Retail chains; a new development in the retail distribution system

Distribution system of goods and services, along with other economic developments around the world, is rapidly evolving. While in the past, small and large manufacturers, importers and distributors were the main players in the distribution of goods and services (and ultimately small and medium-sized stores have been responsible for direct supply of goods and services to customers), now new players have superseded them. The level of activity has also been expanded beyond the national level, and some regional or global chain distributors have emerged, setting up branches around the world for distribution of goods and services.

One of the positive steps taken in line with the new distribution system over the past two decades has been the development of chain stores in Iran, but retail chain stores still account for a small share (about 5 percent) of retail sales and small retailers are a major contributor. It must be acknowledged that in today's competitive economy, only businesses with the ability to live and work in a chain (as opposed to individual) can sustain. On the other hand, considering that the dominant part of the country's retail distribution system is traditional and is done by small units, the elimination of this large sector, which has had a considerable contribution to job creation is not expedient or even possible. Retail units (supermarkets and grocery stores) in the country's distribution sector have seriously challenged the possibility of developing and upgrading the country's distribution system and thus increasing the productivity of this vital sector. But what is the solution?

By establishing and expanding "retail chains" along with chain stores, it is possible to increase the efficiency of the country's current distribution system while organizing retail guilds. A store chain refers to a set of retail guilds run under a single trademark and integrated management.

The difference between retail chains and chain stores

The chain of stores consists of a large number of small-area stores (such as supermarkets and available stores) with high availability. But chain store consists of a limited number of large scale stores (hypermarkets).

The target community of chain stores is those citizens who buy at long time intervals (weekly or monthly) and in large quantities; But the target community of retail chains is those citizens who they buy in short periods of time (daily) and in small quantities.

Successful examples of retail chains in the world

Circle K and 7-Eleven supermarkets are two of the most successful examples of such retail networks in the world. The Circle K store chain was launched in Texas, USA, in 1951. These stores, which are generally the size of Iranian supermarkets, now have more than 10,000 stores available in more than 13 countries (main focus: the United States, Canada, East and Southeast Asia) and are either franchise or owned stores. 

7-Eleven stores are older and have been operating in the United States since 1927. They are both franchise or owned stores. The store chain's revenue was $ 85 billion in 2009 and currently employs more than 45,000 people (excluding franchise store employees). More than 53,000 7-Eleven stores are currently operating in more than 20 countries.

Advantages of retail chains

  • Better organization and the possibility of better management and supervision of their activities;
  • Benefiting from the "economic scale" of business and increasing the overall profitability resulting from economies of scale
  • Adopting new distribution approaches (such as: cross-docking, e-sales, etc.) to reduce distribution costs;
  • Employing new technologies in the distribution system;
  • Cost efficiency of investment in the field of hardware and software infrastructure of distribution network;
  • Possibility of single and integrated management of several retail units;
  • Enhancing consumer focus and customer rights among retailers (due to the preservation and promotion of trademarks);
  • Integration of different components of the retail distribution system (including warehouses, delivery and transportation, retail) and consequently the possibility of integrated management over the entire distribution network;
  • Establishment of powerful retail chains which have the possibility of presence and activity in other countries in the region;

It should be noted that the approach of store chains can be implemented not only in the grocery retail category but also in other categories (such as restaurants, bakeries, clothing, etc.). 

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