The large-scale retail trade, an acronym for large organized distribution, is a particularly important segment of the retail sector. The birth and diffusion of players in this sector has always been linked to a country’s economic well being, where it often serves as a symbol of a society capable of keeping its economy going. On the other hand, when the economic situation slows down and consumer confidence decreases for whatever reason, it is precisely the large organized distribution – and the entire retail sector – that shows the first signs of suffering, since consumption is usually significantly reduced in these cases.
We often talk about large-scale distribution as a single category, but in reality, this sector is made of operators with very different characteristics. But they all have one thing in common: in recent months, sales have grown, even though e-commerce is once again advancing.
The importance of large retail chains is also demonstrated by the fact that its arrival in Italy, “historically” has led to a radical change in the entire consumer goods distribution sector, putting the model based on proximity stores at a disadvantage. Among other things, the strength of this segment is not just limited to the economic aspect. The emergence of department stores, supermarkets, hypermarkets, and shopping centers has had both social and cultural repercussions. The perception hasn’t always been positive. For example, some see malls as generic, ordinary “non-places” that can destroy the fabric (and the society) of the city where they are located. At the same time, it is the dichotomy of ”commerce/large distribution” that marks and accompanies the advent of a “consumer society”.
Given the type of business that large retail chains proposes—fixed prices, advertising, a great variety of goods immediately available—shopping centers have allowed the birth of a context where shopping has led to the new citizen-consumer.
Large retail chains: one category, but many distinctions
Large-scale distribution is not a single category. Instead, within this category, there are many different players and business formulas. Let’s start with a definition.
Large scale retailing is where a variety of products are sold in the same physical space.
There are some common characteristics that large-scale retailers share:
- First of all, large areas: generally speaking, the retailers operate in spaces that could be up to 4,000 square meters.
- Secondly, the products are mostly inexpensive goods, destined to be sold in large quantities with a very fast warehouse cycle.
- Finally, these retailers are often part of a chain. Such chains involve various economic players (producers, suppliers, etc.) in which the final distributor is generally the last step before reaching the consumer who will buy the product. In this context, the retailers and suppliers, while having different characteristics, are united in their aim of satisfying the needs of the final customer.
Who is inside the large-scale retail trade?
If it is true that there is fundamentally a certain unity in the aims of the various operators included in the large-scale retail trade, this should not distract us from a fundamental point, namely that this is a broad, varied and composite category.
Large distribution signifies a retail structure that is centralized and with a single property that directly manages the various stores, which tend to be scattered throughout a territory with many structures of varying size. In this sense, an example is the Auchan group, a large retailer that operates using different brands (in this specific case Simply, Spaccio Alimentare, Primo Prezzo, etc.).
Conversely, organized distribution is more similar to a consortium model where several individual operators participate. Some examples of this category are Italian companies Crai, Conad, or Sigma.
What are the differences between the two categories?
Let’s look at how these organizations compare:
- In large-scale distribution, there is usually a parent company that manages the various branches spread throughout the territory in a direct way,
- On the contrary, organised distribution utilizes an aggregative model where smaller shops join together in purchasing groups to be able to offer products at a lower price and thus guarantee greater orders to suppliers, showing greater economic solidity.
In this way, some intermediate steps in the distribution chain, such as wholesalers, for example, can be eliminated and, consequently, purchase directly from manufacturers, obtaining better margins and offering more competitive prices to customers.
Another difference is in the size of the areas occupied:
- Large-scale distribution players tend to rely on particularly large spaces, often located outside of cities, where several operators in the sector operate simultaneously, often sharing spaces.
- On the contrary, organized distribution players are typically located within a city, often in its busiest areas.
One category, four types of shops
These are the main market formulas in which large retail chains is composed and although they may appear to be opposites and competitors they are in fact closely linked by mutually beneficial organizational and commercial relationships. Within this category, there are at least four types of retail outlets, which differ in several respects (including, size, breadth and depth of price positioning, display features, availability of parking, and more).
- Let’s start with the smaller type, the food retail store. This type most resembles the traditional neighborhood store: it is located in city areas, even central ones, and offers a fairly wide range of food products, although not a wide variety of options within each category.
- The second type is the supermarket, a retail point of sale generally of food products. It usually has a sales area of more than 400 square meters within which it sells mostly consumer products, often pre-packaged, but also some non-food items for domestic use.
- Larger than the supermarket is the hypermarket, a sales outlet with an area of more than 2,500 square meters, to which is usually added a parking lot reserved for customers. It has a much larger assortment of products, which includes both food and non-food items.
- Finally, the fourth type is the discount store. Such stores may occupy a sales area ranging from 200 to 1,000 square meters. There is not a large range of products, which in most cases excludes fresh or branded products, usually limited to a few high turnover brands or even replaced with products from the discount store itself. The strong point of this type of point of sale is undoubtedly the price, which is decidedly competitive thanks to the rapid rotation of product stock, the use of simple displays, and the provision of very limited customer service.
We must also add a fifth category, that of shopping malls, which are typically located in suburban areas and include a variety of types of retailers.
A further distinguishing criterion that can be applied to the sector of large retail chains is related to the type of products that are offered. Inside medium-to-large stores, often organized under a single brand, two categories of large distribution can be distinguished: the large organized distribution and the large specialized distribution (workinstore.it).
Specialized distribution focuses on a single merchandise category, such as electronics, household goods, or do-it-yourself tools.
In large organized distribution, the type of products offered for sale is varied, even if they tend to be food and fresh or in any case all those goods that have a very rapid warehouse cycle.
Large organized distribution in Italy
Now, let’s look at the trends around large retail chains in Italy.
Looking at the figures for last year, we can see that Italian large-scale retail trade is going through a fairly positive period. Compared to January 2019, sales have increased by 2.3%. This positive trend, on closer inspection, is part of a larger theme of constant growth over the previous four-year period (from 2013 to 2017). This is a period where aggregate sales grew, reaching a turnover of as much as €83 billion in 2017, the best result since 2014 (repubblica.it).
Forecasts at the beginning of the year also confirmed this expansive phase of the Italian large-scale retail sector, given above all by a slight recovery in consumption by Italian families who expected to spend more in 2020. For this reason, growth was assumed to be around 1.4%, an estimate that, however, did not take into account the performance of e-commerce, which recorded significant growth in 2019 (+26% of total online purchases compared to 2018, with a share of the total grocery close to 2.5%) and which, most likely, would reach +30%.
All of these forecasts have been disrupted by the health emergency of the previous months, which has had a huge impact on this and other sectors.
Large-retail chains in the days of COVID-19
The arrival of the coronavirus has led to an unexpected surge in the consumption of basic foodstuffs.
The queues outside supermarkets, the prospect of having to stay at home for an extended period of time, the uncertainty of the duration of the lockdown: all of this had a considerable effect on sales, which, at least in the first phase, surged upward (ansa.it). According to some surveys, North East Italy showed the highest increases (+7.4%), followed by the South (+5.2%), the North West (+3.5%), and finally, Central Italy (+1.8%).
But the most interesting statistics are two:
- The first is that, unexpectedly, this growth was driven by markets of limited size, which recorded +27%, followed by supermarkets (+12.9%), and discount stores (+7.9%). This is probably justified by the fact that in a period of high risk of contagion, people preferred to go shopping in small places, where the risk of crowds was lower.
- The second statistic concerns e-commerce and is perhaps the one that best describes the changes in this sector. In the period between the end of February and the first days of May, sales of consumer products through the network grew by +144.6%, reaching an incredible +304.6% in the peak phase.
One can hypothesise that such a result is due to the fact that people have preferred not to leave home at such a delicate time, but it is undeniable that this also reveals a trend that has been underway for some time now, namely that digital retail is becoming a relevant channel for buying even the most everyday food and consumer products.
At this point we can ask ourselves: will the pandemic be the driving force behind moving Italians to use e-commerce for food shopping?