Several technology advancements favor the merchants or supermarkets. The most important one was definitely refrigeration. A dramatic improvement in this technology was the use of freon gas, a synthetic refrigerant, in 1930. Now, this is pretty much about the same time of the first supermarkets in the U.S. In the following day, home refrigerators became popular and middle class families could preserve food for longer time. Shopping every day for perishable commodities, such as butter or milk, for example, was not necessary anymore. Household can collect their food purchases into fewer trips to store. The technology for timesaving services in food purchasing was ready. Transportation is a key advancement too. The improvement in the way goods move across space favor the supply of a variety of food, facilitating the growth of large supermarket share. At the same time, company opened several store across countries and internationally. Without careful logistic, retail giants like WalMart or Carrefour could not exist. Also managing such massive flow of products require appropriate information and communication technology. For example, imagine running an Apple store without ICTs. The shared effort of placing order for ten or hundred thousands of different products without a computer, it's just too much. And finally, a better understanding of consumer psychology powered the development of supermarket packaging strategies. We will come back to this in a few minutes again. Now, let's move to management science in order to complete the big picture. Scientific progress is not just discovering new technology. Sure, technological innovation is of great importance. Yet, it was not sufficient to trigger a radical change in the retail industry we observe with supermarket. The managerial ability of exploiting technology in purchasing opportunity was also a key element. Progress in management science allowed enterpreneurs to develop entirely new forms of business, changing the rule of the game in modern retailing. The topic is vast and interesting but in this video we just mention a few important concepts. Logistic is the part of supply chain management planning, implementing, and controlling the forward and reverse flow of goods, services, and information from the point of origin to the point of consumption. In one sentence, logistics brings consumer what they want, where they want it, and exactly when they want it, at the minimum cost possible. Without a careful logistic, organization, scientific progress in transportation would be way less effective than what is now. Finance also played a critical role in the emergence of supermarket. The impact was twofold. First, supermarkets have capital intensive operation. Large store, huge assortment, workforce, use a lot of money. Finance techniques for capital procurement were important in supporting the business. But also supermarket generate cash flows. The turnover of a single store can be impressive, at a supermarket chain aggregate many stores. This means that they end up a lot of cash. We will see in a few minutes the cost management can be the difference between a successful supermarket and bankruptcy. But also in module three you started market analysis. This technique are used by supermarket too. Think logistics, for example. It's hard to give consumer what they want, if you don't know what they want. Market Analysis allows supermarket to choose the assortment consumers are willing to pay more for. We also cover organization and contract in module 11. In Lesson two, we will discover the importance of modern retail. Contracting is like working behind the scenes. Consumer do not see this work but without it, the whole system collapse. So management science played an important role in the management of supermarket. Together with innovative technologies, a new trend in consumption, they changed the way of business. In the next slide, we tried to describe a big picture of such changes. Consider the most important innovation in technology and management science that we just mention, refrigeration, ICT, finance, logistic, organization, and market analysis. Now, consider a new trends in demand that we mentioned a few minutes ago. Demand for variety and for time-saving services. Now, we cross the element to these two groups to understand the key characteristics of modern retail. Consumers with access to refrigeration can save time by shopping once a week, instead of every day. As we mentioned before, this is where supermarkets are organized as big one stop shop where people can buy everything they need for the week. This suspends a lot of supermarket features. For example, a weekly grocery shopping is heavy. This means that supermarkets must be accessible by car with large parking lots. But refrigeration offer other ways for providing consumer time saving services and variety. Convenience food is perhaps one of the most distinctive one. Convenience food refer to food that is commercially prepared in order to optimize the ease of consumption. For example, Frozen Dinner already do its soups. Convenience food provide value to consumer, but, as we mentioned earlier, they must meet heterogeneous consumer preferences, meaning that a one stop shop must carry a large variety of convenience food. One stop shop of a variety of product. This means we need a very large store. A medium-sized supermarket offers thousands of different products. Such large store would be impossible without efficient logistic, advanced information, and large capital investment. But also economies of scale, logistic and finance are a key factor in supermarket success, because opening a new store decreases with the size of the retailing company. Once the logistics systems in place, the marginal cost of supplying a store is quite low, just the cost of the products and as much, a small transportation cost. The installment expenses of the additional store are often covered with cash flows from existing supermarket, reducing difference or leverage of modern retail. Capital market and cash management make the new operation less costless for the entrepreneur. This factor explain why supermarkets are organized in chain. That is large corporations manage into a large number of store. Logistics and contract provide supermarket an additional strategy to meet consumer demand for variety. Global sourcing. Local producers can hardly supply the volume and the variety of products that supermarket can offer. Logistics and contract provide supermarket an additional strategy to meet consumer demand for variety. Global sourcing. Local producer can hardly supply the volume and the variety of products that consumer can find in a supermarket. Nowaday, supermarkets procurement system act worldwide, buying products for the most efficient producer and delivering them to the consumers that are willing to pay the most for it. The strategy benefits consumer. We'll find larger and cheaper assorments. And, of course, it benefits supermarkets who have larger and more efficient procurement markets. Local producer instead, especially rich countries, suffer from more intense competition and sometimes from the loss of access to local high value consumer. Loss of global sourcing is a key feature of modern retail and derive directly from the external drivers. But when dealing with global sourcing, safety is a critical issue. You will cover this point into details in module 13 when you will learn about industrial standard. Here, I just want to mention the importance of organization and contracting in ensuring safety to consumers. Similarly, you learn about quality and attributes in various models such as module two or severn. Here, I just want to be clear about how supermarket think about quality. In the retailing business, quality is bringing consumer what they want for the lowest possible price, as simple as that. The key service supermarkets do for their consumer is product selection and delivery. If the supermarket assortment carries what consumer want, that is, what they're willing to pay for, then the supermarket is producing quality. Of course quality in retail implies that the supermarket must know what consumers want. Remember, for example, module three, market analysis. They also bring quality consumer, supermarket must organize efficient and flexible supply chains. As we will see in lesson two of this module, this often is achieved with contracts. As you can see, the key drivers shape the retail business and nowadays supermarket as organized as chain of large specialized store selling a large variety of heterogeneous goods from detergent to organic tomatoes. Supermarket target heterogeneous customers and consumer differ from each other but also consumer may have preferences that change with time and condition. The key effort of the retail business is to give each consumer exactly what he or she may want. The key drivers are still driving the change in retail business. For example, innovation in information technology improves logistic and finance, create a great opportunity for time-saving services. E-commerce, Amazon for example, now is selling food. Many supermarket chain have a pickup service. A consumer do his shopping at home and then he just picks the bags at the store. Sometimes they deliver too. In this way, the consumer can save significant shopping time. So as you can see, technology advancement gives opportunity for providing services to consumer. But e-commerce is not the only innovation is regard. If you don't want to use your car and spend time travelling to the supermarket, and if you don't want to stay at home waiting for your Amazon delivery, you can go to a city store. City stores are selling points, they are designed to service people commuting from work to their homes. They are smaller than the typical supermarket and they carry a smaller assortment. Yet, they still benefit from the advanced logistical supermarket chains. They are proximity shop, meaning that they are located in residential areas so that there is no need to use your car to get there. The idea is that the consumers stop there while going home and buy whatever they need for dinner. Instead of wasting a Saturday morning for the weekly shop, the consumer just stop a few minutes on his way home and rides to the supermarket only to buy the good that city stores do not offer. This trend is of particular importance in large cities where the use of cars is problematic or even discouraged. These two examples help us understanding that modern retail is still an evolving business model. Yes, and some other retail is the ability of looking at changes in society and then develop new solutions and business models to meet consumer's need. And, of course, make good profits in the process.
