Chapter 1 – Introduction

1.1 Globalization in Food Industry background

Since last decade, Globalization is a trend in the food industry due to growing potential markets in various developing countries and changing consumption pattern of the people. Integration of international food markets and increasing expansion in international markets of the firms is the most significant trends in global economy. Market liberalization and scientific progress gave rise to globalization. Even though consumer diets are gradually changing globally; there are variations in food shopping patterns around the world which is mostly based on income levels.

The focus of food retailing industry in developing and developed countries was different with respect to consumers and the type of food demanded. The trend was that the developing countries retailers focused on high value food while the developed countries retailers focused on meeting consumer demand with respect to quality, security and choices. Thus various retailers are now looking at exploring new markets and using more opportunities in different kinds of developed and developing markets.

Retailers have the information regarding the consumer preference and the standard of living which in then applied for research in segmenting the market according to market demand, affordability as well as quality. Hence food retail sectors is continuously growing and making innovative sale systems. The global food retail sale has increased up to $2 trillion yearly and the top 15 global supermarket companies’ account for more than 30 percent of world supermarket sales.

Bourlakis (2004) opines that “The current changes are driving food supply chains to take up coordination between producers and retailers to aid modifying products to meet consumer demands. The food supply chain progressed from series of shorter, independent transfers to more unified, coherent relationship between processors, manufacturers and retailers”.

Lubbers (1997) refer to the term globalization, meaning the global sourcing of raw materials combined with local marketing. Stalk and Hout (1990), Christopher (1992) and Hewitt (1994) suggested that “The keys to long-term competitive advantage in today’s marketplace are flexibility andcustomer response”. To maximize a competitive advantage, all members within the Supply Chain should ‘seamlessly’ work together to serve the end consumer (Towill, 1997).The effects of globalization (i.e. open markets), the market entranceof new competitors, and stricter governmental requirements for food safety and environment friendlyproduction place increasing demands on management.

This study will examine some of the food supply chain models, evaluating it whether the consumer preferences are bringing changes in the global food supply chain model. Further effort will be made to analyze the changing patterns of traditional and evolving model for existing food supply chains and how it affects the sale and demand of foods in the market.

With the introduction of supermarkets in the 21^st century more and more traditional grocery outlets have suffered a fall in share from 40 percent in 1995 to 36 percent in 2005 and thus their was rise of supermarkets (Neff 1997a).Thus globalization has come into picture where more and more supermarkets are establishing in various countries due to decline in international trade barriers and more opportunities for investments as well as growth as a multinational.

1.2 Statement of The Problem

There are various factors which affect the global food supply chain pattern and every stage of supply chain undergoes some kind uncertainties which cause inefficiencies in firm’s logistics. Food industry is also facing various issues regarding proper planning of distribution system which incurred a high cost to the retailers. Due to high competition and growth in the retail sector, many manufacturers and retailers have understood that there can be significant amount of cost reduction by making improvements in logistics.

This can be achieved when the suppliers and the manufacturers work together to give better value to the consumer by maximizing costumer satisfaction and minimizing cost of distribution. Thus there is a need to redesigning a supply chain model.

UK’s Milk supply chain is one of the complex food supply chains.UK is considered as one of the largest milk producers in EU. However, the major concern for UK is that even if the UK is mainly self-reliant in milk, the value of UK exports of milk products is significantly lower than the value of imports and in 2007 the UK had a trade deficit of about £881m in dairy products. (Defra, 2007).Several reason have been estimated which has led to issues in dairy sector in UK.Thus the above issues raised a demand for further in-depth investigation. They thus form the basis for this study.

1.3 Purpose of The Study

The purpose of study is to examine the food supply chain model present in global food industry as well as UK’s milk production and supply chain in particular. Specially, the purpose of the study was:

• To identify the changing food system pattern in food manufacturing and retailing globally.

• To highlight conventional and developing model for existing food supply chains and to asses its affects on the global food market.

• To find out the socio-economics impact of changing pattern of food supply chain on society.

• To study the supply chain models and to examine how the model could be designed more effectively and efficiently in order to improve supply chain uncertainties.

• To examine the reason of decline in the milk supplies in UK which leads to decrease in milk exports and increase in milk import even if UK is self sufficient in milk production.

1.4 Research Questions

To provide focus and direction for the study and to successfully carry it out, the following research questions have been raised:

• a) Do the changing pattern of food distribution system have an effect on consumer and retailer’s relationship? (b) If they do, in what ways it effect the consumers? What changes should be undertaken to improve on distribution system?

• Which are the important factors for food supply chain developments and the important characteristics of the food retail sectors, and their effects on the food supply chain?

• What is the need to redesign food supply chains model?

• What are the strategic, tactical and operational decision made for food supply chain decision like production and distribution?

• How globalization in food industry has helped in growth of the world economy?

• Has the retail sector become more powerful then food manufacturing sector?

• What are the issues in Milk supply chain in UK? What is the reason for higher import of milk?

• What is the percentage of production of processed milk products in UK? What are the demand and supply of these milk products?

1.5 Significance of The Study

This research work is to look at the current supply chain process in UK and evaluate the food supply chain model in order find out the changing patterns of global food supply chain which affects the consumer. Thus the study is significant for the following reasons:

First it will help shed light on the ongoing transformation in the food industry globally. It will also help us to understand certain issues which exist in different processes of supply chain management. Also findings from the study may serve as a basis for evaluation of entire food supply systems which has shifted from national to global retailing. This will help them to adopt feasible measures to improve the relationships between retailers, manufacturers and consumer.

The study will also contribute to existing knowledge on what encouraged the retailers, distributors and manufacturers to improve on the efficiencies of existing food systems. This could help strengthen retailing internalization which will further help in focusing more on increasing sale growth and market share than on profitability. The growth in private label and consumer interest brought about new changes in food retailing. In this way, the study will serve as basis for further research on the topic in the various countries as well as all over the world for the particular type of food product supply chain.

Further case study is performed on UK dairy industry. It will address the positive as well as negative aspects in this sector. It also points out the market share for each dairy product and issues in dairy sector. The study also suggests the scope for future innovations in this sector.

1.6 Organization of The Study

The study is organized in following way:

Chapter one provides general information of the study, the research problem, purpose of study and research questions and objective of study. It would also present information on the significance of the study, limitation and organization of the study.

Chapter Two presents background information and key characteristic of food supply chain globally.

Chapter Three presents a review of available literature related to supply chain. In particular, literature on the concept of changing global supply chains perspectives as well as the socio economic effect on the people due to change in food supply chain as well as relationship between society and changing supply chain will be studied.

Chapter four focuses on the dairy food supply chain model, its characteristics and future of the dairy supply chain sector. It will also focus on issues in production of milk and milk products.

Chapter five presents the summary and conclusion of the research findings. It also discusses the findings and implications of the present study and provide a conclusion.

Chapter 2 – Backgroud

2.1. Introducing global retail industry

Last year in 2007, national statistics confirmed that there were 55,540 retailers having around 103,000 retail outlets globally. The world’s major food retail companies are Wal-Mart Stores, Inc., Carrefour Group, The Kroger Co, Metro AG and many more. This company originates from different countries like US, France, Germany but they have made their mark in international markets also.

Wal-Mart being the leader has expanded in over 9 countries and operates nearly 1,300 outlets across North America, South America, Europe and Asia. After acquiring the large market share in developed countries, these major retailers are looking at developing markets like China and India. There is extreme competition in retail markets because companies are always looking for acquisition prospects for further expansion.

White et al., 2004, opined that “there is speculation that Carrefour, the world’s second biggest retailer by revenue may be in the sights of Wal-Mart, the only retailer that is bigger, which unsurprisingly, recently signalled it would like to start expanding more aggressively in Europe”. Reduced trade barriers and regulations have facilitated the global companies to enter the markets of developing economies like India while in China the government has increased the barriers in order to increase the competition between the global companies. Grocery and Food retailing are getting concentrated.

According to the Euromoniter report 2007, “the mature markets of Western European and US markets along with growing saturation in Eastern Europe have turned retailers’ focus to the BRIC (Brazil, Russia, India and China) markets, which show extraordinary growth potential”.

Retailers are developing retailing strategies by doing market research specific to a particular geographical region and then using technical innovations and marketing knowledge to develop in that area. There are large formatted supermarkets, hypermarkets and a few small sized formatted stores and grocery stores. Private labeling of the retailers brands are the growing trends now a days and they have become successful as well due to the quality of products they provide at much cheaper rates.

Worldwide: Top 30 Grocery Retailers, 2006

Table1.