I have just heard that the French retail giant Carrefour is entering Georgia. This is good news. Carrefour is the master or combining low prices with the high (or at least decent) quality. It is also an inventor of hypermarket concept. Good quality price ratio and convenience are things the Georgian consumer is craving for.
But there is much more to this fact than pure benefit for the Georgian customer. As the worlds second largest retailer, after Walmart, Carrefour commands the supply chain that circles the globe. For example, my milk, as Carrefour customer’s, comes from Chile, rice from Thailand, salmon from Norway, bananas from Colombia, grapefruits from China, apples from France. The presence of Carrefour operations in Georgia gives the country’s suppliers a good chance to get integrated into its global chain. Although I am not a big fan of making agriculture one of the priorities for development, given the strong culture and currently underutilized resources I see nothing bad in benefiting from it in the not-so-long-run.
Of course, part of the menu that Carrefour will offer Georgian consumers will be of Georgian origin. However, aim should be getting Georgian produce on Carrefour shelves in other countries. This will not be easy. The company has two clear guidelines – quality and social responsibility. Quality has been Carrefour’s concern since its foundation. Social responsibility and environmental concerns have surfaced in the company strategy more recently. Carrefour stores carry large number of Fair Trade products and business schools teach Carrefour’s experience of incorporating rural farmers in Ecuador into their supply chain as (partially) a social project. And this happened without any Carrefour operations in the country.
However, as any large business, Carrefour is also a very pragmatic company. It has to see a good number of potential customers before it devotes its precious shelf space to a product. So much so that my local store carries about 25 different brands of whisky and only two brands of Cognac. And this is in France! So, again, getting on Carrefour shelves will not be an easy task. But as the company seems to start entering ex-Soviet Union from south Caucasus (Georgian will be the second country after Azerbaijan with Carrefour operations) and as “Georgia” is still a recognizable brand in the region, this event might hold an interesting opportunity for Georgia. Georgian produce has a fresh opportunity to return, or even better – emerge, on store shelves in quite a few countries. Through Carrefour!
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Comments
Not to mention that more competition will hopefully drive down markups. See also this article http://www.finchannel.com/Main_News/Geo/90091_Markups_in_Georgian_Supermarkets_Peak_at_35-40%25/. Imported groceries can be quite expensive in Georgia, and it seems unlikely that trade barriers are an explanation. It probably is the lack of competition, and possibly also the small market size. Carrefour will increase competition, and being an international chain the small market size might not be as relevant for them as it is to purely local grocery store chains. It will be interesting to see how it pans out.
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Well, Michael, I am not an economist, but judging by the (same) price of gas on all the gas stations around the country makes me think that adding another supermarket may just form another cartel. However, hope dies last...
Another possible (positive) externality is concerned with the potential arrival of other multinational companies to Georgia. Many may be now watching how successful would be Carrefour's entry. If all goes well, others may follow suit. The ability to learn from Carrefour's experience will reduce the perception of risk and the cost of entry for others.
Another thought is related to my most recent visit to Baku. I always thought that Georgia's food processing industry had a great potential in supplying the fast growing Azerbaijani market. However, this was not happening, or was not happening as quickly as I thought it should. [perhaps because of the so-called "non-tariff" barriers to trade associated with the name of Kamalettin Heydarov.]
Now, it turns out that Kamaladdin Heydarov's hold on the Azerbaijani market has somewhat weakened of late. His main competition is the Pashaev clan. Whether true or not, Georgian products are now finding their way to the shelves of Baku supermarkets and restaurants. And these are not only traditional products such as wines, mineral waters and Tarkhun lemonade. Believe it or not, but even Georgia-produced milk and dairy products (Domik v Derevne) are now very popular in Baku. The modern dairy plant, constructed about 3 years ago by Russia's WimmBillDunn (now owned by Pepsico) is conveniently located near the Azerbaijani border and probably employs many ethnic Azeris...
With Carrefour operating in both countries, additional Georgian products may be able to make to the Azeri market. And that would be indeed a fantastic step forward for Georgia.
Michael, Anna, indeed increase in competition should also benefit consumers and (I believe also) increase overall social welfare. And I think in this case, where one retailer is dealing with thousands of different products, it is much harder (and less reasonable) to engage in price fixing than in case of bass stations that provide handful of different products. In fact the whole idea of hypermarket complicates the price fixing process as the business model is built on selling large bundles to the households.
Eric, Carrefour entry might be also important as a precedent. However, I doubt its generalizability given the specificities of retail sector.
Agree with Zak on price fixing. Even with only two or three major retailers operating in the market (Good Will, Populi...), there is a pretty wide variation of prices and I don't think they are able to coordinate. Its just too complicated in this line of business... There maybe a common understanding of what constitutes a reasonable level of markups. And this understanding may be challenged with the arrival of a major competitor.
Also agree on the limited "generalizability". Sure, any business has its specificity. But there are also some common concerns: quality of the labor force (discipline, loyalty, reliability), quality of suppliers (consistent product quality, timeliness) and ability to enforce contracts, dealings with city government and national tax authorities, etc.
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everybody is saying or favouring big corporates but one should think about small shopkeepers also who sits in small shops and do their daily earning. These big coorporates has only one thing in mind money and money. When they come they kill business of other or kill competitors, afterwards they make cartel and then fix the prices.
jaswinder singh mavi