., Texaco Star Mart, Tiger Mart, and NPs Quick Shoppe

Convenience Store (without gas) Small, higher-margin convenience stores that do not sell gasand offer an edited selection of staple groceries, non-foods, and other convenience food items,i.e., ready-to-heat and ready-to-eat foods. Stores such as 7-Eleven without gasoline pumps areincluded. They are less than 3,000 SF and open for long hours selling the products.


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Butcher/Meat Shop A vendor or shop specializing in meat. Also called pluck shops orpluck & gut shops.

Fishmonger/Fish Shop A vendor or shop that sells seafood.

Dairy Parlor A shop that sells milk and or dairy products including ice cream.

BakeryA shop that sells bread and pastry products including ice cream.

C. Non-Traditional Food Retail FormatsWholesale Club A membership retail/wholesale hybrid with a varied selection and limitedvariety of products presented in a warehouse-type environment. These 50,000120,000 square-foot stores have 6070 percent GM/HBC and a grocery line dedicated to large sizes and bulksales. Memberships include both business accounts and consumer groups, e.g., Sams Club,Costco, and BJs.

Super Centres A large food/drug combination store and mass merchandiser under a singleroof. The super centres offer a wide variety of food, as well as non-food merchandise. Thesestores average more than 170,000 square feet and typically devote as much as 40 percent of thespace to grocery items, e.g., Wal-Mart, Kmart, and Super Target.

Super Warehouse A high-volume, hybrid format of a superstore and a warehouse store. Superwarehouse stores typically offer a full range of service departments, quality perishables, andreduced prices.

Super Warehouse/Hypermarket These are destination stores with a high-volume, hybridformat of a superstore and warehouse store. Super warehouses typically offer a full range of foodwith quality perishables and with a full range of service departments and non food items atreduced prices. May range in size from 40,000100,000+ SF.

Limited-Assortment Store A bare-bones, low-priced grocery store that provides verylimited services and carries fewer than 2,000 items with limitedif anyperishables, e.g., Aldi

and Sav-A-Lot.

D. Food Service Formats

Full-Service Restaurants Feature waiting staff, more varied menus, and perhaps otheriti h i di h di bl t il d l h l i Th b


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Caterers Prepare food in one location for serving in a separate location. These operations prepare and serve meals and snacks as an adjunct, supportive service in institutional and

educational settings, such as schools, nursing homes, child daycare centers, and hospitals

Cafeterias Smaller food stores that prepare, serve, and sell food to the general public for aprofit.

Street Food Vendors Small itinerant operators, often individuals who prepare and serve foodfrom temporary locations in the street.


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INTRODUCTION AND METHODOLOGY

The Caribbean Community (CARICOM) is involved in negotiations on trade in services with anumber of negotiating partners. The most important ongoing negotiation seeks to develop a newreciprocal arrangement with the European Union (EU). Linked intricately to this is thecompletion of the Free Trade Area with the Dominican Republic through inclusion ofcommitments on access for trade in services and investment. On the horizon are possiblenegotiations between CARICOM and the United States and Canada. Furthermore, the moribundWorld Trade Organization (WTO) negotiations also must be kept in view given the possibility,

however unlikely, of resuscitation. Distribution services are likely to be a key part of all thesenegotiations. At the same time, information on the distribution services sector in the Caribbean islimited, and this constrains effective CARICOM participation.

The agri-food distribution services sector is particularly important to CARICOM. The FoodDistribution Service industry in CARICOM has over 17,000 firms, employing 112,000 peopleand generating sales of US$ 5.6 billion per annum. It plays an important role in delivery of foodconsumer choice and prices. It is one of the largest components of the services sector, is vital for

national development and has important linkages with other key export sectors such asagricultural production, food manufacturing, and tourism. Furthermore, it holds the possibilityfor generating trade in services and goods and producing new foreign exchange revenues forCaribbean economies.

As a result, the Caribbean Regional Negotiating Machinery (CRNM) commissioned this Assessment of the Agri-food Distribution Services Industry in CARICOMwithfunding fromthe Inter-American Development Bank. The aim of the project is to obtain information on this

industry, to register the views of industry members and government officials on the opportunitiesand challenges of trade in agri-food distribution services, and to analyze issues relevant to theregions international trade negotiations.

In pursuing this aim, the study seeks first to define the industry and understand the global fooddistribution sector for the purpose of establishing industry benchmarks and identifying trends andcompetitiveness improvement strategies. This information facilitates, by way of comparison, theunderstanding of the sector in CARICOM. Some assessment is made of the economic value of

the sector to the region as well as other indicators of performance as a precursor to assessing theextent to which the sector is adopting appropriate international competitiveness strategies.

Factors constraining competitiveness of the sector are also considered as is the extent to whichexporting of services have become a viable business strategy for firms in the sector together withthe extent to which export capabilities vary from sub sector to sub sector The linkages between


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CARICOM participation in those negotiations with particular reference to distribution services interms of offensive and defensive interests. The full terms of reference can be found in Appendix

1-A.

The main challenge presented by this study was obtaining industry data, understanding theexperiences and interests in trade in services of the industry members, and understanding of theregulatory framework for the sector in CARICOM. The data challenge begins with the officialstatistical resources in the region and this has proved to be a constraint on the outcome, but alsoextends to the private sector, which has been largely very cautious to reveal information whichcan impact on competitive activity in the small markets in which they operate. As a result, the

researchers have had to make estimates to provide some perspective on the relative sizes of thefirms in the sector. As far as the regulatory framework is concerned, the projects concentrationhas been on identifying measures that could be considered to be restrictions on trade rather thannon-discriminatory measures such as, for example, those relating to building approvals, zoning,planning restrictions, hours of operation, weights and measures and laws to protect the health andwelfare of the citizens of the Caribbean Community.

The methodology used has been to combine desk research with field research based on

interviews with private sector executives and government officials. The interview check listsutilized by the consultants during the interviews are presented at Appendix 1-B. Official datasources have been used where available, but data on the number of establishments, employmentand sales in the sector are derived largely from the experience and judgment of a limitedselection of key industry members about the markets in which they operate. This approachrecognizes the shortcomings of government databases in the region, and of the limitations of aprocess which interviews a small number of key industry leaders, yet seeks, within the limits ofavailable resources, to develop a picture of the industry where none existed before.

The number of establishments, employment and sales within the region are estimates derivedusing the following process: -

The number of stores in each distribution channel for food retail and for each sub-sector inthe quick service restaurant sector were estimated based on interviews with industry players.Key firms were identified.

Several leading food retailers and quick service restaurants were asked to estimate: (a) themarket share of their distribution channel or QSR sub-category; (b) the market share of otherdistribution channels or QSR sub-categories; (c) their own market share; and (d) the marketshares of other key industry members/ channels or sub-sectors of their market.

Wholesalers where possible were asked to provide their interpretation of the same


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modified based on more specific industry feedback. Estimates were made for the AUVs ofindigenous QSRs on the basis of consultations with leading industry members and the

researchers estimates, and not necessarily with the firms themselves. Where possible, verification was sought for the estimates from key industry members and the

draft report was circulated to over 30 industry leaders in at least 10 states for feedback.

Responses from the food wholesale sub-sector were less comprehensive than for the other sub-sectors. As a result, no attempt has been made to quantify firms, employees, or sales in this sub-sector. Nonetheless, a list of key industry members by country is provided in Appendix 5.

The resulting profile of the food distribution services sector in CARICOM does not include allaspects of the sector. Areas of the sector not addressed in detail by the study include smallerretail formats, cafes, and bars, specialty food vendors, markets, full service restaurants, streetvendors, caterers, domestic wholesalers, commission agents, and providers of logistic andmaritime services. Addressing all of these areas would have warranted a much more detailed andlengthy study. Rather the focus has been on the segments of the sector which are currently ormost likely to conduct trade, i.e., the supermarket, QSR and importer-distributor sub-sectors.

Time and efficiency constraints meant that very few smaller industry members were interviewed.In addition, the consultants were not able to visit Saint Kitts and Nevis, Dominica, Montserrat, orHaiti. However, in some cases, desk research provided limited information on these markets, anddiscussions were held with their Government officials, largely at regional meetings addressingtrade issues. Where possible, information from other sources was used to provide some profile ofthe industry in these states.

In addition, while there seems to be a clear understanding by private and public sector membersinterviewed of trade policy for the trade in goods, most of the persons interviewed includingsome of the officials interviewed seemed to quickly extend the discussion of the trade in agri-food distribution services into the trade in agri-food goods. While these two issues are closelylinked, the separation of the two was a real continuous challenge for the researchers in thisproject, who were focusing on creating new perspectives on the agri-food services industry.

Moreover, it is noted that other researchers are completing complementary studies, which focus

on issues relating to agri-food goods. These include work by Vassel Stewart1 who has studied theCARICOM agri-food transportation system and Andrew Jacque2 who has examined agri-foodimports into the region in depth as a basis for identifying investment opportunities the latterincluding a strong focus on the analysis of imports to the region.

This study has focused on food distribution services while others have focused on agri-food


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presented that we are hopeful will contribute to understanding the services dimension of thesector, and more importantly, impact positively on CARICOM involvement in international trade

negotiations in services and to a lesser extent in trade negotiations for agricultural goods.


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EXECUTIVE SUMMARY

Role of the Food Distribution Industry

The liberalization of distribution services is a key demand of major trading entities such as theUnited States and Europe in services trade negotiations. This study focuses on the agri-fooddistribution sub-sector. The agri-food distribution service sector is responsible for moving agri-

food products along the supply chain through to the consumer. The agri-food industry comprisesa number of interconnected and interdependent actors (farmers, processors, manufacturers,wholesalers, retailers, food service operators, and consumers).

The benefits of an efficient system of distribution are well known and largely accepted. Goodsare brought more effectively to the consumer. Producers of processed products receive highquality inputs in good time and in acceptable condition allowing them to add value and deliver arange of products to customers. Consumers are offered greater variety and more competitive

prices and their health and safety is safeguarded. A key positive effect is the stimulation ofsmall- and medium-sized enterprise development, the strengthening of supply chains, and exportand local product development.

It is generally accepted that distribution systems in developing economies tend to be plagued byinefficiency, less choice and higher costs to users, supply chain bottlenecks, and often anti-competitive behaviour by a few large operators. Liberalization is promoted by the major tradingentities as a means of bringing about much-needed efficiency gains. At the same time, there are

concerns that SME food distribution firms and agri-food supply chains may be adverselyimpacted by liberalisation. Development-related challenges discussed in international forumshave relevance to the Caribbean and may be exacerbated by the small size of CARICOMeconomies and business operations. A structured policy response, including appropriateincentives, regulatory development, and careful international negotiations becomes even morerelevant and relates as much to improving competitive environments domestically as topromoting export interests where they exist. The overall goal must be to increase the contributionmade by agri-food distribution services to national and regional competitiveness. This, in turn,will increase national efficiencies and improve the operations and results of many related sectorssuch as agri-processing, manufacturing, and tourism.

Global Industry Makes Strategic Advances


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A number of global food retailing trends have been identified. These include:

Price-oriented retail strategies Discounters have gained market share in Europe andthe United States. Traditional operations have responded by moving into lower costitems, introducing their own label ranges, entering into purchasing alliances, andrationalizing ranges to decrease overheads.

Differentiation Both smaller and mainstream retailers are using strategies to

differentiate their offerings on the basis of quality, service or price

Non-food items Increasingly, supermarkets are offering non-food items to compensatefor lower growth in food sales. Grocers leverage non-food sales to improve their foodoffers or lower their food positions to encourage increased sales on non-food items.

Services sales In mature markets, especially, food retailers are offering a wider rangeof non-food services such as financial services, petrol sales and vacation packages.

Consolidation Growing consolidation of the retail market is evident in both developedand developing markets and this has implications for competition.

Supply-chain improvements Efficient supply chains are key factors in profitabilityand enhance shareholder value. Global suppliers and retailers are cooperating moreclosely facilitated by improvements in information technology.

Rise of supermarkets in developing countries In developing countries, supermarketsare becoming the dominant means of food retailing, displacing small shops and

transforming traditional supply chains.

A number of global quick service restaurant trends have been identified. These include:

Menus-Consumers are becoming increasingly health conscious, sophisticated, aware ofinternational cuisine, and the flavourful ingredients that go into their preparation. Thishas led QSRs to include more fresh, healthy items with international flavours to theirmenus. The bird flu virus is causing QSRs to review their multi brand concepts andmenus to include stronger alternatives to chicken such as fish.

Service -The modern consumer is demanding more convenience. The QSRs are alsofacing increased competition from quick-casual chains, many of which offer easy dine-inor take-out options. These trends will lead to continued growth in takeout, drive through,and delivery services.


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export strategies. This will be supported by liberalization of economies for goods andservices supporting the international brands.

Franchising-This will continue to be a more important strategy to drive store growth infast growing sub-segments, in smaller or higher risk international markets

Technology-Online ordering is expected to increase significantly over the medium termand information technology will be increasingly important in driving sales, productivityand profitability in international QSR operators.

Agri-Food Market Structure and Trends

It is difficult to arrive at a definitive account of the size of the food distribution services marketin CARICOM due to the unavailability of accurate official statistics in some cases and the lackof a uniform reporting structure across the region. Some areas of the sector are included in thestatistics on hotel and restaurant services in some countries, while in others, figures for thewholesale and retail trade include non-food items. Crude estimates using opinions of fooddistribution services leaders across the region place the value of food retail and QSR sales toconsumers in the region of US$5.6 billion generated from over 17,000 stores employing over112,000 people. Consumer purchases of fast food were about 20 percent of the total value offood retail. The value of the food wholesale goods purchased by the resellers to generate thesesales is estimated to be approximately US$3.9 billion. Unquestionably, the sector is a veryimportant contributor to economic activity, employment and enterprise development in theregion.

Agri-food trade and production data are also not sufficiently disaggregated to arrive at the value

of all food purchased at the consumer level. Several challenges in assimilating the data wereencountered. Trade data includes input and intermediate and consumer ready products. Importinformation is recorded at the freight on board (FOB) level. Secondary food manufacturing datatend to be aggregated in national statistics on light manufacturing. National agricultural data arerecorded at the GDP level and often not at the sales level. Export data is recorded at the costincludes freight (CIF) level. Nonetheless, the Caribbean is a major net food-importing regionwith annual deficits in food trade in the region of approximately US$1 billion. Agriculturecontributes US$1.3 billion to GDP in the region.

Demand for food in the region is affected by structural adjustment programmes, ongoing marketliberalization, and the following key consumer trends :

Population growth CARICOMs population grew by 27.3 percent between 1985 and2002 and is projected to grow by an average of 7 percent between 2005 and 2015.


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Urbanization Almost all CARICOM countries are experiencing increased urbanizationwhich favours the development of modern retailing practices.

Household appliance ownership Increasing ownership of refrigerators andmicrowaves have prompted an increasing demand for convenience foods and snacks thatcan be refrigerated or frozen.

TV and cable ownership Increasing awareness of international lifestyle and brandsthough penetration by international media and travel is changing lifestyles, tastes andpurchasing patterns.

Passenger car ownership - Increasing ownerships of passenger cars have allowed moreconsumers to make larger and fewer shopping trips and to select the best deals fromdifferent retailers.

An important trend emerging globally is the increased consumer spending on food to beconsumed away from home, associated with increasing incomes and lifestyle changes. TheCARICOM environment also shows signs of this phenomenon, at different levels based on theextent of development of the agri-food markets in each country.

Food retail markets in the region can be roughly categorized as traditional, emerging, andmodern based on per capita GDP and other geo-demographic trends. Traditional markets in theregion are Guyana, Suriname, Belize, St Vincent and the Grenadines, and Haiti. Modern foodmarkets exist in the Bahamas, Barbados, Trinidad and Tobago, Antigua and Barbuda, and StKitts and Nevis. Other CARICOM countries have exhibited elements of traditional and modernretail markets and may be categorized as being transitional food retail markets.

Supermarkets are becoming the dominant format in the region, and there has been evidence ofconsolidation in the retail sector and increasing merger and acquisition activity is expected as theCARICOM Single Market is solidified and capital markets are improved. The largestsupermarket, Super Plus in Jamaica, operates 36 stores with sales, estimated in 2005, of overUS$ 150 million. Many of the larger supermarkets are associated with regional conglomeratesthat have subsidiaries in a mix of food import distribution, maritime services, and foodmanufacturing.

Over the last five years, coinciding with the entrance of foreign firms in the region mainly in theMore Developed Countries of CARICOM (MDCs) and the development of the Caribbean SingleMarket and Economy (CSME), CARICOM firms have been actively investing to improve theircompetitiveness through the expansion of store numbers and sizes; introduction of new formats;expansion beyond the capital city into primary and secondary towns; development of highermargin food non-food products expansion of private label and international retail brand


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Food Retail Sub-Sector

The CARICOM food retailsector is roughly estimated to have over 15,000 firms, employingover 85,000 people and generating US$ 4,555 million in sales. It has experienced strong growthin the more developed CARICOM food retail markets where larger numbers of internationalbrands and a growing number of national brands can be found. Similar but more delayed patternsare being experienced in less developed markets.

There are two international retailers in the region, PriceSmart and Winn Dixie. PriceSmart is

trading in services in three CARICOM states, while Winn Dixie has sold its operations in theBahamas. However, over the last five years, regional conglomerates, with food retail operations,such as Neal & Massy, BS&T, and Goddards Enterprises, have been actively making equityinvestments across the region either directly in supermarket firms or indirectly through theirparent companies. Other distributors such as Grace from Jamaica, Laparkan from Guyana andCirkel from Suriname have been exploring new markets across the region. Industry membersreport that CARICOM retailers are exploring opportunities for mergers and acquisitions but thereappears to be little interest in the food retailers and foods service firms exporting retailingservices outside the region at this time. However local retailers are concerned that futureinvestment of foreign retailers in CARICOM will have a significant impact on their operationsand profitability.

Quick Service Restaurant Sub-Sector

The CARICOM QSR sector is roughly estimated to have over 2,100 firms, employing over

27,000 people and generating over US$ 1,000 million in sales. It has experienced strong growthin the more developed CARICOM food retail markets, where larger numbers of internationalbrands and a growing number of national brands can be found. Similar but more delayed patternsare being experienced in less developed markets.

The top 35 firms, dominated by international brands, are estimated to have over 550 storesemploying over 16,750 people, and account for over US$ 380 million or 35 percent of the totalestimated sales in the sector. The leading firms include mainly international and a few leading

national brands. The QSRs featuring chicken menus have by far the largest share (38 percent)reflecting the share (85%) of poultry meat in the diet of CARICOM people. Several othersegments, with focus on Chinese, Caribbean, Burger and Pizza/Pasta menus, have between 11percent and 16 percent of the market Restaurants with Chinese food have been growing rapidlyas a result of the influx of Chinese immigrants across the region. Other segments are explored inthe study such as sandwiches and seafood while lesser attention was paid to casual dining and


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creating new businesses in the supply chain and raising the standards to meet those of theinternational brands. In addition several agri-food suppliers that have met these standards now

qualify to export products to any other franchises in the international QSR chain.

Over the last five years, regional operators have been expanding their efforts to export their brands within the greater Caribbean. However, foreign QSRs, owned by expatriate Caribbeannationals, have begun to develop formats based on Caribbean cuisine in the US and in the UK,and seem to be benefiting from first mover advantage in these markets. Several CARICOMQSRs have attempted to export services outside the region, with little success, and others areplanning to do so in the short to medium term. The regulatory environment for this sub-sector in

CARICOM has few restrictions, and these exist in only three countries, Barbados, Guyana andSuriname. Restrictions are also in place in the Bahamas, which is not part of the CSME.

Food Import Distribution Sub-sector

There are several types of wholesalers in the region, manufacturer distributors, importerdistributors, importer retailers, and domestic wholesalers carry on wholesaling in the region. Themore developed markets in the region tend to import higher proportions of internationallybranded products. Belize and Guyana, which produce more of their own food, rely more on localmanufacturers and wholesalers to distribute the greater part of food consumed in Belize.Importer distributors import on average more than 90 percent of their sales of which 1040 percent emanate from the CARICOM region. Only a small number of distributors operate inmore than one country in the region, but find it difficult to achieve economies of scale because ofthe manner in which the maritime freight system operates in the Caribbean.

A growing problem in the region identified by distributors is the growth of parallel trading,where regional firms import from a wholesaler in an exporting country rather than from themanufacturers which have distribution agreements. Generally, larger distributors consideredthemselves able to cope with new competition due to their investments in distribution assets,strong trade relationships, local market knowledge, and ability to deal with local public-sectoragencies. CARICOM distributors have been developing several strategies to address growingcompetition such as consolidating the distribution base (BS&T SBI Distribution), rationalizing portfolio of firms, brands and improving service levels (Geddes Grant Guyana and Jamaica),

integrating backwards, developing retail brands (Grace-Kennedys Grace brand, GoddardsEnterprises Eve brand), integrating forward (Goddards Enterprises acquisitions in fooddistribution in Grenada, St Vincent, Barbados, and new joint venture in restaurants with IslandGrill). Distributors were well acquainted with trade in goods issues, but were largely unawarethat their sector might be the subject of international services negotiations.


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have been strengthened in the process of meeting the standards of the international brands.However in some states where tariffs are lower, and for smaller QSRs differentiating themselves

by using higher quality imported products this is not so. Leading supermarkets reported thatlocal content was generally lower (5 - 30 percent) than major QSRs (60 80 percent), withproportions varying significantly depending on the marketing strategy of the firm and the policyframework of the CARICOM state.

As competition in food distribution services increases across the region, firms have sought todifferentiate their offers. The leading food retailers in each country have improved the qualityand choice of their offer to consumers by expanding their fresh, chilled, frozen portfolios and

this has led to increased imports in these categories which tend not to be produced locally. Theentrance of PriceSmart into the region has led to the development of several discount formatswhich have also sought to improve their price offer to consumers by parallel trading, purchasingfrom diverters, and increasing their complement of secondary and tertiary international brands.Often this is facilitated by tariff structures in CARICOM states that focus sensitive treatment onprimary production rather than on value-added production. As a result, competition has led toincreased imports in these product categories.

There is evidence that trade in agri-food products can be facilitated by the development of tradein services as larger QSRs and supermarkets (PriceSmart) tend to source products from preferredcertified suppliers within the region for distribution to their stores across the region. However,tariff structures within the CSME may also explain in part this preference for intra-regionalsourcing.

Improving Competitiveness in Food Distribution Services

Competitiveness assessment is difficult at this point in time largely because data are unavailablein sufficient detail. Few companies are publicly listed. Only a few instances of information onSupermarket and QSR profitability have been identified.

The study uncovered constraints to improved competitiveness and trade in services, which seemto have a disproportionate impact on SME retailers and indigenous QSR operations. There is adearth of food distribution SERVICE market intelligence in domestic markets, but more so in

export markets. Intra-regional air and sea freight, especially in the areas of refrigerated cargo andholding facilities on the ports limits the trade in service especially in the start-up phases. Portinefficiencies affect efficiency in food distribution. There is need to strengthen the backwardlinkages to agri-food and non-food supply chains to support export growth as suppliers in newmarkets tend to be underdeveloped and need to be supplied from domestic markets. Crimeaffects the profitability of distributors particularly in the retail sector by restricting options for


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developing domestic and trade policy is minimal but there is interest from the industry todialogue with the public sector, and this requires institutional support.

There is evidence that firms recognize these constraints and the study proposes a series ofprogrammes to address them by way of training, incentive programs, legislative development,improvements in national telecommunications infrastructures, and additional affordable e-commerce service offerings by financial institutions. Of particular importance, will be thedevelopment of backward linkages to the agriculture sector and light manufacturing throughspecial programmes to help small farmers and processors meet volume, quality, safety, anddependability levels demanded by larger supermarkets and QSRs. Other areas of training

suggested include contract negotiation and agricultural extension services.

An industry policy for food distribution services is urgently required. This study has revealedsignificant economic activity and export potential. However, growth prospects will be affected by lack of a coordinated policy framework that is applicable throughout the CSME. Theelements mentioned above are not intended to be comprehensive and other observers will nodoubt identify gaps. These areas, though, did arise in the consultations conducted during thecourse of this study as of some immediate concern to stakeholders in the sector. In some cases,

the action must emanate from the sector players themselves. In all cases, a collaborativeapproach involving dialogue between the private and public sectors is indispensable. Resolvingthese issues will equip the sector to better respond to the challenges of the negotiations oninternational trade in services in which the region is involved.

Negotiating Options

Services negotiations can play a role in improving the efficiency of food distribution sectors byfacilitating new competition and investment in strategic areas in the sector, while at the same,time providing time for well-coordinated industry policy to strengthen the competitiveness ofmore sensitive sectors of the industry. Participation by the region in international servicesnegotiations has been minimal, influenced by determination of officials that the sector issensitive and would be negatively affected by new foreign entrants. Businesses in the fooddistribution sector do not have a uniform opinion on this matter, but there is interest in exportingservices particularly in the franchising sector and also in the food retailing sector. The regulatory

environment is underdeveloped in comparison with more developed economies and this is afactor restraining new services commitments. However, relatively few areas of discriminatorymeasures have been identified.

CARICOM Member States have no existing commitments in distribution services in the WTO.Only Guyana made an offer in the sector in the now-stalled Doha Development Round (DDR)


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approach of phasing. With respect to the various elements of the food distribution sector, rawproduct distribution might be less sensitive than processed products. CARICOM countries willfind it difficult to make commitments in retailing. In franchising, there are some export interestsand important penetration of the region by international franchises. Policy makers shouldrecognize that the industries horizons and sensitivities are likely to change over time as theydevelop international experience and competitiveness. The ongoing exposure of CARICOMQSRs to international marketing, operations, and benchmarking systems may indeed be onereason why these firms view themselves as more competitive and less sensitive to competition.Programmes need to be established to establish similar benchmarking systems which might havesimilar impact on the food retailing sector.

The QSR sector is the most poised to export from the region, and exports of services across thegreater Caribbean region are growing. Although indigenous brands are less able to exportservices because of the absence of the support systems similar to that provided by theinternational fast food chains, several indigenous CARICOM QSRs have been and continue toexperiment with exports in services to the US, EU, and as far afield as China. The regionslargest catering company is already operating in 21 countries in Latin America and the greaterCaribbean. In addition, several Caribbean food QSR chains owned by Caribbean expatriates are

developing in the US and may soon develop franchises in the region. Food retailers tend to befocusing on the CARICOM market for the time being, largely through equity transactions ratherthan trade in services. However, as they gain such experience in trade in service within theregion they are likely to develop extra-regional trade interests. Importer/distributors are presentin several CARICOM markets and a few have expressed interest in Latin American markets.

Central America and the wider Caribbean tend to be of particular interest and should be the firstfocus of CARICOM export-seeking strategies in future negotiations. Multilaterally, Central

America (with the exception of Panama) has not made commitments in the sector. Regionally,though, Central America and the Dominican Republic have made liberalizing commitments tothe United States with respect to their laws governing distribution of goods. This changessignificantly the competitive environment in Central America to the disadvantage of potentialCARICOM exporters of goods and services, and might be addressed in a negotiation withCentral America.

Clearly, due to the sensitivity of the sector, defensive interests will be a priority and defensiveimpulses enhanced by the lack of extensive export interests. Requests made by the EU in theWTO negotiations are more likely to be addressed in the EPA framework and must beaccompanied by specific CARIFORUM requests related to, inter alia, improving Mode 4 access,removal of sector exclusions, removal of economic needs tests, and improved cross bordersupply commitments. While engaging in the negotiation with Europe, CARICOM must take into


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Future Strategic Development and Industry Support

Future work is required to inform strategies to develop the sector. The following project ideas areproposed for consideration:

1. Regional Food Distribution Service Industry Workshop To bring regional publicand private sector stakeholders together, along with a selection of global industryspecialists, together to explore opportunities, constraints and develop industry and policystrategies.

2. Development of National Food Distribution Services Sector Profiles and SectorPolicy Development Strategies To detail the national sector, especially in areas notaddressed by this study, and set out policy options particularly for sub-sectors notaddressed by this study.

3. Logistics & Maritime Services To examine the sub-sectors across the region anddevelop strategies to improve competitiveness and approaches to trade negotiation.

4. CARICOM Services Statistics Project To integrate the findings andrecommendations of this study into the existing CARICOM services statistics project anddevelop a common framework and reporting format for the sector.

5. Food Distribution Services Export Market Intelligence To identify opportunities,challenges and strategies to support the exporting interests of CARICOM firms,

especially SMEs.

6. Franchise Best Practice Model To investigate international best practices and informadoption of these practices by local quick service formats.

7. Street Vendors & Speciality Fresh Food Vendors & Markets To examine theimpact of changes in the industry as a result of liberalisation on traditional perishable

agri-food (F&V, chicken, meat, fish, dairy, and bakery) marketing channels (sellers notproducers), which are predominantly SMEs.

8. Agri-Food Supply Chains Impact Assessment To conduct a detailed review ofimpact that changes in the food distribution services industry will have on agri-food

l h i d h l i hi b f d di ib i i i d li


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1. AGRI-FOOD DISTRIBUTION SERVICES:INDUSTRY DEFINITION AND ROLE IN THEECONOMY

Introduction

This chapter defines the food distribution service industry and reviews the issues to beconsidered in the development of a policy framework for CARICOM governments. It should benoted while there are a range of service providers in the agri-food supply chain, this studyfocuses on the commercial food retail channels, i.e., supermarkets, quick service restaurants(QSRs), and import/distributors because they are most likely to export their service formats toother markets.

While several sources were used in preparing this review, the work of the Institute of GroceryDistribution, Food Marketing Institute, Rabobank, United States Department of AgricultureEconomic Research Service (USDAERS), and the United Nations Conference on Trade andDevelopment (UNCTAD) were especially relevant.

Agri-food Distribution Services Industry

The agri-food industry comprises a number of interrelated actors, including the producers ofagri-food products (farmers), primary agri-processors and food manufacturers, the distributors ofagri-food product (food wholesalers, food retailers, and food service operators) and consumers(Figure 1.1). The agri-food distribution service sector is responsible for moving products alongthe agri-food supply chain and ultimately providing consumers with the food they eat.

While services such as financing, technical support, information systems, sorting, grading, packaging, storage, transporting, and marketing are provided along the agri-food commoditysupply chain by various service providers, this study focuses on the services and serviceproviders which are most likely to be involved in the cross border trade in services, i.e., foodretailers, food service operators, and food wholesalers including commission agents.


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Consumers

Food ServiceFood Retail

Agricultural Input Suppliers

Agricultural Producers

Wholesale

Food Manufacturing Industry

Wholesale

Primary Processing Agro Industry

Wholesale


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0

10 0

20 0

30 0

40 0

50 0

60 0

70 0

80 0

1954 1964 1 974 1 984 199 4 2004

U S C o n s u m e r E x p e n d it u r e o n F o o d , 1 9 5 4 2 0 0 4 , U S $ b

Farm Va lue M arket ing B i ll

Figure 1.2: Distribution of Consumer Expenditure, USA, 1954 - 20043

Over time, consumers have access to a more diverse range of food consumption choices from anarray of retail and food service establishments offering a full range of foods to be consumed athome or away from home. These are shown in Table 1.1.

Table 1.1: Consumer Spectrum of Food Consumption Choices

Prepared at Home

Purchased from Food Retail

Prepared Away From Home

Purchased from Food Service (Caterers/ Restaurants)

Meals From

Raw

Components

Semi-

prepared

Meals

Home Meal

Replacement

Meals

Delivered

Meals

Take Away

Meals

Catered

Meals

Restaurant

Meals

ConsumedAt Home

ConsumedOn the Go

ConsumedAway From Home

Source: Adapted from Rabobank, 19984

There are two major distribution channels providing customers with food food retail channel

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Figure 1.2 Food Markets Channels and Sub-Channels

The distribution of consumer expenditure between the different sectors in the food businessdiffers greatly between food eaten at home and food eaten away from home. This can be seen in

the case of the more developed food retail market in the US (1998) where services (transport,wholesaling, and food service) accounted for 69 percent of the consumer expenditure on foodaway from home compared to 39 percent in food consumed at home. (Figure 1.3)

Food at Home Food Away from Home

Figure1.3:Distribution of Consumer Expenditure, USA,19985

Farm Value,

30%

Processing,

31%Transport,

6%

Wholesale,

10%

Food Retail,

23%

Farm

Value, 16%

Processing,

15%

Transport,

3%

Wholesale,

6%

Food

Service,

60%

ConsumersRood Retailers Food Service

Supermarket Food CounterStore

Mom & Pop Store Specialty Food

DepartmentStore

ConvenienceStore

IndependentFull Service

QuickService

Hotels &Motels

Caf, Bars &Vending Mach

StreetVendors

Airlines &Ships

Hospital& Schools

Industrial &Manufacturing

NationalSecurity

Leisure/Events

Restaurants Catering

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Food Retail Sub-Sector

The traditional food retail sector in CARICOM is made up of several main categories of foodretailers conventional supermarkets, self-service food stores or groceries which are reallysmaller supermarkets, counter shops, mom & pop stores, independent commercial traders, andspecialty food retailers selling fruits and vegetables, meat, dairy, bakery, and beverage products.Products purchased from these outlets have traditionally been for meal components for thepreparation of meals at home, but increasingly include semi-prepared meal solutions and fullyprepared foods called home meal replacements. The following categories have been adapted forthe CARICOM region from the Food Marketing Institute6.

Conventional Supermarkets - The original self-service supermarket format, these arenormally between 10,00015,000 SF in sales area but can range from 6,00040,000 SF andcarry anywhere from 8,00018,000 stock keeping units (SKUs), with 520 cash registers.These stores offer a full line of groceries, meat, and produce and often offer services suchas a deli, bakery, and food service. More recently online lottery, money transfer, andbanking services can also be found. Conventional stores will average 60 percent of their

sales from grocery items, 12.5 percent from the sale of meats, 10 percent from generalmerchandise/health beauty and care, 7.5 percent from frozen food, 5 percent from produce,and 5 percent from bakery products, deli services, and other services.

Self-service Food Stores or Groceries - The self-service small corner grocery store isnormally between 3,0007,500 SF carries 3,0008,000 SKUs with 25 cash registers. Itsells a limited selection of staples, budget brands, convenience items, and a few lines offrozen meat and non-food groceries. These stores are strictly speaking supermarkets andare also called groceries in some countries.

Counter Shops - These stores normally range between 750 and 2,000 SF with no cashregister. They offer a limited assortment of basic staples, often repacked in the store from bulk packaging, very little refrigeration, and no fresh product. Goods are sold over-the-

counter to the public and family members operate the store. They are also calledneighbourhood shops, corner shops, and even sometimes groceries.

Mom & Pop Stores - Normally from 250750 SF, these shops are located in a room in

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Specialty Food Retailers - Traditionally food has been purchased from the followingspecialty food retailers, whose importance in the retail market depends on the stage ofdevelopment.

Traditional Fresh/Wet Market A collection of small retailers or a mix ofwholesalers and retailers selling perishables such as fruit, vegetables,roots/starches, condiments, meat, and fish.

Fresh Produce Shop A shop which specializes in fruit and vegetables

Butcher/Meat Shop A vendor or shop specializing in meat (also called pluckshops or pluck & gut shops).

Fishmonger/Fish Shop A vendor or shop that sells seafood.

Dairy Parlour A shop that sells milk and/or dairy products including ice cream.

Bakery A shop that sells bread and pastry products and ice cream.

As the traditional food retail sector evolves, new formats are entering the market and nowaccount for a larger share of consumer spending. These new formats include Superstore,Convenience Store, Wholesale Club, Super Centres, Super Warehouse, Super Warehouse/Hypermarket, and Limited-Assortment Store, which are defined in the industry terms in theindustry terms section.

Food Service Sub-Sector

Food consumed away from home is traditionally purchased from food service providers whichinclude full service restaurants (within or independent of a hotel), casual dining restaurants,QSRs, street vendors, and from caterers who normally prepare meals under contractualarrangements for organizations.

Full-Service Restaurants Feature waiting staff, more varied menus, and perhaps otheramenities such as ceramic dishware, nondisposable utensils, and alcohol service. Thesemay be associated with a hotel or be independent restaurants These include casual dining

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located close to the consumer, or on the go via take away or drive through facilities, ordelivery to the consumers home/office.

Bars & Cafeterias These are smaller food stores that prepare, serve, and sell food to thegeneral public for a profit.

Street Food Vendors These include small itinerant operators, often individuals thatprepare and serve food from temporary locations in the street.

Caterers Prepare food in one location for serving in a separate location. These operations prepare and serve meals and snacks as an adjunct, supportive service in institutional andeducational settings, such as schools, nursing homes, child day care centres, and hospitals.The distribution of food through these food service channels varies greatly depending on thecountry and stage of market development. Table 1.3 shows how the US food service industry hasevolved. Notable in its absence is data related to street vendors which are more prevalent in

developing countries. Increasingly, food service providers are offering take away service anddelivering meals to consumers homes and thereby competing directly with food retailers.

Table 1.3: Share of meals and snacks away from home by type of outlet in the US 1929 - 2003

Year

FullServiceeating

places1

LimitedServiceeating

places1

All

eatingplaces

Hotels

andmotels

Schools

andcolleges2

Stores,bars,

vendingmachines

Recrea -

tionalplaces

Others,includingmilitaryoutlets

(%) (%) (%) (%) (%) (%) (%) (%)

1929 51.1 9.0 60.1 10.4 5.0 18.8 1.0 4.7

1939 46.6 7.1 53.7 10.8 6.8 21.1 1.9 5.7

1954 54.9 4.3 59.2 6.0 10.4 16.1 2.2 6.1

1963 50.1 9.7 59.8 6.2 13.5 12.4 2.5 5.6

1972 41.3 21.2 62.5 5.8 13.0 11.4 2.0 5.3

1982 41.0 29.3 70.3 5.4 9.7 8.4 2.3 3.9

1985 39.4 31.3 70.7 5.9 9.3 7.9 2.4 3.8

1990 38.7 35.3 74.0 5.4 6.8 7.6 2.9 3.2

1995 37.5 38.1 75.6 5.0 7.2 5.7 3.8 2.7

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Food Wholesale Sub-Sector

Wholesaling is carried out by four main types of operators:

Manufacturer/Distributors - These distributors tend to have a wholesaling operation toservice the domestic market, and often also have an exporting company to handle exports.

Importer Distributors - Importer distributors wholesale goods from foreign manufacturersfor whom they may or may not have a distribution agency agreement.

Importer Retailers - Some retailers, especially those which are not associated with othertypes of food distribution companies, import a significant part of their offering themselves.

Domestic Wholesalers - These wholesalers tend to be smaller wholesalers with no import orexport operation and distribute products from local manufacturers, agri-processors, andagricultural producers in addition to those of importers. They tend to service smaller andmore rural retailers and food service providers.

Commission Agents - These handle products in bulk but do not own them, delivering themto wholesalers, retailers, or other individual users.

This study focuses on the Importer Distributors and Commission Agents because thesebusinesses are more likely to trade in services.

Structure of Consumer Food Markets

Several forces determine the structure of food retail markets. On the demand side, the level ofdevelopment and income, cultural and historical factors, consumer tastes and geographic anddemographic factors, as well as the overall regulatory environment, influence the structure andevolution of the distribution services market. Government regulations with respect to large-scale

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demand characteristics, namely consumer profile and consumer shopping habits; and threegroups of supply characteristics - retail environment, product categories, and service categories.

Using this analytic tool to classify countries/markets allows one to better understand the currentstatus of the markets and to better predict the likely future course of development for thesemarkets. Details on the demand dimensions of the three broad stages of development arepresented below.

Traditional Retail Markets

Traditional retail markets tend to be found where there are largely rural populations, with largerhouseholds and women who can prepare meals at home. Disposable income is low and thelevels of household appliances such as fridges and microwaves are low, so there is limitedcapability to store chilled and frozen foods, making it necessary to shop frequently fromneighbourhood shops, fresh markets, and specialty retailers. Levels of car ownership are low,limiting the opportunities for large and less frequent shopping at stores further away. Ownershipof TV, cable, and access to the Internet and frequency of foreign travel are also low.Consumption focuses on traditional staples, basic fresh foods, often from local production, with

food being seen as a source of sustenance. Consumption of food away from home is limited butis similar to those produced at home.

Traditional retail sectors have few modern supermarkets or international competition. Most foodsales takes place through small self-service food stores with limited refrigeration capacity inurban areas, and through neighbourhood counter shops and van salesmen in rural areas, whoseassortment largely comprises traditional staples. The lack of refrigeration in the retail shops and

homes makes fresh markets and specialty food retailers of meat, fish, and bread very importantsources of food in both urban and rural areas. Wholesalers offer products to both wholesale andretail customers at more attractive prices than can be found in the supermarkets. Fresh producemarkets tend to be important channels for staples such as grains and packaged grocery and basicHealth Beauty Care (HBC) items as well as fresh produce. Most stores are family owned, offerlimited services if any at all, and open for restricted hours. Food retail accounts for the majorityof consumer food purchases and food service is limited to street vendors.

Modern Food Retail Markets

In comparison to traditional food retail markets, the population in modern food retail markets ismore urban and household sizes are smaller. More women work and the populations ageincreases as health services improve, disposable income increases, and there is a higher existencef li d M i t ti l t l d t bl TV i th

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In modern food retail sectors, the traditional supermarket and counter shop lose market share tomore modern retail formats such as superstores and hypermarkets, wholesale membership clubs,and discount supermarkets, which are predominantly found in the capital city, suburban areas,

and in primary towns. These larger superstores and hypermarkets can accommodate a muchlarger offering of fresh produce, chilled meats, fish, dairy and prepared foods, and frozen foods;a wider selection of national and international brands including retail brands; a wider selection ofhigher margin General Merchandise (GM) and Home Beauty Care (HBC) lines and services.Membership clubs and discount supermarkets carry a limited line of products at more attractive prices. Service offerings are expanded as food retailers seek to gain share from other retailformats such as foodservice, financial services, gambling, pharmaceuticals, and photodevelopment. The traditional supermarkets have migrated from the capital city to towns and self-service groceries. Counter shops have declined in number and have concentrated in smallertowns and villages, shifting their product offering away from staples to include moreinternationally branded products, convenience items, and services. Regional and internationalretailers have entered the market. Food service is provided by a few indigenous food servicestores and an increasing amount of international fast food stores.

Emerging Food Retail Markets

In between the traditional and the modern, there is a transitional stage and several countries shareelements of both categories. Emerging food markets have less rural populations, with largerhouseholds, and women are still largely housewives. Disposable income is low, but appliancesand cars begin to enter households.

Shopping intervals increase and consumers begin to shop at a wider range of formats includingnewly introduced supermarkets and convenience stores in the capital city, where they can findsemi-processed staples, convenience products, and non-food categories. Brand awareness andloyalty develops for local brands. Consumers develop a greater understanding of nutritional andfood safety issues. Consumption of food away from home increases and the cuisine widens toinclude foods not cooked at home, including international fast food.

Emerging food retail sectors have begun to see the expansion in the numbers of modernsupermarkets in the capital city. They begin to offer wider ranges of regional and international

brands, and small amounts of refrigerated lines such as frozen meats and drinks and freshproduce. Greater attention is paid to providing services such as shuttle and delivery service andlonger opening hours. Self-service food stores have entered primary and secondary towns andhave increased market share. Fresh markets remain an important food retail channel. Foodservice is provided by street vendors, indigenous food service stores and a few international fastfood stores

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Assessment of the Agri-food Distribution Services Industry in CARICOM

Table 1.4 Stages of Food Retail Development

Characteristic Stage 1 Traditional Stage 2 Emerging Stage 3 ModernConsumerProfile

More rural populations Larger households/ Women at home Low disposable income Low households appliances Little communication/ travel

Less rural populations Larger households/ Women at home Low disposable income Some households appliances Little int. communication/ travel

More urban populations Smaller households/ Older ages More women at work Higher disposable income Higher households appliances/Cars More communication/ travel

Need for convenience shoppingCustomer

ShoppingHabits

Shops on a daily basis

Low spend on non food Loyalty to local products Low brand awareness

Increasing spend on food & appliances

Loyalty to local products Increasing local brand awareness Enjoys promotions and entertainment

High disposable income

Prefers to shop on a weekly basis Prefers to do a one stop shop Quality very important

RetailEnvironment -Store Formats& Competition

Daily/weekly shopping - traditional outlets Self-service Groceries Neighbourhood Counter Shops Fresh Food Markets

Little sign of modern retail formats andinternational competition

Bi-weekly/ daily shopping in developingmodern & traditional formats

Supermarkets Convenience Stores

Presence of domestic and foreign retailersincreasing rapidly

More monthly/weekly shopping inmodern formats

Superstores/ Hypermarkets Wholesales/Discount SMkts Convenience Stores

More foreign formats

ProductCategories

Traditional Staples Basic Fresh Foods Local Production Food as a function rather than a taste

experience

Semi processed staples Convenience /novelty products Increasingly open to foreign products but

loyalty to local brands

Focus on value for money

Increasing spend on non food Nutritional value more important

Enjoys international fast food

Happy to spend on luxury goods Convenience products Value added products Health products Customised products

Brand promiscuity

Service

Categories

Counter service Some self serve Restricted opening hours

Later opening hours Shuttle & delivery services

Foodservice Financial C/Card ATMs, Remit, Bill

Pay

Gambling Pharmacy/ Photo/ Optician/ Car

Source: Adapted from IGD, 2005

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Figure 1.4: Comparison of Traditional and Modern Retail MarketsSource: Wendy M. Becker, McKinsey & Company, UNCTAD Distribution Services Meeting, 2005

In Figure 1.4, Mc Kinsey and Company compare the distribution of retail formats in 2003 in the

emerging Indian market where approximately 1 percent of consumer food expenditure takesplace in supermarkets, with the US where modern food retail formats account for 85 percent ofconsumer expenditure. In India, counter stores, street vendors, and street markets are the mainchannels for retailing food. In other countries in transition from traditional to modern retailmarkets, a more even mix of formats can be found. Examples of emerging countries withgrowing levels of supermarkets would be Latin America where supermarkets account for 50 60percent of food sales, Indonesia (33 percent) and South Africa (55 percent).

Policy Definition for Food Distribution Services

In international trade terms, the food distribution sector broadly comprises the followingcategories outlined in the document MTN.GNS w.120 (w.120), which itself is adapted from themuch more detailed United Nations Central Product Classification (CPC). Under w.120,

US China India

$323B

Traditional

54%

5%

20%

20 %

1%

PDS/co-operative

Streetmarkets

Streetvendors

Counterstores

Supermarkets/convenience/specialty

Percent of sales

100% = $180B

Modern

20 1-2

85

$2,325B

100% = 6.5 million food outlets, India

. . . traditional retail is fragmentedIn emerging markets, modern retail formatshave minimal share . . .

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Table 1.5: W.120 Distribution Services Codes

Services Codes

Commission agents' services 621

Wholesale trade services 622

Retailing services 631+632, 6111+6113+6121

Franchising 8929

Other B622

Source: MTN.GNS. w.120

In the CPC, these services are much more specifically defined with 113 specific service activitiesfound within five broad categories. Basically, the CPC includes categories of distribution of rawmaterials, processed foods and beverages, machinery, fuels, pharmaceuticals, toiletries,hardware, textiles and clothing, footwear, various office equipment, and household goods. Thefood sector is further disaggregated to include:

Fruits and Vegetables;

Dairy products and Edible Oils and Fats;

Meat, Poultry, and Game;

Fishery Products;

Sugar, Confectionery, and Baking;

Beverages;

Coffee, Tea, Cocoa, and Spices;

Tobacco; and

Processed Foods.

In addition, the service understood as franchising (in W.120 terminology) is not specificallydefined in the CPC. The relevant heading in W.120 actually refers to trade in intangible assets

(Box 1.1):

Box 1.1: CPC Franchising Definition 89290

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Box 1.2: CPC Franchising Definition 64210

64210 Meal serving services with full restaurant service

Food preparation and serving services and related beverage serving services furnishedby restaurants, cafes, and similar eating facilities providing full service consisting ofwaiter service to individual customers seated at tables (including counters or booths),with or without entertainment. Included are such services provided by restaurants,bars, nightclubs, and similar facilities, operated in hotels or other lodging places or intransport facilities, e.g., in trains or aboard ships.

The UNCTAD Secretariat provides useful amplification of the specific business operationsincluded under Distribution Services summarized as follows: -

Commission Agents Services - These involve intermediaries, which also includebrokers, auction companies, and commission merchants. They handle products in bulk but do not own them, delivering them to wholesalers, retailers, or other individualusers. Intermediaries trade on behalf of others, and while some intermediaries handlethe goods themselves, as in the case of commission agents, others, brokers, forexample, sell products without even seeing them (UNCTAD).

Wholesalers - They collate, store, and disburse products. They cater to retailers and to

other wholesalers, and for example, in the food business, to what are called"institutional customers", such as restaurants, hospitals, and catering services. They areeither broad-line distributors, dealing with a wide range of products, or product-specialized wholesalers. Wholesalers perform both physical and trading functions. Thephysical functions include, inter alia: transport, which is often subcontracted; sorting,de-bulking, and handling; stocking; processing; and delivery. Trading functions includesourcing and assortment of supply, selling, marketing, and merchandizing, andmanaging financial and administrative flows, such as management of risk and stocks(UNCTAD).

Retailers They are distributors selling to end-consumers. In addition, retailersid t f diff t i h d t bl d di l l f

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services can be classified according to size, business format, and product mix orspecialization

7(UNCTAD).

Table 1.6: CPC Classification of Food Distribution Services Sectors

Sector

CPC

Code Description

Food

Retailing

631 Food retailing services

6310 Retail sales of food, beverages and tobacco

63101 Retail sales of fruit and vegetables 5220

63102 Retail sales of dairy products and eggs 5220

63103 Retail sales of meat and meat products (incl. poultry) 5220

63104 Retail sales of fish and other sea foods 5220

63105 Retail sales of bread and flour confectionery 5220

63106 Retail sales of sugar confectionery 5220

63107 Retail sales of beverages not consumed on the spot 5220

63108 Retail sales of tobacco products 5220

63109 Specialized retail sales of food products 5220 n.e.c.Food

Franchising

89290 Other non-financial intangible assets

Royalties for the right to use similar exclusive rights as above, not elsewhere

classified, owned by other economic agents

Food

Wholesaling

6221 Wholesale trade services of agricultural raw materials and live animals

62211 Wholesale trade services of grain, oilseeds and oleaginous fruits, seeds and

animal feed 5121

62212 Wholesale trade services of flowers and plants 512162213 Wholesale trade services of unmanufactured tobacco 5121

62214 Wholesale trade services of live animals leather 5121

62215 Wholesale trade services of hides and skins and

assessment of caricom agri-food distribution services

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