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The Impact of Globalization on Food Retailing in Latvia

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ISSN 1822-7996 Ligita MELECE TAIKOMOJI EKONOMIKA: SISTEMINIAI TYRIMAI: 2010.4/1 Ingūna GULBE Juris HĀZNERS The impact of globalization on food retailing in Latvia ćFSFDFOUEFWFMPQNFOUT DPODFOUSBUJPOBOEDPOTPMJEBUJPOQSPDFTTBOEUSFOETJOUIFGPPE HSPDFSZ SFUBJM NBSLFUJO-BUWJBBSFBOBMZ[FEćFJNQBDUPGSFUBJMTFDUPSTDIBOHFTPOEBJSZDIBJOBSFBTTFTTFE BOETPNF JTTVFTSFHBSEJOHMPXQSJDFTPGEFMJWFSFENJMLBSFEFTDSJCFE Keywords: food, grocery retail, concentration, supermarkets, dairy, Latvia. 4USBJQTOZKF BOBMJ[VPKBNJ OBVKBVTJ -BUWJKPT NBJTUP QSPEVLUʸ NBäNFOJOʐT QSFLZCPT SJOLPT QPLZʊJBJ LPO- DFOUSBDJKBJSTVTJKVOHJNPQSPDFTBJəWFSUJOBNBTNBäNFOJOʐTQSFLZCPTTFLUPSJBVTQPWFJLJTQJFOJOJʸUJOLMVJ apžvelgiamos mažos pieno supirkimo kainos. Raktiniai žodžiai:NBJTUBT NBäNFOJOʐNBJTUPQSFLZCB LPODFOUSBDJKB QSFLZCPTDFOUSBJ QJFOJOʐ -BUWJKB JEL ClassificationT--2 Introduction great impact on farming, food businesses, other retailers, trade in processed food %VSJOHUIFMBTUUXPEFDBEFTUIFSFUBJMJOH products and diets. A “supermarket revo- JOEVTUSZJTĕOEJOHJUTFMGJOBTUBUFPGDPO- MVUJPOwIBTCFFOVOEFSXBZJOEFWFMPQJOH TUBOUFWPMVUJPOBOEUSBOTGPSNBUJPO XIFSF DPVOUSJFTTJODFUIFFBSMZT4VQFSNBS- UIF HMPCBMJ[BUJPO NFSHFST BOE BDRVJTJ- kets (here referring to all modern retail, tions, and technological developments XIJDI JODMVEFT DIBJO TUPSFT PG WBSJPVT have changed the retailing landscape formats such as supermarkets, hypermar- ESBTUJDBMMZ $POTUBOUJOJEFT FU BM kets, and convenience and neighborhood ćF SBUF PG UIF TQSFBE PG TVQFSNBSLFUT TUPSFT IBWF OPX HPOF XFMM CFZPOE UIF provided by international retailers (retail- initial upper- and middle-class clientele in ing internationalization), and process of many countries to reach the mass market. grocery retail concentration in develop- 8JUIJO UIF GPPE TZTUFN OPU POMZ USBEJ- ing and transition countries is an issue of UJPOBM SFUBJMFST BSF BČFDUFE CZ UIJT USFOE topical interest because of their potentially UPVDI CVUBMTPUIFXIPMFTBMF QSPDFTTJOH -JHJUB.&-&$&o%SPFD )FBEPG%FQBSUNFOUPG-BUWJBO4UBUF*OTUJUVUFPG"HSBSJBO&DPOPNJDT -FBEJOH Researcher, e-mail: [email protected]. *OHʷOB(6-#&o%SPFD )FBEPG%FQBSUNFOUPG-BUWJBO4UBUF*OTUJUVUFPG"HSBSJBO&DPOPNJDT FNBJMJO- guna@ Leading Researcher, *OHVOB!MWBFJMv. +VSJT)Ƀ;/&34o4DJFOUJĕDBTTJTUBOUPG-BUWJBO4UBUF*OTUJUVUFPG"HSBSJBO&DPOPNJDT [email protected]. 70 Ligita MELECE, Ingūna GULBE, Juris HĀZNERS and farm sectors (Reardon, Gulati, 2008). become increasingly concentrated, the bal- 5+PTMJOH QSFEJDUFEUIBUTVQFSNBS- BODF PG QPXFS CFUXFFO QSJNBSZ QSPEVD- kets have come to dominate the retail dis- FSTBOEUIFJSDVTUPNFSTCFDPNFTTLFXFE tribution of food. 8IFUIFS UIFZ BSF XPSLJOH GPS SFUBJMFST "MBSHFOVNCFSPGBSUJDMFTXJUIUIFSF- or other intermediary traders or proces- sults of research have described the rapid sors, corporate buyers are increasingly spread of supermarkets and predicted its BCMFUPQBZTVQQMJFSTBUSBUFTCFMPXDPN- DPOUJOVBUJPOBOEBDDFMFSBUJPO"ęFS QFUJUJWF MFWFMT ćJT DBO CF UIF DBTF FWFO USBOTJUJPO QFSJPE XBT TUBSUFE JO $FOUSBM in ostensibly competitive retail markets. and Eastern Europe, inter alia Latvia, 4.D$PSSJTUPO BSHVFTUIBU GPS&V- XIFSF UIF SFUBJM TFDUPS XBT QSJWBUJ[FE rope, agricultural economists should give and some domestic-capital market chains more attention to imperfect competition in HSBEVBMMZ FNFSHFE *O UIF NJEEMF PG UIF the food arena, given that European food T UIF NBTTJWF JOĘPXT PG GPSFJHO EJ- marketing practices suggest the presence SFDUJOWFTUNFOUGPMMPXFEBOEMBSHFGPSNBU PG PMJHPQPMJTUJD TUSVDUVSFT BOE HSPXJOH NPEFSO SFUBJM TFDUPS XJUI TVQFSNBSLFUT NBSLFUQPXFS18%PCTPO TUBUFT BOEIZQFSNBSLFUTXBTEFWFMPQFEćFSF- UIBUSFUBJMCVZFSQPXFSNBZEJTUPSUUIFSF- structuring of retail sector is the result of tail market, and may also have immediate the three processes of horizontal integra- BOEEFUSJNFOUBMFČFDUTPODPNQFUJUJPOBU tion, vertical integration and globalization the upstream market level, particularly in (Hendrickson et al., 2001). the areas of food processing and farm pro- Many industrialized countries have duction. restructured their food chains in recent The aim of the study is to estimate de- decades, and have shifted from manufac- velopments and concentration in the gro- UVSFSBOEQSPEVDFSQPXFSUPSFUBJMQPXFS DFSZSFUBJMNBSLFUJOUIF#BMUJD4UBUFTBOE "OEFST )PMMJOHTXPSUI .VS- particularly Latvia, and its impact on dairy QIZ 8IJUFIBMM "TTPDJBUFT chain. 3FUBJMFSTBSFOPXJOBQPTJUJPOUPEJDUBUF The tasks PG UIF TUVEZ BSF UP SFWJFX UFSNT UP GPPE NBOVGBDUVSFST XIP UIFO trends and issues of retail globalization force changes back through the system to and concentration; to estimate the devel- the farm level. Perhaps 50-75 percent of PQNFOUBOEDPODFOUSBUJPOPG#BMUJD4UBUFT UIFUPUBMOFUQSPĕUGPSMBSHFSFUBJMFSTDPNFT grocery market and make comparison GSPNSFUBJMFSGFFTGSPNTMPUUJOHBMMPXBODFT CFUXFFO UIFN UP FWBMVBUF -BUWJBT GPPE display fees, presentation fees, “pay-to- retail development, concentration, struc- TUBZwGFFTBOEGBJMVSFGFFT )FOESJDLTPOFU ture and their trends; to estimate impact of BM (MPCBMMZ UIFSFJTHSPXJOHDPO- processes in grocery retail on food chain cern that the concentration of economic oFNQIBTJ[FPOEBJSZ QBSUJDVMBSMZPONJML QPXFSCZUIFJOEVTUSJFTBMPOHUIFMJOLCF- primary producers or farmers in Latvia. UXFFOQSJNBSZQSPEVDFSTBOEDPOTVNFSTo The principal materials used for the UIF USBEFST QSPDFTTPST BOE SFUBJMFST o JT TUVEJFTBSFBTGPMMPXTEJČFSFOUTPVSDFTPG BČFDUJOH UIF QSPĕUBCJMJUZ BOE MJWFMJIPPET literature, research papers and the reports PGQSJNBSZQSPEVDFSTBOEXPSLFST #VSDI of institutions, published and unpublished -BXSFODF EBUB GSPN $FOUSBM 4UBUJTUJDBM #VSFBV PG As processing and retail markets -BUWJB $4# BT XFMM BT UIF VOQVCMJTIFE THE IMPACT OF GLOBALIZATION ON FOOD RETAILING IN LATVIA 71 JOGPSNBUJPOGSPNSFUBJMĕSNTSFDFJWFECZ VOEFSUBLFOCZUSBOTOBUJPOBMSFUBJMFSTćF BVUIPST WJB QIPOF JOUFSWJFXT 6OGPSUV- DMBTTJD EJTUJODUJPO NBEF IFSF JT CFUXFFO nately, as the scope of the information on AHMPCBMBOEANVMUJOBUJPOBMTUSBUFHJFTBOEJU GPPESFUBJMJOHQSPWJEFECZPďDJBMTUBUJTUJDT FDIPFTEJTUJODUJPONBEFCFUXFFOABHHSFT- JTSBUIFSOBSSPX FWFOGPPESFUBJMUVSOPWFS TJWFMZJOEVTUSJBMBOEAJOUFMMJHFOUMZGFEFSBM is no longer calculated), the study com- TUSBUFHJFT BOE CFUXFFO HMPCBM ADBUFHPSZ piles information gathered from various LJMMFST BOE DPSQPSBUF QBSFOUT *O CPUI sources (private consultancies, market re- DBTFT UIFGPSNFSNPEFMJTBTTPDJBUFEXJUI TFBSDI DPNQBOJFT JOEVTUSZ FYQFSUT ćF format standardization, a centralized bu- estimations of several important indica- reaucracy, export of management ideas and tors vary depending on source. cultures from the core, and the pursuit of ćF TVJUBCMF RVBMJUBUJWF BOE RVBOUJUB- economies of scale in purchasing, market- tive research methods have been used for JOHBOEMPHJTUJDTćFSFBSF 5BCMF EJČFS- various solutions in the process of study: FOUGBDUPST XIJDIDPVMEJOĘVFODFJOUFSOB- analysis and synthesis; logical and abstrac- tionalization processes of retail, inter alia tive constructional; correlation-regression GPPEćFUPQUIJSUZDPNQBOJFTBDDPVOUGPS analysis; data grouping and comparing; around one third of global grocery sales, expert and etc. and in many countries including the UK, UIFUPQĕWFTVQFSNBSLFUTBDDPVOUGPS PSNPSFPGHSPDFSZTBMFT #VSDI -BXSFODF The development and *OUIJTDBTFUIFJNQBDUTPGJODSFBT- concentration of grocery retail ing concentration, particularly at the buyer markets in the Baltic States level, are perhaps most keenly felt by small QSPEVDFST BTUIJTJTXIFSFUIFEJTQBSJUZJO ćF JOUFSOBUJPOBMJ[BUJPO PG SFUBJMJOH JT B QPXFS JT HSFBUFTU 3FUBJMFST CVZFS QPXFS much understudied element of contempo- has been strengthened further as both the SBSZ HMPCBMJ[BUJPO QSPDFTTFT $PF IJHI GSFRVFODZ PG OFX QSPEVDU MBVODIFT $IBSBDUFSJ[JOH IPX JOUFSOBUJPOBMJ[BUJPO and the international procurement strat- has been undertaken is to consider that FHJFT CZ SFUBJMFST JOUFOTJĕFT DPNQFUJUJPO the degree of management centralization among suppliers for getting access to retail Table 1 Factors influencing retail internationalization ‘Push’ factors Facilitating factors ‘Pull’ factors Perceived/imminent saturation Use of surplus capital/access to Unexploited markets in domestic markets cheaper sources of capital Spreading of risk Entrepreneurial vision )JHIFSQSPĕUQPUFOUJBM $POTPMJEBUJPOPGCVZJOHQPXFS *OEVDFNFOUTGSPNTVQQMJFSTUP $POTVNFSNBSLFUTFHNFOUTOPUZFU FOUFSOFXNBSLFUT exploited Public policy constraints Removal of barriers to entry "DDFTTUPOFXNBOBHFNFOU Economic conditions *OGPSNBUJPOBOEDPNNVOJDBUJPO Reaction to manufacturer interna- technologies tionalisation Maturity of format 'PMMPXJOHFYJTUJOHDVTUPNFSTBCSPBE Source: adapted from Coe, 2004. 72 Ligita MELECE, Ingūna GULBE, Juris HĀZNERS Table 2 Estimated market shares by largest retailers in the Baltic States, %, 2008 Estonia Latvia Lithuania 3*.* 22 21 8 VP Market 6 23 44 *,*$PPQFSOJD -820 Aibe - 5 5 ETK 25 - - Selver 18 - - Prisma 6 - - &-7* -7- *FQJSLVNVHSVQB -4- /PSGB --12 Source: adapted from Strategic VANTAGE Consulting, 2009. TIFMGTQBDF $BQSJDF 7PO4DIMJQQFOCBDI BNCJUJPOT UP EFWFMPQ UIF #BMUJD GPPE SF- 2008). UBJMNBSLFUXJUIGPDVTPOEJTDPVOUTUPSFT Grocery or food retail markets in all *OJUJBMMZ QMBOOFE TUPSF PQFOJOHT XFSF #BMUJD 4UBUFT IBWF CFFO HSPXJOH VOUJM SF- CBDLFE CZ UIF BDRVJTJUJPO PG OVNFSPVT cently. Estimated market shares by largest TJUFTJOBMMUISFF#BMUJD4UBUFT-JEMIBEBMTP SFUBJMFSTJOUIF#BMUJD4UBUFTTIPXTPNFTJN- IJSFETPNFTUBČJOCPUI&TUPOJBJO-BUWJB JMBSJUJFTBOETPNFEJČFSFODFT 5BCMF )PXFWFS OPDPOTUSVDUJPOXBTBQQBSFOUMZ ćF BOOVBM SBUF PG NBSLFU FYQBOTJPO TUBSUFEBOZXIFSF*O-JEMBOOPVODFE JO-JUIVBOJBBUJTTPNFXIBUTMPXFS UIBU FOUSZ FČPSUT UP DFBTF EVF UP TFWFSBM UIBO JO -BUWJB BOE &TUPOJB
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