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In chapter one, we defined retailing is the sales of goods and services to the
ultimate consumers for personals, family or household use. While food retailing
referred to any business activities that sale food related product to the end user.

This chapter places great emphasis on helping students understand the concept
of retailing. To reinforce students’ understanding on retailing concept as an
important foundation of a successful business with an emphasis on the total
experience, customer service, and relationship retailing

Key terms for review:

Retailing Common retail Chain retail business

Food retailing ownership Network marketing
Channel of Franchise Distribution – selective,
distribution Dealership intensive and exclusive
Multi-channel Retail strategy Relationship
retailing retailing

Ali Mohamad Noor 1

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
 Chapter Overview

What is Retailing
Distribution Channel Relationship among
retailer & their
supplier
Types of Retailing

Special characteristic
of retailing

Developing & applying

a Retail
Strategy

Retailing concept

Issues related to
retailer’s performance

Learning Objectives

After reading this chapter, you should be able to:

1. Define retailing, consider it from various perspectives, demonstrate its impact

and highlighted its special characteristics.
2. Explain the concept of strategic planning and apply it.

3. Explain why the retailing concept is the foundation of a successful business,

with an emphasis on the total experience, customer service, and relationship
retailing.
Ali Mohamad Noor 2
Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
CHAPTER 1 – RETAILING

INTRODUCTION TO RETAILING

What is retailing?

We seem to ignore the impact of retailing has on our lifestyle. In fact, retailing is
responsible for matching individual demands of the consumer with vast quantities of
supplies produce by a huge range of manufacturers, has mad a significant contribution
to the economic prosperity that we enjoy so much. There many function of retailing apart
from matching consumer demand. Breaking down merchandise into size that are
suitable for an individual household could not be denied. Just imagine if butcher store
does not exist – and we have to go to the farm to buy cattle for a meat.

Retailing is the sales of goods and services to the ultimate consumers for personals,
family or household use (Cox and Brittain, 2004). In fact, retailing is responsible for
matching the individual demands of consumer with vast quantities of supplies produced
by huge range of manufacturers ( Dunne and Lusch, 2005). It can be concluded that
retailing consists of the final activities and steps needed to place a product in the hands
of the consumer or to provide services to the consumer. Retailing is the last step in the
supply chain that may stretch from as far as the west to east of the world to our own
neighborhood. Therefore any company or a business that sells a product or provides
services to the final consumer is considered performing the retailing function. When we
said any company or business, it means regardless it is selling to consumer in a store,
the mail, through internet, over the phone, door to door, vending machine or any other
way that it can reaches the final consumer is considered as retailing.

While Food Retailing refers to any business activities that offer of sell food related
product to end-user.

Retailing is the last stage in a channel of distribution – activities of retailing includes

stores and non stores as mentioned earlier. Meanwhile foodstores retailing includes
supermarkets, grocery stores, convenience store foodstores and specialized foodstores.
This specialized foodstores includes meat and seafood market, produce markets, retail
bakeries, and candies and nut store and many more. It includes those foodstores that
dealing with any food product. In Malaysia we can list down food retailing business such
as hypermarket, supermarket, grocery or sundry store, night market (pasar malam),
farmer market (pasar tani), restoran, stall and many more.

Many observers of the world business scene belief that retailing is the most stable and
serious sector of the business. This is hold true seen retailing is said to account under
20% of the worldwide labor force and it effect every living individual as a customer. It is
the largest single industry in most nations and is currently undergoing many changes in
exciting ways (Dunne and Lusch, 2005). There are a lot of changes, for instances many
Ali Mohamad Noor 3
Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
traditional supermarket firm are reviewing their pricing and product mix strategies in
response to the growth of nontraditional, proce-oriented retailers, including hypermarket,
discount mass-merchandise store, warehouse club stores, and supercenters. Food
product have become increasingly important to the growth strategies of nontraditional
retailers, as evidenced by the rapid introduction of supercenter or mega shopping store –
a large combination supermarket and discount general merchandise store, with grocery
product accounting for up to 40% of the selling area. Other retailers, such as drugstores,
dollar stores, and discount mass-merchandise stores, have increased food offerings,
including perishable food, in recent year.

• Retailing involves sale of tangible goods as well as services.

• Retailing may not have to involve a store – Mail / phone / direct selling /
web transaction and vending machine fall within the scope of retailing.

Wholesaler Final
Manufacturer Retaile
consumer
r

Retailing is the last stage in the channel of distribution. Retailer as a contact

between manufacturers, wholesalers, and consumer. Manufacturers prefer to
make one basic type of item and sell their entire inventory to a few buyers as
possible, but consumers want to choose from a variety of goods and services
and purchase a limited quantity. Retailers collect assortment from various source,
buy in large quantity, and sell in small amounts. This is called sorting process.

Retail Types – There are three major retailing. The first is the market, a physical location
where buyers and sellers converge. Usually this is done on town square,
sidewalks or designated areas or streets and may involve the construction
permanent or temporary structures (market stalls). The second form is hop or store
trading. Some shops use counter-service, where goods are out of reach of buyers,
and must be obtained from the seller. This type of retail is common for small
expensive items (e.g. jewelry) and controlled items like medicine and liquor. Self-
service, where goods may be handled and examined prior to purchase, has
become more common since the twentieth century. A thisrd form of retail is virtual
retail, where products are ordered via mail, telephone or online without having
been examined physically but instead in a catalog, on TV or on a website.
Sometimes this kind of retailing replicates existing retail types such as online
shops or virtual marketplaces such as eBay.

Ali Mohamad Noor 4

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
Common retail ownership – there several types or forms of retail business ownership
available. Below are few common types of retail ownership.

 Independent retailer – is one who builds his / her business from the ground up.
From the business planning stage to opening day, the independent retail owner
does it all. They may hire consultants, staff and others to assist in the business
endeavor. Family and Individual restaurant ownership is a good example of
independent retailer in food retail business.

 Franchise – getting a right to use a name, product, concept and business plan.
The franchisee will receive a proven business model from an established
business. Example of franchising food retail businesses are McDonald, KFC,
A&W, Pizza Hut, Dominos, Ayamas, Chicken Rice Shop and many more.

 Chain retail business – sometimes called retail chain are a range of retail outlets
which share a “brand name” and central management, usually standardized
business methods and practices. They are a type of business chain. Unlike
franchise the store may be owned by one company or franchisee. Common
features of all chain retail business are centralized marketing and purchasing,
which often results in economies of scale – meaning lower costs and apparently
high profits. (Tesco, Giants, Carrefour, Econsave, 7 Eleven etc)

 Dealership – retailers may find the business model of a licensed dealership as a

mix of franchise and independent retailer. The licensee has the right (sometimes
this is exclusive) to sell a brand of products. Unlike franchise, the dealer can sell
a variety of brands and there are generally no fees charged to the licensee.
Dealerships may or may not be identified as an authorized seller or by the
company’s trademark. Licensed dealer to distribute Nestle’s product is example
of dealership.

 Network marketing – and also known as multi-level marketing is a business

model where the selling of products depends on the people in the network. Not
only is a product being sold, but other salespeople are being recruited to sell that
same product. Ammay, Tupperware are some example of this retail network
marketing..

Ali Mohamad Noor 5

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
The Retailer’s Role in the Sorting Process

Manufactur
er
Brand A Brand A
customer
Wholesaler

Manufactur
er Brand B
Brand B customer

Manufactur Brand C
er customer
Brand C
Wholesaler Retailer
Brand D
Manufactur customer
er
Brand D
Brand E
customer
Manufactur
er
Brand E
Brand F
Wholesaler customer

Manufactur
er
Brand F

The relationship among retailers and their suppliers

Complex relationships – retailers are part of the distribution channel, manufacturers

and wholesalers must be concerned about the caliber of display, customer service,
store hours, retailers’ reliability as business partners etc.

Relationships among retailers and suppliers can be complex. This is because retailers
are part of the distribution channel, manufacturers and wholesalers must be
concerned about the caliber of displays, customer service, store hours, and
retailers’ reliabilities as business partners. Retailers are also major customers of
goods and services for resale, store fixtures, computers, management consulting,
and insurance.

Retailers and suppliers have different priorities – the priorities between retailers and
suppliers may be different. These priorities includes – control over the distribution
channel, profit allocation, the number of competing retailers handling suppliers’
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Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
 products, product displays, promotion support, payment terms, and operating
flexibility. It is said that due to the growth of this retail chains, retailers have more
power than ever. Unless suppliers know retailers’ needs, they cannot have good
rapport with them; and as long as retailers have a choice of suppliers, they will pick
that offer them more.

Channel relations tend to be smoothest with exclusive distribution, whereby suppliers

make agreements with one or a few retailers that designate the latter as the only
ones in specified geographic area to carry certain products. This stimulates both
parties to work together to maintain image, assign shelf space, allot products and
costs, and advertise.

Channel relations tend to be most volatile with intensive distribution, whereby

suppliers sell through as many retailers as possible. This often maximize suppliers
sales and lets retailers offer many brands and product version. Competition among
retailers selling the same items is high: retailers may use tactics not beneficial to
individual suppliers, as they are more concerned about their own results. Retailer
may assign little shelf space to specific brands, set very high prices on them, and
not advertise them.

Selective Distribution, suppliers sell through a moderate number of retailers a

combines aspects of exclusive and intensive distribution). Suppliers have higher
sales than in exclusive distribution, and retailers carry some competing brands. IT
encourages suppliers to provide some marketing support and retailers to gave
adequate shelf space.

Ali Mohamad Noor 7

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
Comparing Exclusive, Intensive, and Selective Distribution (taken from Berman and Evan, 2004)

Exclusive Intensive Selective

Distribution Distribution Distribution

Number of retailer

Potential for conflict

Support from
supplier
(retailer)

Supplier’s sales

Retailer’s brand
selection

Product (retailer)
image

Competitions among
retailers

Lowest

Medium

Highest

The special characteristics of retailing

There are three factors that distinguish retailing from other types of business. Each
factor imposes unique requirement on retail firms.

Ali Mohamad Noor 8

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
The average amount of sales transaction for retailers is much less than for
manufacturers: the low amount creates a need to tightly control the costs
associated with each transaction ( such as credit verification, sales personnel, and
bagging); to maximize the number of customers drawn to the retailer, which may
place more emphasis on cost control can be tough. For example, inventory
management is often expansive due to the many small transactions to a large
number of customers. A typical supermarket has several thousand customer
transactions per week, which makes it harder to find proper in-stock level and
product selection. Thus, retailers are expanding their use of computerized
inventory systems.

Final consumers make many unplanned or impulse purchase: surveys show that a
large percentage of consumers do not look at ads before shopping, do not prepare
lists (or deviate from the lists once in store), and makes fully planned purchases.
The behavior indicates the value of in-store displays, attractive store layouts, and
well-organized stores, catalogues, and Web sites. Because so many purchases
are unplanned, the retailer’s ability to forecast, budget, order merchandise, and
have sufficient personnel on the selling floor is more difficult.

Retail consumers usually visit a store, even though mail, phone, and Web sale
have increased: despite the inroads made by nonstore retailers, most retail
transactions are still conducted in stores – and will continue to be in the future.
Many people like to shop in person; want to touch, smell, and / or on the products;
like to browse for unplanned purchases; feel more comfortable taking a purchase
home with them than waiting for a delivery; and desire privacy while at home. This
store-based shopping orientation has implications for retailers; they must work to
attract choppers to their stores and consider such factors as store location,
transportation, store hours, proximity of competitors, product selection, parking,
and ads.

Ali Mohamad Noor 9

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
The Special Characteristics Affecting Retailers (taken from Berman and Evan, 2004)

Small average sale Impulse purchase

Retailer’s
strategy

Popularity of sources

The Importance of Developing and Applying a Retail Strategy ( An overall plan

guiding a retail firm)

The six steps in strategic planning

1. Define type of business of the goods or services category and the company’s
specific orientation (such as full service or “no frills”).

Ali Mohamad Noor 10

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
2. Set long-run and short-run objectives for sales and profit, market share, image,
and so on.

3. Determine the consumer market to target on the basis of its characteristics (such
as gender and income level) and needs (such as product and brand
preferences).

4. Devise an overall, long-run plan that gives general direction to the firm and its
employees.

5. Implement an integrated strategy that combines such factors as store location,

product assortment, pricing, and advertising and displays to achieve objectives.

6. Regularly evaluate performance and correct weaknesses or problem when

observed.

The Retailing Concept

• Customer orientation – retailer determines the attributes and needs of its

customers and endeavors to satisfy these needs to the fullest.

• Coordinated effort – the retailer integrates all plans and activities to maximize
efficiency.

• Value-driven – retailer offer good value to customer, whether it be upscale or

discount. This means having prices appropriate to the level of products and
customer service.

• Goal orientation – retailer sets goals and then uses its strategy to attain them.

Applying the Retailing Concept (taken from Berman and Evan, 2004)

Ali Mohamad Noor 11

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
 Customer orientation

Coordinated effort
Retailin
Retail
g
strategy
Concep
t

Value-driven

Goal orientation

Issues that relate to retailer’s performance

It is common to find out that one consumer may shop at a discount store, another at the
neighborhood store, and other at a full-service firm, these diverse customers all
have something crucial in common: They each encounter a total retail experience
(including parking to check-out point) in making a purchase.

Total retail experience – includes all the elements in a retail offering that encourage or
inhibit consumers during their contact with a retailer. Many elements, such as the
number of salespeople, displays, prices, the brand carried, and inventory on hand,
are controllable by a retailer; others, such as the adequacy of on-street parking,
the speed of a consumer’s modem, and sales taxes, are not. Is some part of the
total experience is unsatisfactory, consumers may not make a purchase – they
may even decide not to patronize a retailer again.

In planning its strategy, a retailer must be sure that all strategic element are in place. For
the shopper segment to which it appeals, the total experience must be aimed at
fulfilling that segment’s expectation.

Customer service – refers to the identifiable, but sometimes intangible, activities

undertaken by a retailer in conjunction with the basic goods and services sell. It
Ali Mohamad Noor 12
Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM
 has strong impact on the total retail experience. Among the factors comprising the
customer service strategy are store hours, parking lot, shopper friendliness of
store layout, credit acceptance, salespeople, amenities such as gift wrapping, rest
rooms, employee politeness, delivery policies, the time shoppers spend on check-
out lines, and customer follow-up. This list is not all inclusive, and it differs in terms
of the retail strategy undertaken.

Satisfaction with customer service is affected by expectations (based on the type of

retailer) and past experience, and people’s assessment of customer service
depends on their perception - not necessarily reality. Different people may evaluate
the same service quite differently. The same person may even rate a firm’s
customer service differently over time due to its intangibility though the service
stays constant.

Relationship retailing – seek to establish and maintain long-term relation with

customers, rather than act as if each sales transaction is a completely new
encounter. This means concentrating on the total retail experience, monitoring
satisfaction with customer service, and staying in touch with the customers. To be
effective in relationship retailing, a firm should keep two points in mind:

1) To maintain an existing customer is much cheaper than to find a new

customer.

2) Advancement of computer technology has made data storing and gathering

much easier.

Discussion questions

1. Why it is important for retailer to understand the concept of retailing?

2. Which types of distribution approach is appropriate for a fine dining restaurant?

3. Why some retailer prefers to choose an intensive distribution while others may
choose an exclusive distribution.

4. In your own word why it is important to plan strategically?

5. Why total experience is vital in retailing?

6. How can a restaurant business management customers’ “total experience”?

Ali Mohamad Noor 13

Culinary Arts Department
Faculty of Hotel & Tourism Management
UiTM