CRNM - Assessment Of CARICOM Agri-Food Distribution Services

CARIBBEAN REGIONAL NEGOTIATING MACHINERY

AN ASSESSMENT OF THE AGRI-FOOD DISTRIBUTION
SERVICES INDUSTRY IN CARICOM

Final Draft

PREPARED BY:
Robert Best and Lawrence Placide
West Indian Projects Ltd
Trinidad and Tobago

November 2006

FUNDED BY:
Inter-American Development Bank/Multilateral Investment Fund

TABLE OF CONTENTS

ACKNOWLEDGEMENT ........................................................................................vi
ACRONYMS ….. ................................................................................................... vii
INDUSTRY TERMS ............................................................................................ viii
INTRODUTION AND METHODOLOGY ........................................................... xii
EXECUTIVE SUMMARY ....................................................................................xvi

1. AGRI-FOOD DISTRIBUTION SERVICES INDUSTRY - DEFINITION & ROLE

IN THE ECONOMY 1
Introduction...........................................................................................................................1
Agri-Food Distribution Services Industry ..........................................................................1
Food Retail Sub-sector ........................................................................................................4
Food Service Sub-sector ......................................................................................................5
Food Wholesale Sub-sector .................................................................................................6
Structure of Consumer Markets .........................................................................................7
Traditional Retail Market ....................................................................................................8
Modern Retail Markets ........................................................................................................8
Emerging Retail Markets .....................................................................................................9
Policy Definition for Food Distribution Services ............................................................11
Importance of the Food Distribution Services Industry ...............................................15
Conclusion ..........................................................................................................................19

2. INTERNATIONAL FOOD DISTRIBUTION SERVICES INDUSTRY TRENDS .....21
Introduction.........................................................................................................................21
Global Food Retail Markets...............................................................................................21
Global Food Retail Sector ..................................................................................................24
Global Food Retail Trends.................................................................................................30
Developed Country Food Retailer Trends......................................................................30
Developing Country Food Retailer Trends: Latin America ...........................................32
Developing Country Food Retailer Trends: Africa ........................................................34
Global Quick Service Restaurant Industry ......................................................................35
Leading Global QSR Chains...........................................................................................35
Fast Food Industry Sub-sectors ......................................................................................43
Mainstream Sub-sectors............................................................................................44
Caribbean Sub-sector ................................................................................................46
Global Quick Service Restaurant Industry Trends .........................................................49
Global Food Distribution Service Regulatory Environment…………………………..50
Developed Countries ………………...………………………………………………...50

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Developing Countries ……………………………………………………………...….51
Conclusion ...........................................................................................................................51

3. CARICOM FOOD DISTRIBUTION SERVICE INDUSTRY.......................................53
Introduction...........................................................................................................................53
Contribution of Food Distribution Service Industry to the CARICOM Economy ......53
Trade and Production .....................................................................................................56
Household Budgetary Data.............................................................................................58
Field Interviews with Industry Leaders and Specialist...................................................58
CARICOM Food Distribution Services Industry Size ....................................................58
Key Trends Driving Food Retail Market Changes..........................................................60
Per Capita Income ..........................................................................................................60
Population.......................................................................................................................61
Demographics .................................................................................................................61
Conclusion ...........................................................................................................................64

4. CARICOM FOOD RETAIL SUB-SECTOR ...................................................................66
Introduction.........................................................................................................................66
Food Retail Service Sector .................................................................................................66
More Traditional Food Retail Sectors............................................................................68
More Modern Food Retail Sector ...................................................................................72
Emerging Food Retail Sectors ........................................................................................80
Key CARICOM Food Retailers.........................................................................................84
CARICOM Food Retail Industry Competitiveness Trends............................................88
CARICOM Restrictions on Trade ....................................................................................98
Conclusion ...........................................................................................................................99

5. CARICOM FOOD SERVICES SECTOR......................................................................101
Introduction.......................................................................................................................101
Food Service/Quick Service Restaurant Sector .............................................................101
CARICOM QRS Sub-sectors...........................................................................................105
Key CARICOM QRS Involved in Services Trade.........................................................112
CARICOM QSR Industry & Competitiveness Trends.................................................118
CARICOM Restrictions on Trade ..................................................................................127
Conclusion .........................................................................................................................128

6. CARICOM FOOD WHOLESALE SECTOR ...............................................................130
Introduction.......................................................................................................................130
Food Import/Wholesale Sector …………………………………………………….......130
CARICOM QSR Industry & Competitiveness Trends.................................................133
CARICOM Restrictions on Trade ..................................................................................140
Conclusion .........................................................................................................................140

7. FOOD DISTRIBUTION SERVICES INDUSTRY DEVELOPMENT STRATEGY
Introduction.......................................................................................................................142
Business Activity ………………...………………………………………………...….142

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Case for Food Distribution Industry Policy ...................................................................143
Constraints.........................................................................................................................145

Improving Industry Competitiveness .............................................................................146
Industry Organization and Associations and Participation .........................................152
Future Work......................................................................................................................153
Conclusion .........................................................................................................................155

8. RECOMMENDATIONS FOR CARICOM PARTICIPATION IN SERVICES
TRADE NEGOTIATIONS ...……………………….. ......................................................157
Introduction.......................................................................................................................157
Global Trade Restrictions ................................................................................................157
CARICOM Participation in International Trade Negotiations ...................................159
Sensitivity of the Sector ....................................................................................................159
Considerations in Making Commitments on Food Distribution Services ...................161
Possible Offensive Interests of CARICOM ....................................................................163
World Trade Organization............................................................................................164
Dominican Republic......................................................................................................165
Central America............................................................................................................168
Canada and the USA.....................................................................................................170
European Union............................................................................................................170
Possible Defensive Interests of CARICOM ....................................................................171
Recommendations For WTO ...........................................................................................172
Recommendations For Regional Negotiations ...............................................................175
The Dominican Republic...............................................................................................175
European Union (EU)...................................................................................................176
Canada and the United States.......................................................................................178
Future Work......................................................................................................................178
Conclusion .........................................................................................................................178

BIBLIOGRAPHY ..............................................................................................................A2
APPENDICES
1. TERMS OF REFERENCE ........................................................................................A7
INTERVIEW CHECK LIST ....................................................................................A12
LIST OF PERSONS CONSULTED – INDUSTRY................................................A17
LIST OF PERSONS CONSULTED – PUBLIC SECTOR ....................................A20
LIST OF WEBSITES REVIEWED .........................................................................A22
2. CARICOM AGRI-FOOD CONSUMER STATISTICS ........................................A27
3. CARICOM AGRI-FOOD PRODUCTS TRADE STATISTICS...........................A32
4. CARICOM FOOD DISTRIBUTION SERVICES INDUSTRY MEMBERS......A38

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ACKNOWLEDGEMENT
The authors greatly acknowledge the opportunity provided by the Caribbean Regional
Negotiating Machinery and the Inter-American Development Bank - Multilateral Investment
Fund to conduct this study. We thank the many CARICOM food distribution services industry
members and public sector officials for the invaluable time spent in consultations providing
information on the industry and government policy for the sector.

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ACRONYMS
BAH Bahamas HS Harmonized System (Harmonized
BAHA Belize Agricultural Health Authority Commodity and Coding System)
BDS Barbados IDB Inter American Development Bank
BEL Belize JAM Jamaica
CACM Central American Common Market MALMR Ministry of Agriculture Land and
CAFTA Central American Free Trade Area Marine Resources
CAHSA Caribbean Health and Food Safety MERCOSUR Mercado Comun del Sur (Southern
Agency Common Market)
CARICOM Caribbean Community NAFTA Northern American Free Trade
Area
CARIFORUM Caribbean Forum includes
CARICOM and the DR NTBs Non-Tariff Barriers (WTO)
CDB Caribbean Development Bank NTC Non-Tariff Concerns
CET Common External Tariff OECS Organization of Eastern Caribbean
States
COTED Council for Trade and Economic
Development OIE International Organization of
Epizootics
CRNM Caribbean Regional Negotiating
Machinery QR Quantitative Restrictions
CSM&E CARICOM Single Market and QSR Quick Service Restaurant
Economy S&D Special and Differential Treatment
CSO Central Statistical Office of the WTO
DOM Dominica SITC Standard International Trade
ECU European Currency Classification
ERS Economic Research Service of the US SKN St Kitts and Nevis
Department of Agriculture SKU Stock Keeping Unit
EU European Union SLU St Lucia
FAO Food and Agriculture Organization SP Special Products
FAS Foreign Agricultural Service of the SPS Sanitary and Phyto Sanitary
USDA Agreement (WTO/FTAA)
FDA Food and Drug Administration of the SSG Special Safeguard Provision
USA SSM Special Safeguard Mechanism
FSIS Food Safety Inspection Service of the SUR Suriname
US Department of Agriculture SVG St Vincent and the Grenadines
FSR Full Service Restaurant
TBT Technical Barriers to Trade
FTAA Free Trade of the Americas Agreement of the WTO
GATT General Agreement on Tariffs and
Trade T&T Trinidad and Tobago
GDA Grenada TRQ Tariff Rate Quota
GDP Gross Domestic Product UR/URA Uruguay Round Agreement
GMO Genetically Modified Organisms USA United States of America
GORTT Government of the Republic of USDA United States Department of
Trinidad and Tobago Agriculture
GUY Guyana
UWI University of the West Indies
HACCP Hazard Analysis and Critical Control
Point WTO World Trade Organization
HMR Home Meal Replacement

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INDUSTRY TERMS
A. Agro Food Industry Terms
Product Category - A group of products of similar nature or fulfilling a similar consumer need
e.g. fresh produce or soft drinks.
Category Management – A distributor/supplier process of managing categories as strategic
business units, producing enhanced business results by focusing on delivering consumer value.
Grocery - A food store selling over 30 percent food for which food is a important part of the
store business strategy.
Independent Food Retailer/Restaurant – Stores which are stand-alone and do not belong to a
chain.
Like For Like Growth/Same Store Growth – Annual sales growth through stores that have
been open for one year. A measure of performance of a fixed body of stores which is not
formally standardized and has no official definition.
Market – A division of retailing, devoted primarily to the sale of a singular range of goods i.e.,
grocery, clothing, electronics, pharmacy.
Multiple – For the purpose of this study, a food retailer or restaurant operator with more than
two supermarkets.
Premium Pricing – A proposition characterised by offering value by pursuing the highest
possible quality across all elements of the store rather than the lowest possible process; it
includes elements such as product innovation, customer service, improved food ranges, and high-
income products – health/organic. Low levels of promotional activity, high specification interior,
and close to affluent neighbourhoods.
Product – A subdivision of a category an individual item or SKU.
Stock Keeping Unit (SKU) – A product on the inventory of a food retailer, including similar
products different sizes or types of packaging.
Sector – A subdivision of a market devoted primarily to the sale of a similar store format e.g.
convenience, discounting, and supermarkets.
Supply chain – A product specific subset of the agro food system which is a systems in which a
produce moves from: (i) farmer and first stage processors who sort, grade, pack and do the initial
processing (upstream in the chain); (ii) to the distributor including assemblers and wholesalers to
the downstream segments: (iii) the second stage processor or food manufacturer (unless the
product is a fresh product) to the retailer (such as a supermarket or food service operation) and
then (iv) the consumer.

Assessment of the Agri-food Distribution Services Industry in CARICOM

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B. Traditional Caribbean Food Retail Formats
Conventional Supermarket – The original self service supermarket format, normally between
10,000 and 15,000 SF in sales area but can range from 6,000–40,000 SF, carrying 8,000–18,000
stock keeping units (SKUs), with 5–20 check outs in some CARICOM states. These stores offer
a full line of groceries, meat, and produce and often offer services such as a deli, bakery and food
service. More recently lotto, money transfer and banking services can also be found.
Conventional stores will average 60 percent of sales from grocery items, 12.5 percent from the
sale of meats, 10 percent from GM/HBC, 7.5 percent from frozen food, 5 percent from produce,
5 percent from bakery products, deli services and other services.

Food Stores – The self-service small corner grocery store, normally between 3,000–7,500 SF
carrying 3,000–8,000 SKUs with 2–5 check outs that carries a limited selection of staples,
budget brands, convenience items, and a few lines of frozen meat and non-food items. These
stores are strictly speaking a supermarket and are also called groceries in some countries.

Counter Shops – These stores normally between 750–2,000 SF with no cash register offering a
limited assortment of basic staples, often repacked in the store from bulk packaging, very little
refrigeration and little or no fresh product. Goods are sold over-the-counter to the public and
family members operate the store. They are also called neighbourhood shops, corner shops, and
even sometimes groceries.

Mom & Pop Store – Normally 250–750 SF shop located in a room in a home or attached to a
home and operated by family members providing convenience foods and non food items, snacks,
beverages and cigarettes to the immediate neighbourhood. Operates extended hours.

Superstore – A larger version of the conventional supermarket with at least 25,000–40,000
square feet in store area and 20,000–25,000 items. Superstores offer a full food range,
supplementary services and an expanded selection of non-foods (at least 10 percent GM/HBC)

Convenience Store (with gas) – A small, higher-margin store that offers an edited selection of
staple groceries, non-foods, convenience food items and impulse lines, i.e., ready-to-heat and
ready-to-eat foods. The convenience store with gas format includes only convenience stores that
sell gasoline, e.g., Texaco Star Mart, Tiger Mart, and NPs Quick Shoppe

Convenience Store (without gas) – Small, higher-margin convenience stores that do not sell gas
and offer an edited selection of staple groceries, non-foods, and other convenience food items,
i.e., ready-to-heat and ready-to-eat foods. Stores such as 7-Eleven without gasoline pumps are
included. They are less than 3,000 SF and open for long hours selling the products.

Specialty Food Retailers - Traditionally food has been purchased from the following specialty
food retailers, whose importance in the retail market depends on the stage of development: -

Traditional Fresh/Wet Market – A collection of small retailers or a mix of wholesalers
and retailers selling perishables such as fruit, vegetables, roots/starches, condiments, meat
and fish

Fresh Produce Shop – A shop which specializes in fruit and vegetables


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Butcher/Meat Shop – A vendor or shop specializing in meat. Also called pluck shops or
pluck & gut shops.

Fishmonger/Fish Shop – A vendor or shop that sells seafood.

Dairy Parlor – A shop that sells milk and or dairy products including ice cream.

Bakery – A shop that sells bread and pastry products including ice cream.

C. Non-Traditional Food Retail Formats
Wholesale Club – A membership retail/wholesale hybrid with a varied selection and limited
variety of products presented in a warehouse-type environment. These 50,000–120,000 square-
foot stores have 60–70 percent GM/HBC and a grocery line dedicated to large sizes and bulk
sales. Memberships include both business accounts and consumer groups, e.g., Sam’s Club,
Costco, and BJ’s.

Super Centres – A large food/drug combination store and mass merchandiser under a single
roof. The super centres offer a wide variety of food, as well as non-food merchandise. These
stores average more than 170,000 square feet and typically devote as much as 40 percent of the
space to grocery items, e.g., Wal-Mart, Kmart, and Super Target.

Super Warehouse – A high-volume, hybrid format of a superstore and a warehouse store. Super
warehouse stores typically offer a full range of service departments, quality perishables, and
reduced prices.

Super Warehouse/Hypermarket – These are destination stores with a high-volume, hybrid
format of a superstore and warehouse store. Super warehouses typically offer a full range of food
with quality perishables and with a full range of service departments and non food items at
reduced prices. May range in size from 40,000–100,000+ SF.

Limited-Assortment Store – A “bare-bones,” low-priced grocery store that provides very
limited services and carries fewer than 2,000 items with limited–if any–perishables, e.g., Aldi
and Sav-A-Lot.

D. Food Service Formats
Full-Service Restaurants – Feature waiting staff, more varied menus, and perhaps other
amenities such as ceramic dishware, non-disposable utensils, and alcohol service. These may be
associated with a hotel or be stand-alone/independent restaurants.

Quick Service Restaurants – Feature convenience as the main selling point. They have no wait
staff, menus tend to be limited, and dining amenities are sparse. Important dimensions of
convenience include speedy delivery of food for consumption in store at establishments located
close to the consumer, or on the go via take away or drive through facilities, or delivery to the
consumer’s home/office.


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Caterers – Prepare food in one location for serving in a separate location. These operations
prepare and serve meals and snacks as an adjunct, supportive service in institutional and
educational settings, such as schools, nursing homes, child daycare centers, and hospitals

Cafeterias – Smaller food stores that prepare, serve, and sell food to the general public for a
profit.

Street Food Vendors – Small itinerant operators, often individuals who prepare and serve food
from temporary locations in the street.


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INTRODUCTION AND METHODOLOGY
The Caribbean Community (CARICOM) is involved in negotiations on trade in services with a
number of negotiating partners. The most important ongoing negotiation seeks to develop a new
reciprocal arrangement with the European Union (EU). Linked intricately to this is the
completion of the Free Trade Area with the Dominican Republic through inclusion of
commitments on access for trade in services and investment. On the horizon are possible
negotiations between CARICOM and the United States and Canada. Furthermore, the moribund
World Trade Organization (WTO) negotiations also must be kept in view given the possibility,
however unlikely, of resuscitation. Distribution services are likely to be a key part of all these
negotiations. At the same time, information on the distribution services sector in the Caribbean is
limited, and this constrains effective CARICOM participation.

The agri-food distribution services sector is particularly important to CARICOM. The Food
Distribution Service industry in CARICOM has over 17,000 firms, employing 112,000 people
and generating sales of US$ 5.6 billion per annum. It plays an important role in delivery of food
consumer choice and prices. It is one of the largest components of the services sector, is vital for
national development and has important linkages with other key export sectors such as
agricultural production, food manufacturing, and tourism. Furthermore, it holds the possibility
for generating trade in services and goods and producing new foreign exchange revenues for
Caribbean economies.

As a result, the Caribbean Regional Negotiating Machinery (CRNM) commissioned this
Assessment of the Agri-food Distribution Services Industry in CARICOM with funding from
the Inter-American Development Bank. The aim of the project is to obtain information on this
industry, to register the views of industry members and government officials on the opportunities
and challenges of trade in agri-food distribution services, and to analyze issues relevant to the
region’s international trade negotiations.

In pursuing this aim, the study seeks first to define the industry and understand the global food
distribution sector for the purpose of establishing industry benchmarks and identifying trends and
competitiveness improvement strategies. This information facilitates, by way of comparison, the
understanding of the sector in CARICOM. Some assessment is made of the economic value of
the sector to the region as well as other indicators of performance as a precursor to assessing the
extent to which the sector is adopting appropriate international competitiveness strategies.

Factors constraining competitiveness of the sector are also considered as is the extent to which
exporting of services have become a viable business strategy for firms in the sector together with
the extent to which export capabilities vary from sub-sector to sub-sector. The linkages between
the distribution sector and other sectors of the economy are also discussed as are the challenges
and opportunities presented by the CSME to service providers.

The review is intended to lead to recommendations for improving the competitiveness of the
regional food distribution sector, domestic policy action in support of the sector, and strategies
for negotiations in trade in services. The existing export activity is assessed, as is the likely
impact of ongoing international services negotiations. Recommendations are put forward for


12

CARICOM participation in those negotiations with particular reference to distribution services in
terms of offensive and defensive interests. The full terms of reference can be found in Appendix
1-A.

The main challenge presented by this study was obtaining industry data, understanding the
experiences and interests in trade in services of the industry members, and understanding of the
regulatory framework for the sector in CARICOM. The data challenge begins with the official
statistical resources in the region and this has proved to be a constraint on the outcome, but also
extends to the private sector, which has been largely very cautious to reveal information which
can impact on competitive activity in the small markets in which they operate. As a result, the
researchers have had to make estimates to provide some perspective on the relative sizes of the
firms in the sector. As far as the regulatory framework is concerned, the project’s concentration
has been on identifying measures that could be considered to be restrictions on trade rather than
non-discriminatory measures such as, for example, those relating to building approvals, zoning,
planning restrictions, hours of operation, weights and measures and laws to protect the health and
welfare of the citizens of the Caribbean Community.

The methodology used has been to combine desk research with field research based on
interviews with private sector executives and government officials. The interview check lists
utilized by the consultants during the interviews are presented at Appendix 1-B. Official data
sources have been used where available, but data on the number of establishments, employment
and sales in the sector are derived largely from the experience and judgment of a limited
selection of key industry members about the markets in which they operate. This approach
recognizes the shortcomings of government databases in the region, and of the limitations of a
process which interviews a small number of key industry leaders, yet seeks, within the limits of
available resources, to develop a picture of the industry where none existed before.

The number of establishments, employment and sales within the region are estimates derived
using the following process: -

• The number of stores in each distribution channel for food retail and for each sub-sector in
the quick service restaurant sector were estimated based on interviews with industry players.
Key firms were identified.
• Several leading food retailers and quick service restaurants were asked to estimate: (a) the
market share of their distribution channel or QSR sub-category; (b) the market share of other
distribution channels or QSR sub-categories; (c) their own market share; and (d) the market
shares of other key industry members/ channels or sub-sectors of their market.
• Wholesalers, where possible, were asked to provide their interpretation of the same
information and this information was, as far as possible, cross-referenced against national
statistics available.
• Leading QSRs were asked to confirm that average annual sales figures reported by a leading
industry trade journal (QSR Magazine - Table 2:12) on the Annual Unit Value (AUV) per
QSR store for the United States could be used as reasonable and conservative approximations
of the turnover of the international brands within the region. If necessary, these were


13

modified based on more specific industry feedback. Estimates were made for the AUVs of
indigenous QSRs on the basis of consultations with leading industry members and the
researchers estimates, and not necessarily with the firms themselves.
• Where possible, verification was sought for the estimates from key industry members and the
draft report was circulated to over 30 industry leaders in at least 10 states for feedback.

Responses from the food wholesale sub-sector were less comprehensive than for the other sub-
sectors. As a result, no attempt has been made to quantify firms, employees, or sales in this sub-
sector. Nonetheless, a list of key industry members by country is provided in Appendix 5.

The resulting profile of the food distribution services sector in CARICOM does not include all
aspects of the sector. Areas of the sector not addressed in detail by the study include smaller
retail formats, cafes, and bars, specialty food vendors, markets, full service restaurants, street
vendors, caterers, domestic wholesalers, commission agents, and providers of logistic and
maritime services. Addressing all of these areas would have warranted a much more detailed and
lengthy study. Rather the focus has been on the segments of the sector which are currently or
most likely to conduct trade, i.e., the supermarket, QSR and importer-distributor sub-sectors.

Time and efficiency constraints meant that very few smaller industry members were interviewed.
In addition, the consultants were not able to visit Saint Kitts and Nevis, Dominica, Montserrat, or
Haiti. However, in some cases, desk research provided limited information on these markets, and
discussions were held with their Government officials, largely at regional meetings addressing
trade issues. Where possible, information from other sources was used to provide some profile of
the industry in these states.

In addition, while there seems to be a clear understanding by private and public sector members
interviewed of trade policy for the “trade in goods”, most of the persons interviewed including
some of the officials interviewed seemed to quickly extend the discussion of the “trade in agri-
food distribution services” into the “trade in agri-food goods”. While these two issues are closely
linked, the separation of the two was a real continuous challenge for the researchers in this
project, who were focusing on creating new perspectives on the agri-food services industry.

Moreover, it is noted that other researchers are completing complementary studies, which focus
on issues relating to agri-food goods. These include work by Vassel Stewart1 who has studied the
CARICOM agri-food transportation system and Andrew Jacque2 who has examined agri-food
imports into the region in depth as a basis for identifying investment opportunities the latter
including a strong focus on the analysis of imports to the region.

This study has focused on food distribution services while others have focused on agri-food
product distribution. Nevertheless, the consultants note that this is the first time the agri-food
services sector has been subjected to a study of this type. Significant new information is

1
Stewart, Vassell and Forgenie, Mark, The Concerns of Shippers and Other Issues that Impact on the Trade and
Transportation of Agricultural and Other Products Within the CARICOM Community and Beyond, CARICOM
Secretariat, Guyana, Pending
2
Jacque, Andrew, Preliminary Study to Identify Potential Investment Opportunities for the CARICDOM Domestic
Agriculture and Food Industries, IICA, Trinidad and Tobago, July 2006


14

presented that we are hopeful will contribute to understanding the services dimension of the
sector, and more importantly, impact positively on CARICOM involvement in international trade
negotiations in services and to a lesser extent in trade negotiations for agricultural goods.


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EXECUTIVE SUMMARY

Role of the Food Distribution Industry
The liberalization of distribution services is a key demand of major trading entities such as the
United States and Europe in services trade negotiations. This study focuses on the agri-food
distribution sub-sector. The agri-food distribution service sector is responsible for moving agri-
food products along the supply chain through to the consumer. The agri-food industry comprises
a number of interconnected and interdependent actors (farmers, processors, manufacturers,
wholesalers, retailers, food service operators, and consumers).

The benefits of an efficient system of distribution are well known and largely accepted. Goods
are brought more effectively to the consumer. Producers of processed products receive high
quality inputs in good time and in acceptable condition allowing them to add value and deliver a
range of products to customers. Consumers are offered greater variety and more competitive
prices and their health and safety is safeguarded. A key positive effect is the stimulation of
small- and medium-sized enterprise development, the strengthening of supply chains, and export
and local product development.

It is generally accepted that distribution systems in developing economies tend to be plagued by
inefficiency, less choice and higher costs to users, supply chain bottlenecks, and often anti-
competitive behaviour by a few large operators. Liberalization is promoted by the major trading
entities as a means of bringing about much-needed efficiency gains. At the same time, there are
concerns that SME food distribution firms and agri-food supply chains may be adversely
impacted by liberalisation. Development-related challenges discussed in international forums
have relevance to the Caribbean and may be exacerbated by the small size of CARICOM
economies and business operations. A structured policy response, including appropriate
incentives, regulatory development, and careful international negotiations becomes even more
relevant and relates as much to improving competitive environments domestically as to
promoting export interests where they exist. The overall goal must be to increase the contribution
made by agri-food distribution services to national and regional competitiveness. This, in turn,
will increase national efficiencies and improve the operations and results of many related sectors
such as agri-processing, manufacturing, and tourism.

Global Industry Makes Strategic Advances
In 2003 the global food market was estimated to be US$3,496 billion, which represented 42
percent of the global retail market. North America, Western Europe and Asia Pacific accounted
for 75 percent of the food retail spent. Analysts predict an annual average growth of the food
market of 5 percent between 2003 and 2020 driven by global population growth and growth in
Gross Domestic Product (GDP) per capita. The fastest growth will be in the Middle East, Africa,
and Central Asia.


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A number of global food retailing trends have been identified. These include:
• Price-oriented retail strategies – Discounters have gained market share in Europe and
the United States. Traditional operations have responded by moving into lower cost
items, introducing their own label ranges, entering into purchasing alliances, and
rationalizing ranges to decrease overheads.
• Differentiation – Both smaller and mainstream retailers are using strategies to
differentiate their offerings on the basis of quality, service or price
• Non-food items – Increasingly, supermarkets are offering non-food items to compensate
for lower growth in food sales. Grocers leverage non-food sales to improve their food
offers or lower their food positions to encourage increased sales on non-food items.
• Services sales – In mature markets, especially, food retailers are offering a wider range
of non-food services such as financial services, petrol sales and vacation packages.
• Consolidation – Growing consolidation of the retail market is evident in both developed
and developing markets and this has implications for competition.
• Supply-chain improvements – Efficient supply chains are key factors in profitability
and enhance shareholder value. Global suppliers and retailers are cooperating more
closely facilitated by improvements in information technology.
• Rise of supermarkets in developing countries – In developing countries, supermarkets
are becoming the dominant means of food retailing, displacing small shops and
transforming traditional supply chains.

A number of global quick service restaurant trends have been identified. These include:
• Menus - Consumers are becoming increasingly health conscious, sophisticated, aware of
international cuisine, and the flavourful ingredients that go into their preparation. This
has led QSRs to include more fresh, healthy items with international flavours to their
menus. The bird flu virus is causing QSRs to review their multi brand concepts and
menus to include stronger alternatives to chicken such as fish.
• Service - The modern consumer is demanding more convenience. The QSRs are also
facing increased competition from quick-casual chains, many of which offer easy dine-in
or take-out options. These trends will lead to continued growth in takeout, drive through,
and delivery services.
• Multi-branding strategies - The leading industry firms will develop and expand their
multi-brand portfolios of QSRs and invest more in multi brand locations that will provide
opportunities to offer consumers greater choice, increase customer traffic through outlets,
and reduce overheads.
• Internationalization - Higher growth rates being experienced in many international
markets which lead major international brands to develop strategies to speed up
penetration of these faster growing markets, and encourage minor brands to initiate


17

export strategies. This will be supported by liberalization of economies for goods and
services supporting the international brands.
• Franchising - This will continue to be a more important strategy to drive store growth in
fast growing sub-segments, in smaller or higher risk international markets
• Technology - Online ordering is expected to increase significantly over the medium term
and information technology will be increasingly important in driving sales, productivity
and profitability in international QSR operators.

Agri-Food Market Structure and Trends
It is difficult to arrive at a definitive account of the size of the food distribution services market
in CARICOM due to the unavailability of accurate official statistics in some cases and the lack
of a uniform reporting structure across the region. Some areas of the sector are included in the
statistics on hotel and restaurant services in some countries, while in others, figures for the
wholesale and retail trade include non-food items. Crude estimates using opinions of food
distribution services leaders across the region place the value of food retail and QSR sales to
consumers in the region of US$5.6 billion generated from over 17,000 stores employing over
112,000 people. Consumer purchases of fast food were about 20 percent of the total value of
food retail. The value of the food wholesale goods purchased by the resellers to generate these
sales is estimated to be approximately US$3.9 billion. Unquestionably, the sector is a very
important contributor to economic activity, employment and enterprise development in the
region.

Agri-food trade and production data are also not sufficiently disaggregated to arrive at the value
of all food purchased at the consumer level. Several challenges in assimilating the data were
encountered. Trade data includes input and intermediate and consumer ready products. Import
information is recorded at the freight on board (FOB) level. Secondary food manufacturing data
tend to be aggregated in national statistics on light manufacturing. National agricultural data are
recorded at the GDP level and often not at the sales level. Export data is recorded at the cost
includes freight (CIF) level. Nonetheless, the Caribbean is a major net food-importing region
with annual deficits in food trade in the region of approximately US$1 billion. Agriculture
contributes US$1.3 billion to GDP in the region.

Demand for food in the region is affected by structural adjustment programmes, ongoing market
liberalization, and the following key consumer trends :
• Population growth – CARICOM’s population grew by 27.3 percent between 1985 and
2002 and is projected to grow by an average of 7 percent between 2005 and 2015.
• Per capita income – Per capita incomes in the region have increased steadily increasing
purchasing power and making the region more attractive to food retailers.
• Working women – Statistics show that more women in the region are working away
from home, increasing household incomes and driving the demand for convenience
foods.


18

• Urbanization – Almost all CARICOM countries are experiencing increased urbanization
which favours the development of modern retailing practices.
• Household appliance ownership – Increasing ownership of refrigerators and
microwaves have prompted an increasing demand for convenience foods and snacks that
can be refrigerated or frozen.
• TV and cable ownership – Increasing awareness of international lifestyle and brands
though penetration by international media and travel is changing lifestyles, tastes and
purchasing patterns.
• Passenger car ownership - Increasing ownerships of passenger cars have allowed more
consumers to make larger and fewer shopping trips and to select the best deals from
different retailers.

An important trend emerging globally is the increased consumer spending on food to be
consumed away from home, associated with increasing incomes and lifestyle changes. The
CARICOM environment also shows signs of this phenomenon, at different levels based on the
extent of development of the agri-food markets in each country.

Food retail markets in the region can be roughly categorized as traditional, emerging, and
modern based on per capita GDP and other geo-demographic trends. Traditional markets in the
region are Guyana, Suriname, Belize, St Vincent and the Grenadines, and Haiti. Modern food
markets exist in the Bahamas, Barbados, Trinidad and Tobago, Antigua and Barbuda, and St
Kitts and Nevis. Other CARICOM countries have exhibited elements of traditional and modern
retail markets and may be categorized as being transitional food retail markets.

Supermarkets are becoming the dominant format in the region, and there has been evidence of
consolidation in the retail sector and increasing merger and acquisition activity is expected as the
CARICOM Single Market is solidified and capital markets are improved. The largest
supermarket, Super Plus in Jamaica, operates 36 stores with sales, estimated in 2005, of over
US$ 150 million. Many of the larger supermarkets are associated with regional conglomerates
that have subsidiaries in a mix of food import distribution, maritime services, and food
manufacturing.

Over the last five years, coinciding with the entrance of foreign firms in the region mainly in the
More Developed Countries of CARICOM (MDCs) and the development of the Caribbean Single
Market and Economy (CSME), CARICOM firms have been actively investing to improve their
competitiveness through the expansion of store numbers and sizes; introduction of new formats;
expansion beyond the capital city into primary and secondary towns; development of higher
margin food, non-food products, expansion of private label and international retail brand
portfolios, and penetration/introduction of food and non food service ranges; investment in
information technology; and investment in new logistic and procurement capability. These
strategies have led to some consolidation of the industry and fall-out of smaller players is being
reported in some countries. Backward, forward, and horizontal integration have also increased.
Retailers and food service operators interviewed reported customer service, productivity, and
profitability levels in keeping with leading international supermarkets.


19

Food Retail Sub-Sector
The CARICOM food retail sector is roughly estimated to have over 15,000 firms, employing
over 85,000 people and generating US$ 4,555 million in sales. It has experienced strong growth
in the more developed CARICOM food retail markets where larger numbers of international
brands and a growing number of national brands can be found. Similar but more delayed patterns
are being experienced in less developed markets.

There are two international retailers in the region, PriceSmart and Winn Dixie. PriceSmart is
trading in services in three CARICOM states, while Winn Dixie has sold its operations in the
Bahamas. However, over the last five years, regional conglomerates, with food retail operations,
such as Neal & Massy, BS&T, and Goddard’s Enterprises, have been actively making equity
investments across the region either directly in supermarket firms or indirectly through their
parent companies. Other distributors such as Grace from Jamaica, Laparkan from Guyana and
Cirkel from Suriname have been exploring new markets across the region. Industry members
report that CARICOM retailers are exploring opportunities for mergers and acquisitions but there
appears to be little interest in the food retailers and foods service firms exporting retailing
services outside the region at this time. However local retailers are concerned that future
investment of foreign retailers in CARICOM will have a significant impact on their operations
and profitability.

Quick Service Restaurant Sub-Sector
The CARICOM QSR sector is roughly estimated to have over 2,100 firms, employing over
27,000 people and generating over US$ 1,000 million in sales. It has experienced strong growth
in the more developed CARICOM food retail markets, where larger numbers of international
brands and a growing number of national brands can be found. Similar but more delayed patterns
are being experienced in less developed markets.

The top 35 firms, dominated by international brands, are estimated to have over 550 stores
employing over 16,750 people, and account for over US$ 380 million or 35 percent of the total
estimated sales in the sector. The leading firms include mainly international and a few leading
national brands. The QSRs featuring chicken menus have by far the largest share (38 percent)
reflecting the share (85%) of poultry meat in the diet of CARICOM people. Several other
segments, with focus on Chinese, Caribbean, Burger and Pizza/Pasta menus, have between 11
percent and 16 percent of the market Restaurants with Chinese food have been growing rapidly
as a result of the influx of Chinese immigrants across the region. Other segments are explored in
the study such as sandwiches and seafood while lesser attention was paid to casual dining and
snacks sub-sectors.

Larger members of the industry, which tend to be international chains with strong marketing,
operations, technology and supply chain support, report moderate international competitiveness
while smaller and more indigenous brands report greater sensitivity to competition. Most
industry members report that new competition in the sector has stimulated consumer demand.
Several more established industry members report that the industry has played a key role in


20

creating new businesses in the supply chain and raising the standards to meet those of the
international brands. In addition several agri-food suppliers that have met these standards now
qualify to export products to any other franchises in the international QSR chain.

Over the last five years, regional operators have been expanding their efforts to export their
brands within the greater Caribbean. However, foreign QSRs, owned by expatriate Caribbean
nationals, have begun to develop formats based on Caribbean cuisine in the US and in the UK,
and seem to be benefiting from first mover advantage in these markets. Several CARICOM
QSRs have attempted to export services outside the region, with little success, and others are
planning to do so in the short to medium term. The regulatory environment for this sub-sector in
CARICOM has few restrictions, and these exist in only three countries, Barbados, Guyana and
Suriname. Restrictions are also in place in the Bahamas, which is not part of the CSME.

Food Import Distribution Sub-sector
There are several types of wholesalers in the region, manufacturer distributors, importer
distributors, importer retailers, and domestic wholesalers carry on wholesaling in the region. The
more developed markets in the region tend to import higher proportions of internationally
branded products. Belize and Guyana, which produce more of their own food, rely more on local
manufacturers and wholesalers to distribute the greater part of food consumed in Belize.
Importer distributors import on average more than 90 percent of their sales of which 10–40
percent emanate from the CARICOM region. Only a small number of distributors operate in
more than one country in the region, but find it difficult to achieve economies of scale because of
the manner in which the maritime freight system operates in the Caribbean.

A growing problem in the region identified by distributors is the growth of “parallel trading”,
where regional firms import from a wholesaler in an exporting country rather than from the
manufacturers which have distribution agreements. Generally, larger distributors considered
themselves able to cope with new competition due to their investments in distribution assets,
strong trade relationships, local market knowledge, and ability to deal with local public-sector
agencies. CARICOM distributors have been developing several strategies to address growing
competition such as consolidating the distribution base (BS&T SBI Distribution), rationalizing
portfolio of firms, brands and improving service levels (Geddes Grant Guyana and Jamaica),
integrating backwards, developing retail brands (Grace-Kennedy’s’ Grace brand, Goddard’s
Enterprises’ Eve brand), integrating forward (Goddard’s Enterprises acquisitions in food
distribution in Grenada, St Vincent, Barbados, and new joint venture in restaurants with Island
Grill). Distributors were well acquainted with trade in goods issues, but were largely unaware
that their sector might be the subject of international services negotiations.

Food Distribution Service Industry Supply Chains
There is some evidence that the food distribution services industry has had a positive effect on
the domestic supply chains. Larger QSRs, especially in states where agricultural tariffs make
domestic product more price-competitive, report that they procure most (60 – 80 percent) of their
major perishable and non-perishable food products locally with the major exceptions being
cheese and French fries. In addition, there is evidence that non-food product and supply chains


21

have been strengthened in the process of meeting the standards of the international brands.
However in some states where tariffs are lower, and for smaller QSRs differentiating themselves
by using “higher quality” imported products this is not so. Leading supermarkets reported that
local content was generally lower (5 - 30 percent) than major QSRs (60 – 80 percent), with
proportions varying significantly depending on the marketing strategy of the firm and the policy
framework of the CARICOM state.

As competition in food distribution services increases across the region, firms have sought to
differentiate their offers. The leading food retailers in each country have improved the quality
and choice of their offer to consumers by expanding their fresh, chilled, frozen portfolios and
this has led to increased imports in these categories which tend not to be produced locally. The
entrance of PriceSmart into the region has led to the development of several discount formats
which have also sought to improve their price offer to consumers by parallel trading, purchasing
from diverters, and increasing their complement of secondary and tertiary international brands.
Often this is facilitated by tariff structures in CARICOM states that focus sensitive treatment on
primary production rather than on value-added production. As a result, competition has led to
increased imports in these product categories.

There is evidence that trade in agri-food products can be facilitated by the development of trade
in services as larger QSRs and supermarkets (PriceSmart) tend to source products from preferred
certified suppliers within the region for distribution to their stores across the region. However,
tariff structures within the CSME may also explain in part this preference for intra-regional
sourcing.

Improving Competitiveness in Food Distribution Services
Competitiveness assessment is difficult at this point in time largely because data are unavailable
in sufficient detail. Few companies are publicly listed. Only a few instances of information on
Supermarket and QSR profitability have been identified.

The study uncovered constraints to improved competitiveness and trade in services, which seem
to have a disproportionate impact on SME retailers and indigenous QSR operations. There is a
dearth of food distribution SERVICE market intelligence in domestic markets, but more so in
export markets. Intra-regional air and sea freight, especially in the areas of refrigerated cargo and
holding facilities on the ports limits the trade in service especially in the start-up phases. Port
inefficiencies affect efficiency in food distribution. There is need to strengthen the backward
linkages to agri-food and non-food supply chains to support export growth as suppliers in new
markets tend to be underdeveloped and need to be supplied from domestic markets. Crime
affects the profitability of distributors particularly in the retail sector by restricting options for
service delivery and adding costs, e.g., for security and insurance. Insufficient use is being made
of electronic commerce and information technology to improve marketing, productivity and
general competitiveness. The industry lacks targeted public sector and private sector programs to
improve competitiveness, especially in the areas of marketing, productivity, standardization of
operations to support franchising, and human resource development. There seems to be no clear
best practice franchising models that smaller firms can adopt. Industry organization as a basis for


22

developing domestic and trade policy is minimal but there is interest from the industry to
dialogue with the public sector, and this requires institutional support.

There is evidence that firms recognize these constraints and the study proposes a series of
programmes to address them by way of training, incentive programs, legislative development,
improvements in national telecommunications infrastructures, and additional affordable e-
commerce service offerings by financial institutions. Of particular importance, will be the
development of backward linkages to the agriculture sector and light manufacturing through
special programmes to help small farmers and processors meet volume, quality, safety, and
dependability levels demanded by larger supermarkets and QSRs. Other areas of training
suggested include contract negotiation and agricultural extension services.

An industry policy for food distribution services is urgently required. This study has revealed
significant economic activity and export potential. However, growth prospects will be affected
by lack of a coordinated policy framework that is applicable throughout the CSME. The
elements mentioned above are not intended to be comprehensive and other observers will no
doubt identify gaps. These areas, though, did arise in the consultations conducted during the
course of this study as of some immediate concern to stakeholders in the sector. In some cases,
the action must emanate from the sector players themselves. In all cases, a collaborative
approach involving dialogue between the private and public sectors is indispensable. Resolving
these issues will equip the sector to better respond to the challenges of the negotiations on
international trade in services in which the region is involved.

Negotiating Options
Services negotiations can play a role in improving the efficiency of food distribution sectors by
facilitating new competition and investment in strategic areas in the sector, while at the same,
time providing time for well-coordinated industry policy to strengthen the competitiveness of
more sensitive sectors of the industry. Participation by the region in international services
negotiations has been minimal, influenced by determination of officials that the sector is
sensitive and would be negatively affected by new foreign entrants. Businesses in the food
distribution sector do not have a uniform opinion on this matter, but there is interest in exporting
services particularly in the franchising sector and also in the food retailing sector. The regulatory
environment is underdeveloped in comparison with more developed economies and this is a
factor restraining new services commitments. However, relatively few areas of discriminatory
measures have been identified.

CARICOM Member States have no existing commitments in distribution services in the WTO.
Only Guyana made an offer in the sector in the now-stalled Doha Development Round (DDR)
negotiations. A similar low level of commitment was envisioned in the Free Trade Area of the
Americas (FTAA) negotiations. In contrast to the lack of international binding, the countries of
CARICOM operate relatively open, non-discriminatory environments for trade in food
distribution services.

With respect to future trade negotiations, care should be taken in scheduling to avoid broad
commitments that would include the food distribution sector and should consider using the


23

approach of phasing. With respect to the various elements of the food distribution sector, raw
product distribution might be less sensitive than processed products. CARICOM countries will
find it difficult to make commitments in retailing. In franchising, there are some export interests
and important penetration of the region by international franchises. Policy makers should
recognize that the industries’ horizons and sensitivities are likely to change over time as they
develop international experience and competitiveness. The ongoing exposure of CARICOM
QSRs to international marketing, operations, and benchmarking systems may indeed be one
reason why these firms view themselves as more competitive and less sensitive to competition.
Programmes need to be established to establish similar benchmarking systems which might have
similar impact on the food retailing sector.

The QSR sector is the most poised to export from the region, and exports of services across the
greater Caribbean region are growing. Although indigenous brands are less able to export
services because of the absence of the support systems similar to that provided by the
international fast food chains, several indigenous CARICOM QSRs have been and continue to
experiment with exports in services to the US, EU, and as far afield as China. The region’s
largest catering company is already operating in 21 countries in Latin America and the greater
Caribbean. In addition, several Caribbean food QSR chains owned by Caribbean expatriates are
developing in the US and may soon develop franchises in the region. Food retailers tend to be
focusing on the CARICOM market for the time being, largely through equity transactions rather
than trade in services. However, as they gain such experience in trade in service within the
region they are likely to develop extra-regional trade interests. Importer/distributors are present
in several CARICOM markets and a few have expressed interest in Latin American markets.

Central America and the wider Caribbean tend to be of particular interest and should be the first
focus of CARICOM export-seeking strategies in future negotiations. Multilaterally, Central
America (with the exception of Panama) has not made commitments in the sector. Regionally,
though, Central America and the Dominican Republic have made liberalizing commitments to
the United States with respect to their laws governing distribution of goods. This changes
significantly the competitive environment in Central America to the disadvantage of potential
CARICOM exporters of goods and services, and might be addressed in a negotiation with
Central America.

Clearly, due to the sensitivity of the sector, defensive interests will be a priority and defensive
impulses enhanced by the lack of extensive export interests. Requests made by the EU in the
WTO negotiations are more likely to be addressed in the EPA framework and must be
accompanied by specific CARIFORUM requests related to, inter alia, improving Mode 4 access,
removal of sector exclusions, removal of economic needs tests, and improved cross border
supply commitments. While engaging in the negotiation with Europe, CARICOM must take into
consideration future negotiations with Canada and the United States in framing its commitments.
In consideration of this, CARICOM should be prepared to consider some level of binding in the
Distribution sector in exchange for removal of Europe’s more extensive restrictions in the sector,
and additional concessions in sectors and modes of export interest to this region. Specific
recommendations for consideration by Governments are made in this regard.


24

Future Strategic Development and Industry Support
Future work is required to inform strategies to develop the sector. The following project ideas are
proposed for consideration:

1. Regional Food Distribution Service Industry Workshop – To bring regional public
and private sector stakeholders together, along with a selection of global industry
specialists, together to explore opportunities, constraints and develop industry and policy
strategies.

2. Development of National Food Distribution Services Sector Profiles and Sector
Policy Development Strategies – To detail the national sector, especially in areas not
addressed by this study, and set out policy options particularly for sub-sectors not
addressed by this study.

3. Logistics & Maritime Services – To examine the sub-sectors across the region and
develop strategies to improve competitiveness and approaches to trade negotiation.

4. CARICOM Services Statistics Project – To integrate the findings and
recommendations of this study into the existing CARICOM services statistics project and
develop a common framework and reporting format for the sector.

5. Food Distribution Services Export Market Intelligence – To identify opportunities,
challenges and strategies to support the exporting interests of CARICOM firms,
especially SMEs.

6. Franchise Best Practice Model – To investigate international best practices and inform
adoption of these practices by local quick service formats.

7. Street Vendors & Speciality Fresh Food Vendors & Markets – To examine the
impact of changes in the industry as a result of liberalisation on traditional perishable
agri-food (F&V, chicken, meat, fish, dairy, and bakery) marketing channels (sellers not
producers), which are predominantly SMEs.

8. Agri-Food Supply Chains Impact Assessment – To conduct a detailed review of
impact that changes in the food distribution services industry will have on agri-food
supply chains and the relationship between food distribution services industry policy,
agricultural trade policy (tariffs), and the development of agri-food supply chains.


25

1. AGRI-FOOD DISTRIBUTION SERVICES:
INDUSTRY DEFINITION AND ROLE IN THE
ECONOMY
Introduction

This chapter defines the food distribution service industry and reviews the issues to be
considered in the development of a policy framework for CARICOM governments. It should be
noted while there are a range of service providers in the agri-food supply chain, this study
focuses on the commercial food retail channels, i.e., supermarkets, quick service restaurants
(QSRs), and import/distributors because they are most likely to export their service formats to
other markets.

While several sources were used in preparing this review, the work of the Institute of Grocery
Distribution, Food Marketing Institute, Rabobank, United States Department of Agriculture
Economic Research Service (USDA–ERS), and the United Nations Conference on Trade and
Development (UNCTAD) were especially relevant.

Agri-food Distribution Services Industry
The agri-food industry comprises a number of interrelated actors, including the producers of
agri-food products (farmers), primary agri-processors and food manufacturers, the distributors of
agri-food product (food wholesalers, food retailers, and food service operators) and consumers
(Figure 1.1). The agri-food distribution service sector is responsible for moving products along
the agri-food supply chain and ultimately providing consumers with the food they eat.

While services such as financing, technical support, information systems, sorting, grading,
packaging, storage, transporting, and marketing are provided along the agri-food commodity
supply chain by various service providers, this study focuses on the services and service
providers which are most likely to be involved in the cross border trade in services, i.e., food
retailers, food service operators, and food wholesalers including commission agents.

The proportion of expenditure on food accounted for by the marketing bill, which includes
processing, transport, wholesaling, and retailing, food service has risen significantly over time as
can be seen in the case of the US (Figure 1.2). This is as a result of consumers seeking more
convenience foods, which are highly processed, and a shift towards more meals being eaten
away from home. This shift is associated with an increasing level of services in the composition
of food expenditures by consumers.


26

Consumers

Food Retail Food Service

Wholesale

Food Manufacturing Industry

Wholesale

Primary Processing Agro Industry

Wholesale

Agricultural Producers

Agricultural Input Suppliers


27

U S C o n s u m e r E x p e n d it u r e o n F o o d , 1 9 5 4 – 2 0 0 4 , U S $ b

800

700

600

500

400

300

200

100

0
1954 1964 1974 1984 1994 2004
F a rm V alu e M a r k e ti n g B ill

Figure 1.2: Distribution of Consumer Expenditure, USA, 1954 - 20043

Over time, consumers have access to a more diverse range of food consumption choices from an
array of retail and food service establishments offering a full range of foods to be consumed at
home or away from home. These are shown in Table 1.1.

Table 1.1: Consumer Spectrum of Food Consumption Choices

Prepared at Home Prepared Away From Home
Purchased from Food Retail Purchased from Food Service (Caterers/ Restaurants)
Meals From Semi- Home Meal Delivered Take Away Catered Restaurant
Raw prepared Replacement Meals Meals Meals Meals
Components Meals Meals
Consumed Consumed Consumed
At Home On the Go Away From Home

Source: Adapted from Rabobank, 19984

There are two major distribution channels providing customers with food – food retail channel
and food service channels. Figure 1.2 shows the different channels and sub-channels in a
traditional food retail market.

3
Source: http://www.ers.usda.gov/Briefing/FoodPriceSpreads/bill/table1.htm
4
Rabobank International, The Food Retail Market, Rabobank International, The Netherlands. 1994


28

Consumers
Rood Retailers Food Service
Operators
Supermarket Food Counter Restaurants Catering
Store
Independent Hotels & Airlines & Hospital
Mom & Pop Store Specialty Food Full Service Motels Ships & Schools
Store

Department Convenience Quick Café, Bars & Industrial & National
Store Store Service Vending Mach Manufacturing Security

Street Leisure/
Vendors Events

Figure 1.2 Food Markets Channels and Sub-Channels

The distribution of consumer expenditure between the different sectors in the food business
differs greatly between food eaten at home and food eaten away from home. This can be seen in
the case of the more developed food retail market in the US (1998) where services (transport,
wholesaling, and food service) accounted for 69 percent of the consumer expenditure on food
away from home compared to 39 percent in food consumed at home. (Figure 1.3)

Food at Home Food Away from Home

Farm
Value, 16%
Food Retail,
Farm Value,
23% Processing,
30%
15%
Wholesale, Food
10% Service, Transport,
Processing, 60% 3%
Transport,
31%
6% Wholesale,
6%

Figure1.3:Distribution of Consumer Expenditure, USA,19985

5
Source: The Retail Food Market, Rabobank 1994


29

Food Retail Sub-Sector

The traditional food retail sector in CARICOM is made up of several main categories of food
retailers – conventional supermarkets, self-service food stores or groceries which are really
smaller supermarkets, counter shops, “mom & pop stores”, independent commercial traders, and
specialty food retailers selling fruits and vegetables, meat, dairy, bakery, and beverage products.
Products purchased from these outlets have traditionally been for meal components for the
preparation of meals at home, but increasingly include semi-prepared meal solutions and fully
prepared foods called home meal replacements. The following categories have been adapted for
the CARICOM region from the Food Marketing Institute6.

• Conventional Supermarkets - The original self-service supermarket format, these are
normally between 10,000–15,000 SF in sales area but can range from 6,000–40,000 SF and
carry anywhere from 8,000–18,000 stock keeping units (SKUs), with 5–20 cash registers.
These stores offer a full line of groceries, meat, and produce and often offer services such
as a deli, bakery, and food service. More recently online lottery, money transfer, and
banking services can also be found. Conventional stores will average 60 percent of their
sales from grocery items, 12.5 percent from the sale of meats, 10 percent from general
merchandise/health beauty and care, 7.5 percent from frozen food, 5 percent from produce,
and 5 percent from bakery products, deli services, and other services.

• Self-service Food Stores or Groceries - The self-service small corner grocery store is
normally between 3,000–7,500 SF carries 3,000–8,000 SKUs with 2–5 cash registers. It
sells a limited selection of staples, budget brands, convenience items, and a few lines of
frozen meat and non-food groceries. These stores are strictly speaking supermarkets and
are also called groceries in some countries.

• Counter Shops - These stores normally range between 750 and 2,000 SF with no cash
register. They offer a limited assortment of basic staples, often repacked in the store from
bulk packaging, very little refrigeration, and no fresh product. Goods are sold over-the-
counter to the public and family members operate the store. They are also called
neighbourhood shops, corner shops, and even sometimes groceries.

• “Mom & Pop Stores” - Normally from 250–750 SF, these shops are located in a room in
a home or attached to a home and are operated by family members providing convenience
foods and non-food items, snacks, beverages, and cigarettes to the immediate
neighbourhood. They tend to operate extended hours.

6
www.fmi.org


30

• Specialty Food Retailers - Traditionally food has been purchased from the following
specialty food retailers, whose importance in the retail market depends on the stage of
development.

Traditional Fresh/Wet Market – A collection of small retailers or a mix of
wholesalers and retailers selling perishables such as fruit, vegetables,
roots/starches, condiments, meat, and fish.

Fresh Produce Shop – A shop which specializes in fruit and vegetables

Butcher/Meat Shop – A vendor or shop specializing in meat (also called pluck
shops or pluck & gut shops).

Fishmonger/Fish Shop – A vendor or shop that sells seafood.

Dairy Parlour – A shop that sells milk and/or dairy products including ice cream.

Bakery – A shop that sells bread and pastry products and ice cream.

As the traditional food retail sector evolves, new formats are entering the market and now
account for a larger share of consumer spending. These new formats include Superstore,
Convenience Store, Wholesale Club, Super Centres, Super Warehouse, Super Warehouse/
Hypermarket, and Limited-Assortment Store, which are defined in the industry terms in the
industry terms section.

Food Service Sub-Sector

Food consumed away from home is traditionally purchased from food service providers which
include full service restaurants (within or independent of a hotel), casual dining restaurants,
QSRs, street vendors, and from caterers who normally prepare meals under contractual
arrangements for organizations.

• Full-Service Restaurants – Feature waiting staff, more varied menus, and perhaps other
amenities such as ceramic dishware, non–disposable utensils, and alcohol service. These
may be associated with a hotel or be independent restaurants. These include casual dining
restaurants.

• Quick Service Restaurants - Feature convenience as the main selling point. They have no
wait staff, menus tend to be limited, and dining amenities are sparse. Important dimensions
of convenience include speedy delivery of food for consumption in store at establishments


31

located close to the consumer, or “on the go” via take away or drive through facilities, or
delivery to the consumer’s home/office.

• Bars & Cafeterias – These are smaller food stores that prepare, serve, and sell food to the
general public for a profit.

• Street Food Vendors – These include small itinerant operators, often individuals that
prepare and serve food from temporary locations in the street.

Caterers – Prepare food in one location for serving in a separate location. These operations
prepare and serve meals and snacks as an adjunct, supportive service in institutional and
educational settings, such as schools, nursing homes, child day care centres, and hospitals.
The distribution of food through these food service channels varies greatly depending on the
country and stage of market development. Table 1.3 shows how the US food service industry has
evolved. Notable in its absence is data related to street vendors which are more prevalent in
developing countries. Increasingly, food service providers are offering take away service and
delivering meals to consumers’ homes and thereby competing directly with food retailers.

Table 1.3: Share of meals and snacks away from home by type of outlet in the US 1929 - 2003

Full Limited Stores, Others,
All Hotels Schools Recrea -
Service Service bars, including
Year eating and and tional
eating eating vending military
places motels colleges2 places
places1 places1 machines outlets

(%) (%) (%) (%) (%) (%) (%) (%)
1929 51.1 9.0 60.1 10.4 5.0 18.8 1.0 4.7
1939 46.6 7.1 53.7 10.8 6.8 21.1 1.9 5.7
1954 54.9 4.3 59.2 6.0 10.4 16.1 2.2 6.1
1963 50.1 9.7 59.8 6.2 13.5 12.4 2.5 5.6
1972 41.3 21.2 62.5 5.8 13.0 11.4 2.0 5.3
1982 41.0 29.3 70.3 5.4 9.7 8.4 2.3 3.9
1985 39.4 31.3 70.7 5.9 9.3 7.9 2.4 3.8
1990 38.7 35.3 74.0 5.4 6.8 7.6 2.9 3.2
1995 37.5 38.1 75.6 5.0 7.2 5.7 3.8 2.7
2000 39.9 37.5 77.5 4.9 6.8 5.3 3.2 2.5
2003 40.4 38.3 78.7 4.5 6.7 5.0 3.1 2.0
Source: USDA Note: Percents may not add to 100 due to rounding. 1Excludes contract feeding and
concessions. 2Includes child nutrition subsidies.

This study focuses on the quick service sub-sector because of its tendency to use franchising as a
business format to grow chains domestically and to export their services.


32

Food Wholesale Sub-Sector

Wholesaling is carried out by four main types of operators:

• Manufacturer/Distributors - These distributors tend to have a wholesaling operation to
service the domestic market, and often also have an exporting company to handle exports.

• Importer Distributors - Importer distributors wholesale goods from foreign manufacturers
for whom they may or may not have a distribution agency agreement.

• Importer Retailers - Some retailers, especially those which are not associated with other
types of food distribution companies, import a significant part of their offering themselves.

• Domestic Wholesalers - These wholesalers tend to be smaller wholesalers with no import or
export operation and distribute products from local manufacturers, agri-processors, and
agricultural producers in addition to those of importers. They tend to service smaller and
more rural retailers and food service providers.

• Commission Agents’ - These handle products in bulk but do not own them, delivering them
to wholesalers, retailers, or other individual users.
This study focuses on the Importer Distributors and Commission Agents because these
businesses are more likely to trade in services.

Structure of Consumer Food Markets
Several forces determine the structure of food retail markets. On the demand side, the level of
development and income, cultural and historical factors, consumer tastes and geographic and
demographic factors, as well as the overall regulatory environment, influence the structure and
evolution of the distribution services market. Government regulations with respect to large-scale
operations, zoning laws, hours of operation, etc., also influence the structure of these services.
On the supply side, the growth of the distribution sector is driven by competition, market and
trade liberalization, the introduction of new technologies, and access to inexpensive credit. The
Institute of Grocery Distributors (IGD) of the UK has developed a methodology to classify food
retail markets into three groups or stages of development: Traditional, Emerging, and Modern
(Table 1.4). The IGD uses five sets of characteristics to classify these markets: two groups of


33

demand characteristics, namely consumer profile and consumer shopping habits; and three
groups of supply characteristics - retail environment, product categories, and service categories.

Using this analytic tool to classify countries/markets allows one to better understand the current
status of the markets and to better predict the likely future course of development for these
markets. Details on the demand dimensions of the three broad stages of development are
presented below.

Traditional Retail Markets
Traditional retail markets tend to be found where there are largely rural populations, with larger
households and women who can prepare meals at home. Disposable income is low and the
levels of household appliances such as fridges and microwaves are low, so there is limited
capability to store chilled and frozen foods, making it necessary to shop frequently from
neighbourhood shops, fresh markets, and specialty retailers. Levels of car ownership are low,
limiting the opportunities for large and less frequent shopping at stores further away. Ownership
of TV, cable, and access to the Internet and frequency of foreign travel are also low.
Consumption focuses on traditional staples, basic fresh foods, often from local production, with
food being seen as a source of sustenance. Consumption of food away from home is limited but
is similar to those produced at home.

Traditional retail sectors have few modern supermarkets or international competition. Most food
sales takes place through small self-service food stores with limited refrigeration capacity in
urban areas, and through neighbourhood counter shops and van salesmen in rural areas, whose
assortment largely comprises traditional staples. The lack of refrigeration in the retail shops and
homes makes fresh markets and specialty food retailers of meat, fish, and bread very important
sources of food in both urban and rural areas. Wholesalers offer products to both wholesale and
retail customers at more attractive prices than can be found in the supermarkets. Fresh produce
markets tend to be important channels for staples such as grains and packaged grocery and basic
Health Beauty Care (HBC) items as well as fresh produce. Most stores are family owned, offer
limited services if any at all, and open for restricted hours. Food retail accounts for the majority
of consumer food purchases and food service is limited to street vendors.

Modern Food Retail Markets
In comparison to traditional food retail markets, the population in modern food retail markets is
more urban and household sizes are smaller. More women work and the population’s age
increases as health services improve, disposable income increases, and there is a higher existence
of appliances and cars. More international travel and access to cable TV increase the awareness
of international lifestyles, products, and brands. The changes in the households’ model lead
consumers to shop less frequently at different formats, making larger bi-weekly or monthly trips
at a larger one-stop-shopping store further away from home, and purchasing fresh foods from
local markets and topping up at neighbourhood stores and convenience stores. Purchasing of
foods for consumption away from home increases and includes a wider range of cuisines.


34

In modern food retail sectors, the traditional supermarket and counter shop lose market share to
more modern retail formats such as superstores and hypermarkets, wholesale membership clubs,
and discount supermarkets, which are predominantly found in the capital city, suburban areas,
and in primary towns. These larger superstores and hypermarkets can accommodate a much
larger offering of fresh produce, chilled meats, fish, dairy and prepared foods, and frozen foods;
a wider selection of national and international brands including retail brands; a wider selection of
higher margin General Merchandise (GM) and Home Beauty Care (HBC) lines and services.
Membership clubs and discount supermarkets carry a limited line of products at more attractive
prices. Service offerings are expanded as food retailers seek to gain share from other retail
formats such as foodservice, financial services, gambling, pharmaceuticals, and photo
development. The traditional supermarkets have migrated from the capital city to towns and self-
service groceries. Counter shops have declined in number and have concentrated in smaller
towns and villages, shifting their product offering away from staples to include more
internationally branded products, convenience items, and services. Regional and international
retailers have entered the market. Food service is provided by a few indigenous food service
stores and an increasing amount of international fast food stores.

Emerging Food Retail Markets
In between the traditional and the modern, there is a transitional stage and several countries share
elements of both categories. Emerging food markets have less rural populations, with larger
households, and women are still largely housewives. Disposable income is low, but appliances
and cars begin to enter households.

Shopping intervals increase and consumers begin to shop at a wider range of formats including
newly introduced supermarkets and convenience stores in the capital city, where they can find
semi-processed staples, convenience products, and non-food categories. Brand awareness and
loyalty develops for local brands. Consumers develop a greater understanding of nutritional and
food safety issues. Consumption of food away from home increases and the cuisine widens to
include foods not cooked at home, including international fast food.

Emerging food retail sectors have begun to see the expansion in the numbers of modern
supermarkets in the capital city. They begin to offer wider ranges of regional and international
brands, and small amounts of refrigerated lines such as frozen meats and drinks and fresh
produce. Greater attention is paid to providing services such as shuttle and delivery service and
longer opening hours. Self-service food stores have entered primary and secondary towns and
have increased market share. Fresh markets remain an important food retail channel. Food
service is provided by street vendors, indigenous food service stores and a few international fast
food stores.


CRNM - Assessment Of CARICOM Agri-Food Distribution Services

CRNM - Assessment Of CARICOM Agri-Food Distribution Services

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