Jean-Marie Codron/ Eric Giraud Heraud /Louis Georges Soler/ INRA France Montpellier/Paris

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CODRON
CODRON
CODRON
French Large-Scale Retailing and New Supply
Segmentation Strategies for Fresh Products (Meat
and FV)

• Jean-Marie Codron/ Eric Giraud Heraud /Louis
  Georges Soler/INRA France Montpellier/Paris
• Washington, February 14th

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Introduction

• Retailer brands (RB) are quite new in France, in
  the meat and fresh produce sectors
• food scares and environmental concerns have led
  retailers to create their own brands
• RB in fresh products aim at
• providing consumers with safety and quality
  guarantees
• creating value rather than increasing their
  bargaining power
• RB strategies differ
• Over countries
• Over categories of fresh products

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Plan

• I. Segmentation strategies more advanced in
  meat than in fresh produce
• II. Impact on supplier relationships towards
  more cooperation
• III. Segmentation and Standards retailers play
  a strategic role

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I a segmentation in the meat department
Price
Organic Labels of producers 120-140
 Chain  Private Labels 110-120
Food Safety Quality Environment
 Substitution  Private Labels lt105
Food Safety Quality
Standard
100
Food Safety
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I a segmentation in the meat department
Prices
Carrefour
FQC (Chain RB)
 Jean Rozé  (Substitution RB)
Intermarché
Standard
0
100
Shelfspace sharing
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I b . Segmentation in the FV department

• Substitution RB
• quite new, less of shelfspace than for meat
• price differenciation is almost absent
• false segmentation (only 1 SKU by type or
  variety)
• RB are launched thanks to the IPM movement
• Environmental quality is put to the fore front
• Food safety (pesticides residues) is implicit
• Organoleptic quality remains the main focus

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I.c comparing segmentation in the meat and FV
departments

• Similarities
• Due-diligence requirement (Food Safety Act in UK
  1991, hygiene law in EU 1993, NRE law in France
  2000)
• Key departments for consumers to choose a retail
  outlet

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I.c segmentation in the meat and FV departments
comparison

• differences

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II a . Impact on Vertical Coordinationin the
meat industry
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II b impact on vertical coordination in the
fresh produce industry

• although RB are mostly of the substitution type
• Classical contracting is not the only governance
  structure
• mix of partnerships and classical contracting
• Adverse selection is the main reason for
  partnership
• adverse selection is a major issue for retailers
  who try to build a reputation in their FV
  department
• Long term agreements are an efficient governance
  structure to solve this contractual hazard
• This is true with or without RB

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II b impact on vertical coordination in the
fresh produce industry

• RB must solve another contractual hazard
• compliance with the new specifications (GAP and
  IPM) is not easy to measure
• two alternative strategies to reduce TC (adverse
  selection moral hazard)
• classical contracting minimizing control costs
• partnership control learning which allow for
  better quality

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II c what can we infer from the two cases?

• Creating value rather than bargaining power
• no grower brand, high fragmentation at the grower
  level
• creating value to increase consumer loyalty
  rather than trying to extract higher surplus from
  the grower
• cooperation will be more likely when
• there is potential for quality improvement
• quality enhancement is a shared goal (a priority
  on both sides)
• organizational features are favorable both on the
  grower and the retailer side
• Thus cooperation is not a unique function of RB
• Cooperation also depends on standards

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III a Segmentation and standards

• Public standards are questioned or weakened by
• Food safety crises and consumer distrust
• globalization and the rise of private standards
• consumers new expectations
• retailers adapt to the evolving public standards
• by adjusting segmentation (meat)
• by creating or integrating alternative standards
  (fresh produce)

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III a Segmentation and standards in the meat
industry

• Classical configuration
• a single public minimum quality standard
• clearly perceived and trusted by consumers
• Upgrading the public standard
• Raises differentiation costs
• Leads retailers to segment more toward niche
  markets and less toward the back of the shelf
• Hence to pull away from their upstream partners
• Due to their economic weight and influence on
  consumers, retailers influence public standards

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III b segmentation and standards in the fresh
produce industry

• Complex configuration
• An international market where public and private
  standards coexist
• With little transparency for consumers
  (communication on MLR is forbidden)
• To bypass such a prohibition
• Retailers adopt IPM standards
• Among the many private standards, EUREP GAP is
  the more extensively adopted
• Two attitudes as regards to EUREP GAP
• Adopt the standard so as to minimize control
  costs and differenciate on the sole basis of
  organoleptic quality
• Keep away from Eurep so as to be able to
  differentiate at lower costs and not only on the
  basis of quality

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Conclusion

• Meat and fresh produce sectors have long been
  reluctant to branding
• Retailers own brands are now soaring
• Along different strategies substitution vs chain
  RB
• Leading to significant change in VC
• However, segmentation is still fragile and
  reversible
• Segmentation on food safety will depend on
  changes in the level of consumer distrust
• Segmentation on the basis of organoleptic
  dimensions is still costly, especially on picky
  consumers markets