"If you want to be successful locally, you have to source likewise." In response to accusations of disrupting local economies in emerging markets such as South-east Asia and the former Eastern bloc and the increasing demand from consumers in European countries for more assurance about their food, large retailers are increasingly sourcing local foods.
Elsevier Food International, Vol. 6, Number 1, February 2003
Vincent Hentzepeter

The globalisation of food and beverage retailing has resulted in a massive increase in the purchasing power of multinational retail companies. This has led to a marked reduction in the number of suppliers, particularly in Western countries. Retailers have been accused of disrupting local economies and thus wiping out the traditional crown jewels of the food supply chain. In the UK especially, this is becoming a hot topic. All over the UK, an increasing call for protest can be heard against the meagre availability of local products in supermarkets.

Flagging the county
British retailers have since picked up this message. The Institute of Grocery Distribution (IGD) surveyed the market for local food and concluded that multiple retailers are increasingly sourcing local foods. At the same time local products are indeed emerging onto the market driven by the growth in micro-businesses. The report explains the interest for local sourcing. One of the reasons being that consumers are seeking more assurance about their food. Thereby they often perceive greater transparency of production methods in foods that they consider local or traditional.
At Tesco the call for local food has, according to Ian Hutchins (international corporate affair manager), led to a strategy in which local sourcing has been taken to another level. "Within the region, we have over 7000 locally sourced products." However, Hutchin's words are a glaring contrast with the conclusions of a June 2002 report - a survey of local food in supermarkets in Nottingham published by Nottingham Friends of Earth. This concludes that Tesco, like other national retailers, is aware of the issue but nevertheless gives very marginal bias to local produce. According to the report, "Produced in the UK" is not the same as "local".

"From here" project
When it comes to action rather than words, German retailer Feneberg is doing a better job at local sourcing. The company, which exploits 82 supermarkets in Southern Germany, has been giving local sourcing top priority since last autumn. Under the private label flag brand "Von hier" (From here) organic products are sourced within a radius of 100 kilometres from the retailer's headquarters. Approximately 300 organic farmers and 15 producers form part of the "Von hier" -project that guarantees clients that beef, eggs, vegetables and fruit are of local origin. The market share of these regional products in the Feneberg-supermarkets lies at around 20 per cent.
In countries where large-scale distribution has traditionally been limited by natural barriers such as high mountain ranges, local sourcing is by definition part of "nature". Therefore Austrian supermarkets stock relatively more regional products. However, with the invasion of large German retailers in Austria, large-scale locally sourced products have shown a steady decline. In an attempt to be the truly Austrian supermarket, SPAR Austria is putting an extra effort into a strategy towards more local sourcing, states spokeswoman Manuela Sigl. This is not a recent approach, she says. It is part of a tradition that has become a winning strategy because Austrian consumers do favour native products. "Since the foundation of the company in 1954, we have always worked closely together with regional and local suppliers. So Austrian customers can find different products in SPAR-markets in Vienna than in Tyrol, for example. Regional products in the Austrian market are highly likely to be a success. "

The other side of the coin

Ahold's Spanish stores stock on locally sourced goods such as Pedro Diego's Salamanca ham

In emerging markets, such as South-east Asia and the
former Eastern bloc, the arrival of international retailers has not been without consequences for these relatively undeveloped and highly fragmented retail markets. Players like Carrefour, Tesco, Metro, Wal-Mart and Royal Ahold use their economies of scale for multinational retail operations in areas of sourcing stock, warehousing, distribution, etc. An entirely new phenomenon in these regions. The massive increase in purchasing power has enabled global food retailers to cut costs and raise profit margins for their A-brands. In this way supermarket chains can offer attractive one-stop-shopping places to local customers against competitive pricing. However, the flipside of the coin is that the global sourcing power of large retailers may have a dramatic impact on the local economy in emerging markets.

Shanghai trade boom
Local authorities have good reason to fear that global sourcing practices will in the long run displace local suppliers or reduce business for national food processors. In order to face this scrutiny and to be in the authority's good books, multinational retailers have dedicated themselves to demonstrate their willingness to invest in the local economy. A good example was a remark of Christophe Roussel, managing director of Carrefour Global Sourcing, at a December 2001 seminar in Shanghai. "We have come here with the aim of expanding business with local companies," he said when revealing that Shanghai would become a key supply centre in Asia for the retailer's multinational chain stores. He thereby stressed that "Carrefour buys more goods from China than anywhere else in the Asia-Pacific Rim. In fact, China accounts for 58 per cent of Carrefour's purchase volume." Roussel's words were at the time well received by the Shanghai Municipal Foreign Economic Relation and Trade Commission that expected a local trade boom from the new purchasing network.

Anger of local vendors
Last May in Thailand, Tesco encountered the opposition of local vendors. In a forbidding atmosphere, the purchasing staff of Tesco Lotus met about 2,000 local vendors to discuss potential business deals. Tesco Lotus had to make a gesture towards the local market, having been accused of wiping out local retailers - due to its size, capital and sophisticated technology - since its arrival in Thailand seven years ago. With an expected 50 per cent increase in total purchases from local vendors, the chain demonstrated its commitment to buy products from small and medium-sized local vendors, and reduce its reliance on large suppliers or big-brand products. With regard to Asia, Ian Hutchins comments that the company feels very strongly about "thinking" local in general. "We gear our business as much as possible to the local market. In Asia. for instance, 100 per cent of all our hypermarkets are managed locally." Hutchins is more specific about the retail activities in Eastern Europe. In his view, these clearly prove that Tesco takes local procurement seriously. "If you want to be successful locally, you have to source likewise. This is what we do worldwide. This means that we locally source between 60 and 90 per cent of all products that we stock. In Poland this percentage is 90, in Slovakia it is 60."
One example is the cooperation between Tesco and the Polish organisation called TERaz polska ( Poland Now), an initiative committed to develop Polish suppliers and producers. "In our stores we promote these products with a special badge that is part of a Polish quality assurance campaign. In Slovakia we are doing something similar with a campaign called 'Let's buy better Slovakia'."

Metro's local strategy
Buying from local sources is a strategy that the Metro Group pursues for all its Metro Cash & Carry stores worldwide. In Russia. where the Group has been active for two years, the two outlets in Moscow boast large fruit and vegetable sections, freshly baked bread, rich assortments of fresh

Product details and photo displays of farmers project a 'personalised' approach at Carrefour Tokyo

meat, delicatessen departments and fresh fish. Upon the opening on 1 November 2001. Hans-Joachim Korber, chairman of the Executive Board. expressed his hopes that the local sourcing policy in Russia would contribute to the retailer's success, just had it has done in other emerging markets. "The success of the Cash & Carry concept is also to some extent attributable to the fact that the merchandise offered precisely meets the wishes of local customers and that local manufacturers are integrated into the distribution system." In the Moscow markets 70 per cent of the goods on offer already come from within Russia. This percentage is likely to increase up to 80 or even 90 per cent in the next few years.
In Japan, where Metro opened its first Cash & Carry-store in December 2002, the retailer is to procure even more locally. About 90 per cent of its food range is supplied by Japanese companies. The same local sourcing percentage goes for Metro's wholesale store in Ho-Chi-Minh City, opened in March 2002.

Farm procurement
Supporting local economic development is the main reason why Royal Ahold actively promotes local sourcing. Its international presence enables local vendors to join a network of customers around the world, thus helping to turn local businesses into global businesses. Success stories like these help, according to Ahold, to create local jobs, while indirectly enhancing local economic development. Ahold spokesman Nick Gale yields some figures about the retailer's local sourcing activities in Asia. "Ahold has been active here since 1995, currently operating 40 stores in both Thailand and Malaysia and 20 in Indonesia. Our annual sales in these countries amount to £400 million. We work directly with local growers, trying to support local industry. About 90 per cent of our products we source locally as part of company policy."
Gale admits that local sourcing is important when dealing with local authorities as this speeds up permission for sites and locations. However, that is only part of the story. Gale: "In Thailand, for instance, we work closely together with the department of agriculture for certification reasons. This certifies that our products are of excellent quality and in line with both local and Ahold hygiene standards." The merits of local sourcing can be seen in projects in Thailand and Malaysia, where Ahold has set up programmes for direct farm procurement. Gale: "We implemented a grading system for fruit and vegetables, and a post-harvest handling improvement system. Just think of it is as a supply chain initiative. It is very popular indeed. Local people are very happy to co-produce with Ahold as it provides them with a good reference for their activities and gives them access to new markets."

No losers, only winners
It is often said that global retailers source locally in their start-up phase but discard this purchasing policy once the overseas business is running smoothly. This does not apply to Ahold, reacts Gale. "The percentage of locally-sourced products has been steady at between 85 and 90 per cent since we started in Asia. The rest is sourced globally. We have master agreements with A-brand suppliers, whose names I will not mention. These suppliers also have to adhere to our stringent quality and safety regulations."

Because of this strategy there are no losers, only winners. Gale mentions suppliers that gain access to more asset channels and retailers that are able to develop discounts for a number of products. Customers are also winners because they profit from the margin benefits that Ahold can offer. "That is precisely the situation. We source mainly locally and have enough volume to make programmes viable." However, which percentage of total sales global sourcing represents remains an Ahold-secret. With regard to the importance of fast moving consumer goods in Ahold stores, this figure is likely to exceed 10 per cent.