[MUSIC] Hello and welcome to this module about coordination quality and modern retail. Supermarkets are key players in the food value chain. In this module we will learn how they work and why they are so important for food quality. My name's Carlo Russo and I'm an Associate Professor at the department of economics at the University of Cassino and. This model is divided into two lessons. In the first lesson, we introduce the topic of modem retail, that is modern supermarkets, and we'll learn how data leaver quality and value. In the second lesson, we focused on coordination, and we study how supermarket organized their supply chains. In Model 12, we cover several issues about model retail, quality, and coordination. We will build on the notion we learned in Peter's model. We will use the tool from Model 2, cost and consumer ,where we will study how supermarkets create value for consumers and shareholder. We will adapt the general definition of quality, as you remember, the bundle of attributes in a product to the case of modern retail. We will see that the case of modern retailers, quality is giving consumer what they want for the lowest price possible. We will also learn value can be created in many ways. We will refer to the topic of Module 11, coordination, when we will study how supermarket design help them solve the incentive problem with their suppliers. If you did not watch those videos already, now is a good time to do so. Here is a more detailed roadmap of Module 12. In lesson one we begin explaining where modern retails can form and why now we use less supermarkets to trade the vast majority of our food. Then we will learn the basics of supermarket functioning. First we study how emerging retail creates value for customer and how they convert it into shareholder value. Then we cover topics in management practices such as category management and supply chain organization. In lesson two, we focus on coordination issues in supermarket supply chains of course. We begin with procurement contracts and then we study implicit threat as coordination mechanism. [INAUDIBLE] suppliers do their best to meet the retailer's requests because they fear possible retaliation, at least losing an important customer. Then we cover coordination between retailers and suppliers in a specific decision, which product to place in a supermarket's shelf. This is a nice example of the importance of information in content design, the same topic we discuss in module 11. The last topic in lesson two is trade spending. This is a distinctive and important feature of modern retail content. Supplier must pay a given amount of money to supermarket in exchange of variety of services. We will see why this is the case and the role of trade spending and ensuring efficient coordination. Let's start Lesson 1. In this video you will learn the key issues in modern retailing. You will be able to understand and explain why the majority of your food nowadays is traded by modern retailers, that is supermarkets. You will be able to apply the general principle of value creation we discussed in module two, to the case of supermarkets. And finally, you will be able to understand coordination along with the supermarket supply chains and apply the general principle of contract design. The first topic in lesson one is the emergence of supermarkets. Why supermarkets nowadays are so important in retailing. Supermarkets are a relative new form of retail, at least in Europe. Historically the origin was traced back to the early 1930s in the USA where they developed privately after World War II. In the UK, the first supermarket chains opened in the 1950s. The business model then spread rapidly through Europe. Nowadays supermarkets are a common retailer organization globally. They dominate the retail industry and shape the landscape of urban and rural areas alike. Summarizing, we can explain the rise of supermarket with three key drivers. Modern retail Is the answer of food system to major changes in modern society. A change in society calls for new service and activities, and this is a great profit opportunity. Also, new technologies such as logistic or information technology make supermarket possible. But technology alone is not as recent. The improvement in Management Science, including contract theory Were of paramount importance in the emergence of supermarkets. At the end of the day, it is a basic economic mechanism. The entrepreneur sees opportunities, and he wants profits. Then he designs a business model to convert opportunities into profits. The emergence of supermarkets is a great example of this general principle. Supermarkets developed over a period of important changes in society. Summarizing, we can identify three key factors, improved education, increase in per capita income, and increase in woman employment rate. For example, compare today's European society with the one in the 1940s. Nowadays, people have more access to entire education and in general are more knowledgeable and more able to process information. They're also richer, as post-war economic development created a vast middle class with a relatively high living standard. Economic development and cultural change after new employment opportunities for women, that access to after market improved. This had an important impact on the structure organization households. Women used to be the person in charge of buying and preparing food. And a significant part of their time was devoted to such activities. With women employment, the old gender role were questioned. The time involved for food purchases and preparation shrank and women are actively involved in production activities. Consider the joint effect of women employment in increasing personal income. The combined effect of this factor is an increase in the opportunity cost of time. Nowadays, time is, labor is. Without a person devoted to food purchase and preparation, the time used in such activities is not available for working or leisure. The higher is the wage, the higher is the loss from not being able to work because you must cook or shop. Similarly, as leisure time becomes more and more scarce, we are less willing to give it up for task. The final effect is an increasing demand for time-saving services so that we have more time for work and leisure. For example, people might prefer to stop once a week in a single large store where they can find everything they need instead of shopping everyday in many small specialized stores such as batteries, grocery shop, bakeries and so on. This is why modern retail is based on large supermarket, instead of small units. Now, consider the combined effect of education and income. From our studies in module 2 we learned that consumer exhibit a demand for attributes in order to satisfy their needs. Social theory suggested assumed basic needs are satisfied more complex and sophisticated needs emerge. This is true for food consumption as well. With economic growth, basic nutritional needs such as calorie intake are satisfied. Consumer now attach additional needs such as health, identity, status or responsibility. Often the new attributes are related to culture and knowledge. For example, the mode we learn about the link between food and health, the stronger the demand for healthy food becomes. A demand for complex attributes arises as income and education grows in society. The demand for complex attribute and pan saving services, determines a key feature of today's food consumption, the demand for variety. A key feature of time saving food, we can call it convenience food, is that a least part of the preparation process is being delegated to the industry. Instead of buying raw materials such as sugar, milk or flour, consumers now buy a ready-to-eat cake. There is an important consequence in this change of behavior. Each consumer can bake his favorite cake starting from pretty much the same basic ingredients. No matter what the favorite cake is, all consumer may buy the same basic materials, for example, sugar, flour, chocolate. The demand focus on few simple items. If consumer buy ready-to-eat cake instead, each buyer ask for a favorite cake. Consumptions moves to over a demand of a variety of complex goods. Each store must carry a variety of cakes, so that each consumer can find his or her favorite one. This is why supermarket carries so many varieties of so many product. Demand for time-saving services and demand for variety are important drivers in the emergence of supermarket. We will come back to this in a few minutes.
