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The establishment of large-scale food retailing in emerging countries
and its impact on the supply chain

The case of Morocco

Camal Gallouja

Hind Marzakb

aCEPN-CNRS, Sorbonne Paris Nord University, France

& CReSC, HEC Rabat, Morocco

bMohammed V University-Rabat, Morocco

CEPN-CNRS, Sorbonne Paris Nord University, France

Introduction

The modern distribution sector is undergoing remarkable development in most of the Maghreb countries, particularly in Morocco. This development is set to accelerate in the coming years and arouses covetousness among major European and international groups who see, in the emerging countries of the Maghreb, a real growth driver – one that is, to a certain extent, capable of helping relaunch the development of the dominant shop formats in Europe (hypermarkets and supermarkets in particular). In Morocco, there has been a notable rise in international investment in both food and non-food distribution sectors. While there have been many success stories (Carrefour, BIM, Decathlon, IKEA, etc.), such investments have also resulted in clear 172failure (Auchan, Euromarché, Weldom, Leader Price, Ahold, Atlas, Bricorama, among others).

Regardless of outcome, the FDI’s have, in all cases, had considerable impact on the Moroccan commercial system. Indeed, whether in Morocco or in emerging countries more generally, the influence of modern distribution and ad hoc FDI’s has made itself felt throughout the production-distribution-consumption chain. However, research addressing the impact of modern mass retailing has focused on both the commercial apparatus, particular the relationship between traditional and modern trade, and the consumer; that is, on the changes induced in purchasing habits (Amine, 2012). The issue of logistics and supply chain has been largely neglected.

In this viewpoint we begin by addressing the transformations and upgrading in the supply chain brought about by modern retailing and then move on to the issue of the specificity of logistics outsourcing. The third section focuses on changes in relationships within the supply chain, and the issue of local or exogenous sourcing. Finally, in our last section we analyse the specific case of agriculture and the new logics of fruit and vegetable supply.

1. Modernising logistics
and structuring the supply chain

Everything related to the supply chain (including logistics) has long been a weak link in retailing and distribution in emerging countries. A 2008 paper by the Moroccan Ministry of the Economy and Finance reported broadly on the sector’s structural weaknesses. The road transport offer is considered relatively abundant, yet clearly lacks specialisation, and quality of service is not up to international standards. Some Moroccan suppliers respectful of strict specifications and aware of quality issues have emerged, but in very small numbers. The average age of the Moroccan fleet is advanced and use of truck fleets is very low1. Intermodal transport remains in its infancy and is struggling to develop, partly due to the 173gradual decline of rail transport. The development of logistics service providers is limited by numerous factors, such as the high cost of land (which hampers logistics platform development), a lack of confidence among operators and shippers, and the low level of qualification among the labour force. Furthermore, the supply of logistics services also appears to be limited and not very diversified.

Since then, however, and following a joint report by the World Bank and the Ministry of Equipment and Transport, logistics has emerged as a major issue for competitiveness and national economic development. With the support of the civil service (administration), and driven by a few specific sectors, the offer has been improved and structured. We have thus witnessed a rise in the level of the logistics offer alongside rapid modernisation of the supply chain. Alami and Hdidou (2017) show, for example, how in the course of less than a decade, the services offered by LSPs in Morocco have evolved, both in number and in terms of the services on offer. The authors highlight the strong “diversification of the offer, from simple transport services to the total management of the client’s logistics and supply chain function”. Abid (2011) also stresses “the appearance of logistics consulting firms, logistics real estate specialists and solution integrators”.

Through demands for cost rationalisation, respect for quality and compliance with delivery times, it is clear that modern mass retailing is driving a major restructuring of the logistics chain – and hence of the supply of the local industrial and agricultural fabric (we will come back to this). Moreover, as Amine (2012) points out, “the reengineering of the production apparatus is accompanied by a total revision of the logistics chain aimed at optimising transport, opening storage and distribution platforms, ensuring that the cold chain is not broken, increasing stock rotation and improving product packaging”. The improvement and fluidity of logistics flows… also requires an improvement in management practices, which become all the more necessary as delivery times become tighter and margins trickier. These developments mean that we can, to some extent, follow Mir and Balambo (2021) in noting that “as far as the logistics chains of large-scale distribution are concerned, it is possible to observe a very advanced level of maturity”.

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2. The issue of logistics outsourcing

Another important area in which both national and international large-scale retailers have helped impose new standards (and in so doing contributed to the modernisation of the sector) is logistics outsourcing. Indeed, logistics outsourcing and the reorganisation of supplies is an area in which the arrival of international supermarkets and hypermarkets has had the greatest impact. LabelVie has thus outsourced some of its logistics activities, entrusting these to IDLM2 as of September 2009, when its partnership with Carrefour had just begun. According to LabelVie, that fact that Carrefour has been responsible for managing warehousing operations has been advantageous in several respects; it allows the retailer to concentrate on its core business while also allowing the company to improve both the service and the supply rate of its shops. Moreover, it allows the company to continue its expansion with peace of mind.

The Marjane chain also followed a similar trajectory of logistics outsourcing and recourse to LSP’s very early on. In this case, the move to outsourcing dates from the early 2000s (L’Économiste, 2008). In a fairly traditional way, the company outsourced those activities that do not present any strategic challenge plus those for which it is not in possession of in-house skills. The factors underlying outsourcing decisions are of course evolving (especially in time) but do cover strategic, competence and cost logics. Management of flows is also largely outsourced to two service providers, one national (Foodipex) and the other international (DHL), in line with a so-called integrated management model (reception of goods, cold storage, transport, labelling, delivery to shops). The outsourcing carried out is neither total nor exclusive, in the sense that Marjane wishes to maintain control of the overall process, which it manages to do through its logistics department (see Box 1).

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1. The logistics department at Marjane

Today, Marjane shops deal with more than a hundred suppliers. They are supplied directly and on a permanent basis. For each shop, this requires internal logistics – a storage area, staff to receive goods and risk management (…). At Marjane, the logistics department acts as a supplier to the shops. It is an entity that is legally part of the head office, but which has the status of a cost centre. It keeps analytical accounts and prepares its own operating account (…). The logistics department is also responsible for anticipating the growth of the hypermarket network; this means resizing storage spaces to cope with the increased flow of goods.

Source: Adapted from L’Économiste, No. 2504, April 12, 2007.

3. Supply chain, sourcing and local autonomy

Relationships with suppliers, and with the logistics and supply chain, are important in the development of modern retailing (supermarkets and hypermarkets). Ad hoc studies have put forward contradictory results, sometimes positive, sometimes negative. The first years of the establishment of the foreign large-scale retailer might be expected to negatively impact existing suppliers. Indeed, in most cases, retailers get their supplies directly from their own central purchasing offices, which are usually located in the countries of origin, though sometimes in other countries where they already have a solid base. It is only gradually by building local knowledge and networks that local sourcing tends to increase, to the point where it often takes precedence over foreign and international sourcing. In a study of sub-Saharan Africa, Cattaneo (2013) estimates that in the first phase of implementation, more than 80% of products offered by supermarkets are imported, and that over time local sourcing tends to gradually take precedence over international sourcing, up to the point where it is between 60% and 80%.

Some work has sought to better understand the relationship between the global sourcing of MNCs and the local supply chain. Coe and Wrigley (2002) question the strategies implemented by these distribution MNCs with regard to their supply logic. More precisely, the authors wonder to what extent the global sourcing capacities of these companies might 176allow them to act as Trojan horses, enabling the rise of imports (a phenomenon generally feared by emerging countries). Conversely, they also wonder to what extent (with time and improvements to the quality of both production and supply in the host countries) the MNCs might open the doors to the export of local products to other countries in which the chain has a presence. Using the case of Walmart in Mexico, Durand (2007) highlights significant growth in imports to these countries. However, though Durand’s results seem conclusive in the case of Mexico, work by Coe and Hess (2005) on commercial MNCs in Eastern Europe shows that, following a period during which chains relied heavily on imports came a period during which – with the improvement of the local offer (in particular initiated by the supermarket itself) – local sourcing tended to increase strongly, to the detriment of imports.

In most cases, it seems that the weakness of local sourcing is linked to major failures in the production system and, more generally, in the local supply chain, rather than to a deliberate desire on the part of the MNCs: “The study probed for the proportion of domestically produced goods sold by retailers. On average only about 10% of total stocks were domestic products and about 90% were imports. Largely from China and South Africa. High import dependence is attributed to the absence of local manufacturers”. In fact, while most respondents claimed that they were willing to increase the local content of their stock, this was impossible because of the shortage of local producers and their inability to meet the volumes required by large foreign retailers, as observed in the following statement: “The retail trade is challenged in Botswana because we are not a producing country. Local suppliers often do not have the stock, and we always have to order materials from South Africa, which takes time. Another said: ‘I don’t think there is any producer in Botswana that can supply the quantity needed by our company’” (Phambucka-Nsimbi, 2015).

In his analysis of internationalisation, and in particular the establishment of Sears in Mexico, Savitt (1990), based on Wood and Keyser (1953), comes to clear-cut conclusions regarding the positive effect and improvement of the offer proposed by local suppliers: “Clearly, the most important area Sears has affected is the firms that supply merchandise to it. In the six-year period, over 80% of the merchandise Sears sold in Mexico came from Mexican manufacturers, who had previously operated 177to lower quality and quantity levels. These firms had expanded not only to meet new demands, but also by becoming major suppliers to other firms in the country. Sears achieved this by creating demands on these firms – such as uniform quality, on-time delivery, etc., and supported them by helping them fund production equipment, inventory and delivery systems, and by providing managerial assistance”.

In Morocco, and in the case of food retailing, the issue of sourcing and its relationship with the FDI has often been discussed by the press, as well as in a scant few academic works. In the case of the Marjane group, we have shown that in its relations with Auchan, ONA had a strong desire to develop synergies within the eponymous group (Gallouj et al., 2021). In other words, they sought, as far as possible, to source and supply within other entities of a group known for its very strong diversification. Conversely, Auchan, in the memorandum of understanding signed with ONA, essentially considered sourcing from its own central purchasing unit. This disagreement was one of the elements that led to the conflict and breakdown in relations between the two groups. At another level, the BIM brand has been subject to a great deal of criticism and debate (including harsh parliamentary debate) regarding its procurement practices and logics, which are considered too exogenous. In other words, the Turkish distributor would have favoured the Trojan horse logic. In reality, the retailer seems to be characterised by sourcing practices as well as, more generally, by fairly balanced logistical practices (see Box 2).

2. Logistics, sourcing and supplier relations: the example of BIM

During the very first years of BIM’s establishment, most of the range offered comprised products of Turkish origin. Since then, the discounter has largely rebalanced its sourcing and, as Hassan el Arif explains, “the current composition of the shelves bears no relation to what it was when the discounter was set up in 2008. In most outlets, most products are indeed produced in Morocco”. This evolution towards “Moroccanisation” of sourcing was driven by strong pressure from the Moroccan government, by Moroccan consumers’ lack of familiarity with the many Turkish brands on offer, and by a desire to speed up supply times in order to reduce costs.

Because BIM is not bound by any compulsory referencing of imported products, short supply is systematically sought. However, this short supply can sometimes be constrained. Indeed, BIM imposes very strict specifications on its suppliers, which they are obliged to comply with, to the letter. More specifically, prior to any purchase, 178each type of product (whether imported or manufactured locally) is subjected to laboratory tests. BIM regularly approaches Moroccan operators with a view to having its own brands produced locally, and even to extending its range of products. Yet it finds itself faced with the inability of local suppliers to produce according to the specifications provided. As one manufacturer explains: “They have precise and very demanding specifications; as a result, the Moroccan industrial fabric cannot keep up. Matching ‘made in BIM’ quality and price remains a delicate matter; they were in search of an agro-industrialist capable of manufacturing cornflakes in Morocco but could not find one”.

BIM store thus claims to have a balanced mix of local production and imports. It resorts to imports mainly when, for technical reasons (or sometimes because of volume), Moroccan manufacturers cannot keep up. Nevertheless, it is highly likely that with the rise in purchase values (that is, with the increase of BIM imports to Morocco), BIM’s traditional Turkish, German or Swiss suppliers will be strongly encouraged to set up in Morocco. Indeed, BIM favours a just-in-time economic model, which only makes sense if the main suppliers are located within a reasonable distance of the brand’s logistics platforms.

Source: Adapted from Gallouj (2020).

Paradoxically enough, beyond speculation and governmental injunctions, it can be seen on the ground that BIM’s sourcing is essentially local and that its use of local suppliers and service providers far exceeds what can be observed among many other brands, including national brands. In any case, we can see that BIM’s establishment has had a positive impact on the organisation and modernisation of local suppliers in Morocco, in particular because the brand has offered substantial support to a certain number of these in upgrading and improving their offer (Gallouj, 2020).

4. Food supply and the farming community

In the case of farmers, research results are less clear-cut, and there are strong discrepancies in terms of the impacts of modern retailing. Tandon et al. (2011) offer an interesting review of the literature in which they highlight the strong disparity in research results: “The expansion of the modern retail sector might also increase productivity in upstream 179industries in the supply chain. In particular, consolidating the buyers of agricultural goods may alter the relationship between farmers and buyers, leading to increased agricultural productivity. Given the large share of the economy devoted to agriculture in developing countries, these efficiency gains might significantly increase welfare. Several studies have found evidence of farmers benefiting from the technical assistance and contracting arrangements provided by modern retailers (Faigenbaum et al., 2002; Dries et al., 2004; Hu et al., 2005; Birhtal et al., 2005). However, other studies find benefits to domestic agricultural producers to be lesser (Dries et al., 2004; Hernandez et al., 2007) or non-existent (Wang et al., 2006)”.

The effects of modern retailing on the supply structure are not necessarily uniform across the board. Some studies have thus been able to distinguish between the effects on large producers and suppliers and the effects on smaller structures. Indeed, in most cases, the reengineering in question favours large suppliers, producers and farmers. In other words, it often excludes small farmers and producers who, due to their lack of technical and financial capacity, are unable to meet the needs of large-scale distribution. In this sense, Phambuka Tsimbi et al. (2015) underline: “Supermarkets are aware that customers will switch to other competitors due to unavailability of quality products and thus prefer large farmers who have the potential to meet the quality and quantity requirements. However, many small farmers are excluded from supermarket supply chains in developing countries because of inadequate capacity to produce the quality and quantity required. In particular the AT Kearney report (2006) observed that the local supply in India is fragmented because of government policies and legal issues and thus it is difficult for farmers to enjoy benefits associated with economies of scale. Small-scale farmers in Chile were also unable to penetrate supermarket supply chains because of failure to meet the quality and quantity demands of supermarkets. Similarly, in Sub-Saharan Africa, there is growing concern about the exclusion of small-scale farmers from supermarket supply channels because they are unable to meet the specific quality and quantity requirements and standards set by supermarkets”.

In the case of Morocco (and concerning the case of fruit and vegetable supply specifically), Chohin-Kuiper and Doukkali (2006) show how 180mass retailing has led to major transformations in the structure and functioning of supply systems. They highlight four fundamental changes:

–establishment of distribution centres; the largest retailer went from a store-by-store supply to the creation (in 2005) of a central purchasing unit that redistributes products to all its shops, with some exceptions;

–improved logistics, alongside the development of central purchasing units with, for example, an obligation to deliver on pallets;

–change in supplier type, with supplies on the wholesale market essentially coming from wholesalers who perform the function of grouping products, preferred suppliers and importers. Once the central purchasing office had been set up, the priority is direct supplies from producers who become preferred suppliers, with supplies from importers continuing to be provided on the wholesale market;

–specification of supply standards and conditions (variety, colour, size, type of packaging or delivery schedule, for example).

Using the case of Marjane, these same authors show how the Moroccan market is in line with trends observed in many other countries (Reardon et al., 2003; Neven, 2004): “Centralisation of supply and establishment of distribution centres as the number of shops increases; shift from sourcing from traditional wholesalers to the use of specialised wholesalers; shift from buying from markets to a system of preferred suppliers; shift from local to regional sourcing; imposition of private quality and safety standards”.

Conclusion

Just as it has contributed to a profound modification of the whole supply chain, it is undeniable that the spread and anchorage of large-scale retailing in Morocco has contributed to both a quantitative and a qualitative reinforcement of the logistics offer. The margins of 181improvement do however remain very wide, especially as a result of the fact that this large-scale retailing represents a minority share of domestic trade (between 20% and 25% according to estimates). Moreover, it can be seen that even today, in the Moroccan context, while operators do manage to coordinate themselves on the physical aspect of the flows, this is less often the case in terms of the informational aspect. Many studies have highlighted both the weak integration of information technologies (and EDI in particular) and the still-significant weight of the informal sector (Abbad et al., 2012; Abbad and Paché, 2013).

Another important element refers to the double standards in operation between what plays out on domestic markets and what plays out on export markets. However, the traditional gap between suppliers to export markets and suppliers to local markets is gradually disappearing as a result of the developments observed and the approximation of local and global requirements in terms of packaging, standardisation and quality. In other words, with the stabilisation of demand from local supermarkets, suppliers to export markets are being led to consider new outlets in local markets. Moreover, the arrival and development of modern supermarkets also opens up important outlets for local suppliers and local infrastructures. This is the case, for example, of Carrefour, which is interestedly considering the passage through the port of Tangier Med: “The repercussions of Carrefour’s arrival in Morocco may reach beyond the sector itself. During a visit to the Kingdom, Carrefour ‘s management was won over by the potential of the port of Tangier Med. Given that the Carrefour group latter transits no less than a billion dollars’ worth of goods through the port of Valencia each year to supply its shops in Spain and Portugal, it would make a good hub for its supplies” (L’Économiste, February 13, 2009).

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