The effects of modern food retail development on consumers, producers, wholesalers and traditional retailers : The case of West Java

Abstract

In developing countries, retail development was never considered as a strategy to boost the economy until the Asian financial crisis happened in 1998, which made the countries could not rely on their exports anymore. Indonesia experienced a difficult economic period and it became worse due to the political crisis, which happened in the same time with the financial crisis. One of the economic recovery programs was retail liberalisation, which consequently opened the domestic market for foreign retailers. Meanwhile, rapid urbanisation and huge investments in real estate have made retail sector, particularly modern food retail in Indonesia to grow bigger, it challenged local retailers to develop. The development of super- and hypermarkets in Indonesia in the last decade indicated that retail sector development was used as a strategy to encourage the economy. However, the development brings controversies regarding its impact on traditional retailers, environment and local economy. This study has an objective to investigate whether the development of super- and hypermarkets as part of a strategy to boost the local economy benefits actors in the value chain, i.e. agricultural producers, local food processors and wholesalers. West Java was chosen as the case in this study considering that this province, is the centre of horticulture production, which experienced rapid development of modern food retail in the last decade. Since the ongoing debates on pros and cons of the impacts of super- and hypermarkets development, there were many research investigations the impacts of development on many contexts, but this study is distinctive by focussing on investigating the impacts of super- and hypermarkets development on the local economy, which is measured by producers, processors and wholesalers profit. Two studies on consumers and traditional retailers were carried out for this study. Quantitative analysis, using regression analysis to test the hypotheses on agricultural producers, local food processors, wholesalers and local economy. McNemar test, Chi-Square test, and Pearson Correlation test, was conducted to test the hypotheses on consumers and traditional retailers. Survey using questionnaires was the main tool of data collection, while interviews also performed to superand hypermarkets managers, producers, processors and wholesalers to gain more insights for the study. Using West Java as the case, super- and hypermarkets development have shifted consumers store preferences from traditional retailers to super- and hypermarkets due to product availability, quality, price and assortments. Furthermore, sales and number of buyer in traditional retailers decreased after the entry of super- and hypermarkets in their areas and traditional markets experienced the worst impact of modern retail development. Focussing on fresh goods category includes fruit, vegetables, local dairy products and processed meat, this study indicates that all producers, processors and wholesalers benefit from the development of super- and hypermarkets. Moreover, super- and hypermarkets development contributes to the local economy. This study has theoretical and practical contributions and recommendations to the field of retail development. Using value chain as the key concept, the study enriches the literatures on retail development, particularly the impacts of retail development on the local economy, which can be measured by analysing the contributions on producers, processors and wholesalers despite measuring the contributions on labour, productivity and tax revenues. In particular, this study introduces and presents a thorough analysis and information on retail development in developing countries, which have different environmental and cultural challenges. The practical contributions and recommendations of this study are presented for the modern retailers, traditional retailers, suppliers and government. Environmental issues is the main concern for consumers that need to be considered by modern retailers as the impacts of the development, while suppliers concern for the benefits due to the development of modern retail. Small suppliers have to upgrade their knowledge and skills in order to meet the requirements of modern retail procurement systems. Building a farmers' group is one of the proposed recommendations in this study to upgrade small suppliers. Realising that modern retail start not to use traditional wholesalers due to the inefficiency of traditional wholesalers' working systems, this type of wholesaler have to modernise their systems to achieve efficiency, which has an impact on the final prices of products, otherwise they can not compete with the specialised and dedicated wholesalers or large commercial farmers. The development of modern retail does not have an objective to eliminate the traditional retailers, but in fact, traditional retailers can not compete with modern retailers due to a lack of resources. As part of the local economy, traditional retailers have to take advantages from the development of modern retail. To compete with modern retailers, first of all, traditional retailers have to repositoning themselves by providing a clean and convenience store environment for their customers. Then, they have to offer an attractive product displays in their stores and provide a good quality products. Finally, the study contributes to the government, particularly local government by providing valuable information regarding the impacts of modern retail development on the local economy. Tax revenue and employment are not only the main benefits for the local economy due to the development of super- and hypermarkets in particular areas. The development of modern retail should also benefits consumers, suppliers and other retailers, furthermore it upgrades the standard ofliving. Government should be consistent with the implementation of regulations, therefore the development benefit all actors in the value chain of food retail sector.