Modern retail development - Appunti

USA

a. Zimmerman makes reference to several examples, like the so-called duplex store,

experimented in Southern California in 1912. It was a food retail outlet where a long

shelf separated the spaces between some product lines that were served to the customers

by employees and others that were organized as self-service. This is why it is called

duplex: it is a double way of retailing. Among those adopting it there are Ralph’s Grocery,

that is still existing today, and Alpha Beta Food Markets big food market,

b. Another example is in Texas, where we see the origins of Weingarten’s

that is another large-scale company that founded its business looking at the example of

Piggly Wiggly. He opened a highly departmentalized food store, housed in a modern

building and equipped with expensive fixtures. It introduced self-service since 1918 and

the ticket barrier (tornelli): customers could shop self-service on lines of products except

for meat, served by employees. Moreover, it made several innovations: for example, it

developed the basket carriers invented by Henke and Pillot and also the counter type glass

refrigerator with a sloped front

c. A third example is Henke and Pillot, which experiments something that seems not so

rational: a path to go through the shelves of the store that has the shape of letter M, made

in order to increase the available room for the products. Moreover, it introduces an

innovative transportation system for shopping baskets: when it became too heavy, it could

be placed on a sort of a train truck, where a mechanism (small wagon) would carry it

instead of the customer.

it’s useful to make some general reflections about all these anticipating

With these examples

experiences that we just saw:

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- Every format, including this new format (supermarket), is made by a set of elements. Usually,

new formats envisage new features, new techniques. However, there are also situations in

which they can be the result of a new combination of previously dispersed or differently

combined elements. We are talking about re-shuffling and mixing with different recipes

elements that were already existing, so that you can have a totally different kind of format

- It is also important to consider the format as something that is not given once and for all.

A format is something that constantly can change and has to change, because of internal

pressures that require adaptations (like competitors within the retailing system, that adopt new

strategies), as well as external pressures (like the economic, social, technological, legislative,

institutional context).

The birth of the supermarket

We have understood that this is not just a matter of inventing new techniques but having the right

combination at the right context and in the right time (ex. disaster of Mohican).

The time was right when Michael Cullen appears on the scene. He is the main character of the story

of the supermarket.

He was born in 1884 and had a professional background in retailing since he was 18 years old:

first, he was employed by Atlantic and Pacific and then, in 1919, he started working for the chain

store Kroger.

Zimmermann analyzes what is perhaps the most famous document in the history of retailing: a letter

that Cullen sent in 1930 to his boss, the vice president of the Kroger Grocery & Banking Co. The

letter contains a visionary and detailed project concerning a new format that will change in non-

reversible way distribution in the USA and, later, in the rest of the world.

First, Cullen pointed out that the chain stores as they were structured would remain static, due to the

small stores and limited volumes; moreover, chain stores would also be penalized by the increasing

preference of the customers for the home merchants (while chain stores sold their own label products).

To overcome these problems, he suggests to the manager how to establish a new retail business with

(“mostrous in size”)

stores that are larger than those typically used by chain stores and are mostly

operated through self-service. Apart from the use of self- service, he suggests reducing costs and

increase volume sales thanks to cheap retail prices and the large use of promotion (advertising to

stress, in particular, low price policies). Emphasizing low prices is a recurrent element (for example,

“price record”).

the main competitor of Cullen is He also suggests a location away from the high-

rent district and the use of a large parking space.

In Zimmerman book we can read a prediction that Cullen makes about the reaction of potential

“The

customers having read an advertising promoting the sales of several items at very low costs:

public … would break my front doors down to get in. It would be a riot”.

He was right because this is exactly what happened when he opened the store, and this is what today

happens whenever customers can take advantage of extremely low prices.

“what We don’t know if

Cullen concludes his letter putting out a question: is your verdict?” Kroger’s

vice president managed to read the letter or members of the staff trashed it; in any case the answer

was a turn down.

Cullen decided to resign, but he believed so much in this project that, once he left Kroger, he started

the project by himself. So, in August 1930 he opened in a neighborhood of Long Island, called

Jamaica, the first King Kullen Grocery Co., that was the first supermarket in history.

Cullen unfortunately died in 1936, shortly after his business started. He must be remembered as the

founder of modern retailing.

In addition to the innovative features already mentioned in the letter, we can find in this supermarket

other 2 elements:

1) An extremely strong and straightforward message (communication) that stressed how

An example is the claim “King Kullen, the world’s

affordable was to buy in this new format.

Margherita Raimondi 323181 how does he do it?”. In this sense, an innovation way of

greatest price wrecker-

communication was the publication of personal messages, where he introduced himself in an

unusual way. Let’s see an example:

2) Envisaging expansion, not within a company, but through concessions for operating the

supermarket. This strategy was crucial, and it was really path dependent: it opened the way to

a potential alliance and partnership with local independent traditional retailers that chain

store system had completely cut off. So, this is a very interesting strategy that Cullen

introduces, because it opens the market to a whole new set of possible partners.

The first imitation: Big Bear

The successful result of his project was to tangible that immediately pushed other to copy the King

Kullen model. The Big Bear is the first of a series of imitators: it was opened in 1932 restructuring

an abandoned car factory by two men both coming from the retail industry.

Pay attention to the use of these names stressing the somehow superior size/ large scale of these

only “super” but “big”, “king” and alike).

outlets (not

While “King was located in North of Manhattan, “Big is in the Southern part of the

Kullen” Bear”

NY metropolitan area, precisely in Elizabeth, in the state of New Jersey. 2

Big bear was conceived to operate on a very very large space of 4.645 m (larger than King Kullen)

and was organized in a core food department (30% of the retail space was concerned with this core

line) plus another 11 (food and non-food), operated by concessionaries.

- Food lines included: meats, dairy, fresh bakery, candy, fruits and vegetables and beverages

- Non-food included: drugs, tobacco, car accessories, electrical supplies, and paints.

These 11 departments were not directly managed by the founders but operated in concession. This

strategy broadened the offer in food and non-food lines, and it was a key element to find partners who

were able to greatly expand the offer that supermarket could provide. Also, a parking space was

available.

Using abandoned manufactory locations is a fact that reveals how the introduction of a super cheap

format was connected to economic crisis that started in 1929. We are still right in the middle of the

so it’s easy to find abandoned buildings (for example Jamaica’s

Great Depression, King Kullen was

located in a former car garage). Recalling what Witkowski said, the high level that consumerism

reached during the roaring 1920s was a key feature to make cheap supermarket attractive in the

eyes of American consumers. In these super cheap formats, the American consumer could finally

reach once again products he/she was used to shop before the crisis but that now became too

expensive to buy elsewhere (e.g. in chain store).

Thanks to the democratization of cars that occurred in the 1920s, customers do drive to far away

locations if they see the possibility to buy their favorite products at affordable prices. One of the

reasons of the successfulness of the supermarket is exactly that.

To make more visible the affordability of the stores, Big Bear chose a very simple layout and

display: products were placed on pine wood shelves and all the investments were on promotion

and advertising to stress how cheap the supermarket offer was. This was a successful strategy: with

an initial investment of 10.000$, Big Bear reached a net profit of more than 166.000$ (so, the

investment was repaid by factor 16). In particular, the first opening of Big Bear was an historical

success, having shattered all records for attendance and volume sold.

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However successful they were, the founders had different views and decided quite shortly after the

foundation of “Big Bear” to split up. The firm continued to operate but lost the momentum it had in

the first half of the 1930s.

The impact of supermarket on the whole retailing system

With “King and “Big Bear” a new path in the supermarket business starts, with more

Kullen”

branches opening by these two firms and new companies that soon enter the market. But perhaps,

even more relevant was the impact that the new format had on the American retailing system as a

whole, involving, not only large- scale firms (mainly chain stores but also mail order), but also

traditional independent retailers.

xiv. Supermarket, Zimmerman II (28/10)

Continue our discussion about the emergence and development of the new supermarket format in the

USA, making reference to the book of Zimmerman.

Today we are going to focus on what happens in the distribution system once the new format is

invented and starts operating and who are the followers of King Kullen and Big Bear.

The success of Big Bear will hit hard chain store firms and traditional retail.

As we have seen, when a new format emerges, the distribution is not passive, but there is the

counterreaction of the previously existing retailers and we can see a number of responses.

We are going to see them making reference to 3 different players acting in the American dis