Retailers are expanding ever further, and food manufacturers are becoming more and more multinational. Expansion can bring increased profits, not just through higher sales but also more efficient sourcing and supply chain synergies. But expansion can also lead to problems – reduced quality, low wages and damaged reputations. Bernice Hurst investigates.
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Some people think biggest is best. Others, with varying degrees of vehemence and commitment, disagree. The question is whether or not there is any common ground.
While large-scale production is necessary to feed the world’s population and make money for those who fund operations, it is now believed by many that fertilisers and pesticides can harm the ground, water and people. Getting bigger may be advantageous in the short term but may also cause long-term problems. Least worrying are possible environmental changes; more worrying are potential natural genetic modifications and evolution, which cannot be predicted or prepared for, especially those inhibiting sustainability.
Problems can arise at the very beginnings of the supply chain, at the sourcing stage. Finding a new product and then seeking enough producers, or encouraging producers to grow to order, can result in quantities so vast that the identity of the original disappears under the weight of uniformity. Once fresh food is purchased in bulk, sent to a distribution centre, processed and packaged then sent out again to its ultimate destination, it may bear little resemblance in appearance or quality to what the buyer first tasted.
Overproduction may also mean flooding markets and depressing prices, making it harder for small producers to trade out of poverty and leaving more dependent on aid.
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By GlobalDataBigger farmers and manufacturers have to produce more for less and find ways to cut costs. The result can be low wages, bad conditions, gangmasters and migrant workers, on top of pesticides, antibiotics and preservatives to increase yield and speed production time. Produce has to be packed quickly and prematurely then shipped, artificially ripened and treated to withstand transport conditions. Packaging is needed to protect shelf life and appearance.
Reduced quality?
Intensive farming leaves insufficient room for livestock to move and grow, increasing the risk of injury and opportunities for disease to spread. Antibiotics and growth hormones were used for many years as prevention and compensation; artificial substitutes that raised considerable outcry regarding animal welfare. Again, rapid short-term expansion caused long-term difficulties which have had to be reversed.
Growth in the processed foods sector illustrates some of the conflicts arising when manufacturers grow too big. Mass production facilitates output of numerous variations on a basic recipe emerging from single factories. Unfortunately, this makes contamination easier as with the Sudan 1 crisis in spring 2005. In addition, preservatives are again needed to increase shelf life and justify sufficiently large-scale production capacity to achieve cost efficiencies in methods and ingredients. Preservatives are also needed to help the finished product withstand the effects of packaging and transport.
Celebrity chef developed and branded products are marketed on the basis of their recipes but mention is rarely made of the way the dishes are transformed in taste and texture when cooked in massive quantities and altered with the ingredients that will ensure a stability and longevity. Packaging and transport are factors with which the original chef may be unfamiliar, being more used to cooking and serving diners in situ and within minutes.
Identifying new markets
Pursuing the supply chain to its other extreme highlights criticisms of scale in retailing. The world’s biggest retailer is also, apparently, one of the world’s biggest targets. Everything Wal-Mart related is done on a grand scale. At the moment, the “largest class action lawsuit in US history” is pending to deal with allegations of discrimination against female employees. While vigorously defending the charges, the retailer is also trying to break the suit into smaller chunks, state by state; in this instance, even they agree that bigger is not always better.
It all depends on what you do, where you do it and with or to whom. Following not too far behind Wal-Mart in the love/hate stakes is the UK’s Tesco, which recently announced profits exceeding £2bn. Tesco chairman David Reid describes global expansion and competition as an opportunity and insisting that it benefits British consumers.
Like both Tesco and Wal-Mart, many others have identified new markets as their priorities, hopefully to avoid antagonising customers at home. Carrefour has opened its 60th hypermarket in China and there are plans for 12-15 more each year. 7-Eleven has also targeted Asia, having announced its intention to open up to 240 stores in Malaysia during 2005 at a rate of some 20 per month. Meanwhile, German-based Metro Cash & Carry has found a market worth pursuing in Vietnam; building on its second wholesale centre in Hanoi is due to start by the end of July.
Unique benefits
Such different approaches can inspire questions about why other large companies don’t have similar experiences. Mergers, acquisitions and consolidations have reduced the number, and increased the size, of multinational companies drastically but not all attract the same level of raised eyebrows. Which implies that there is something within some companies that is making the public wonder whether they are getting too big and powerful. Nestlé has been fighting global protests for more than two decades whereas others such as Unilever, Kellogg and Kraft, to name but a few, hardly provoke a whimper by comparison.
There are no absolutes in food manufacturing and retailing no matter what the pundits, CEOs and chairmen of the board may say. Ask the question, is bigger better, and give it due consideration rather than a knee-jerk response. The only fair and accurate answer has to be “sometimes”. Certainly many companies take their corporate responsibilities seriously and use a proportion of their profits to do good in their communities. They also insist that they fight to reduce prices in response to consumer demand and are not unduly pressuring suppliers or employees.
Large businesses maintain that critics are often incited by individuals or groups with their own agendas. Being big has unique benefits that most people would miss if they had to do without them. What consumers say in response to questions and what they do when shopping are not always the same. And they ask, in turn, if we really care how big they get, as long as what they take to market is, in the end, edible, convenient and affordable.
