Retailing is good for business - and society

Related tags Retailing Economics

Food retailers often find themselves accused of preying on other
players the food chain - exerting undue pressure on suppliers,
destroying local community jobs by opening new stores and impacting
the environment by opening them in out-of-town locations accessible
only by car. But a recent study suggests that the benefits offered
to both society and the economy by the food retail trade are
massively underestimated.

The study, published last week by CIES - The Food Business Forum, the Paris-based independent global food business network, was carried out by researchers from Templeton College at the University of Oxford in the UK, and showed that food retailing above all has a positive effect on economic growth.

"At a general economic level, retailing is a major contributor to growth,"​ the study's authors said. "In the US, the world's largest retail market, the sector as a whole accounts for 9.2 per cent of GDP and $3.5 trillion in sales. In the rapidly-growing Chinese economy, the retail sector has a current growth rate of 29 per cent, compared to GDP growth of 8.5 per cent."

The economic impact of retailing has been driven by innovation and operational efficiency, according to the study. Improvements to the supply chain and the roll out of different store formats, responding rapidly to the ever-shifting demands of their customers. For example, store operators have applied IT on a large scale to areas such as inventory management and marketing, resulting in major benefits: some 12 per cent of US productivity gains in the second half of the 1990s are estimated to be due to Wal-Mart alone.

But these gains are not simply being used to line the pockets of the retail groups. In the UK, for example, retailers as a whole passed on £17.6 billion in savings to consumers in 1999 as a result of efficiency gains - in turn, of course, driving up shopper numbers.

As for the impact on jobs (new store developments are often seen as destroying other jobs in the retail sector as traditional stores go out of business or are forced to cut costs to compete), the study points out that retailing is an inherently local and labour-intensive sector, and one of the biggest employers in the private sector.

"Food retailing provides a mix of job opportunities, from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs that meet the demand from population categories such as students, working parents and seniors,"​ CIES said. For example, 17.4 per cent of the US working population is in retailing, while retailing employs 10 per cent of the working population in the UK and 7 per cent in Germany.

Retailing also contributes to the reduction of unemployment in those population groups where it tends to be highest (e.g. young people, over-50s). According to Eurostat, only 9.9 per cent of retail employees in 1998 had a higher education degree, compared to an average of 19.8 per cent for the EU economy as a whole.

Nor are stores the only generators of new employment opportunities. "The sector also has an important 'multiplier effect' by generating jobs and growth along the supply chain,"​ CIES said, although it stressed that the impact of the retail sector on job creation outside the store environment had yet to properly measured.

But the retail trade also has a vital role to play when it comes to consumer protection and education - even if they are often accused of not doing enough in this regard. "Retailers' brands and ranges act as a guarantor for product quality and safety,"​ the study's author's claimed. "As an illustration of the importance of retailer brands, 61 per cent of Tesco's total assortment in the UK consists of own-brand products."

Food retailers have also introduced a range of initiatives in recent years, such as Corporate Social Responsibility (CSR) audits, certification for food safety and environmental assessment in transport and store design. "Retailers have also developed CSR internally by improving transport efficiency - thereby reducing congestion and fuel consumption - and by reducing their environmental impact."

Within companies, there have been many initiatives in human resources, the report notes, such as lifelong learning, profit sharing and parental leave. Swiss retail group Migros, for example, offers 16 weeks' paid maternity leave, well above the legal requirement. Externally, food retailers have engaged with different stakeholders concerning ethical, safety and quality standards. The EUREP group of European retailers has developed Good Agricultural Practices, while various individual retailers have established private schemes.

However, the Oxford University researchers pointed out that there is a basic lack of relevant and comprehensive data on the contribution of food retailing to society, with no single authoritative source of statistics either on the retail sector as a whole or on food retailing in particular. This, they explained, was partly because retailers' output is complex and difficult to measure but also - and perhaps more importantly - because this reflects a traditional lack of attention towards retailing as a key engine of the economy.

The researchers recommend that more work be done, both by the public authorities and the sector itself, to establish clear definitions and measures for evaluating the contribution of food retailing to society as a whole. This data will then have to be properly communicated by the retail sector "as part of a two-way dialogue with society at large"​.

Related topics Markets