Solutions for developing modern retail systems in Vietnam

CHAPTER I: OVERVIEW OF MODERN DISTRIBUTION AND RETAIL SYSTEM

1. Overview of the distribution system

1.1 Concept of goods distribution system

In a market economy, goods from the manufacturer to the final consumer must go through a chain of buying and selling activities. The goods distribution system is a term that describes the entire process of circulation and consumption of goods on the market. It is the flow of ownership of goods through different businesses and organizations to the final buyer.

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In general, "The distribution system is a set of independent and interdependent businesses and individuals participating in the process of bringing goods from the producer to the final consumer" 1 .

In other words, it is a group of organizations and individuals that perform activities that make a product or service available for purchase and use by the final consumer or industrial user.

1.2 Characteristics and roles of the distribution system

1.2.1 Characteristics

The goods distribution system is a chain of relationships between organizations involved in the process of buying and selling goods . Each entity in the business process must certainly participate in one or several certain goods distribution systems.

Each distribution system of goods through movement flows (flows) to ensure that goods reach the place of consumption such as : transfer of ownership, negotiation, physical movement of goods, payment, exchange of information to promote ordering, risk sharing, finance... These flows connect members of the distribution system together.

1 Source: Tran Minh Dao (2002), Basic Marketing Textbook, Education Publishing House, Hanoi

Distribution systems have division of labor and specialization within each system . Certain business organizations specialize in one or more specific tasks. The reason why intermediaries or other support organizations are used to perform distribution work is because they perform distribution functions more efficiently than manufacturers.

Goods circulate in the distribution system through the "pull-push" mechanism . The "pull" mechanism means that businesses use measures to influence the needs of end consumers to create a pull for goods to the market. The "push" mechanism is that businesses use measures to encourage the distribution system to increase consumption activities, creating a push for goods to the market.

1.2.2. The role of the goods distribution system 2

 Role in the economy

The goods distribution system plays an important role in resolving the basic contradictions inherent in market economies, contributing to ensuring the economy operates and develops sustainably. The following are three basic contradictions in the distribution of goods in the market that the system plays a role in resolving:

First , there is a contradiction between large-scale, specialized producers and small-scale, but specific and diverse consumer demand. Producers specialize and supply the market with a large volume of goods and services, but individual consumers only need to buy goods in small quantities.

Second , the spatial difference between producers and consumers. Usually, production is concentrated in a certain location, while consumption is widely distributed, or vice versa. The emergence of the structure of the system

2 Source: Le Trinh Minh Chau (2004), Developing Vietnam's goods distribution system in the context of integration, Political Theory Publishing House, Hanoi

The multi-level distribution system with commercial intermediaries is to create spatial coordination between producers and consumers.

Third , the time difference when the time of production and consumption do not coincide. Since production often does not coincide with consumer demand, the need for storage of goods arises. The time match between producers and consumers is resolved through the flow of products in the circulation channels and the storage of goods in the distribution system to ensure that goods are always available to meet consumer demand.

Diagram 1 shows the role of the goods distribution system in resolving the contradictions of a market economy.

Diagram 1: Goods distribution system connecting production and consumption

Production sector: specialization and division of labor lead to diverse supply capabilities

Socialization of the distribution system of goods is necessary to resolve differences and conflicts.

Consumer sector: needs and wants are diverse in terms of type, time, place and ownership

 Role with businesses

The smooth operation of the distribution system has oriented the manufacturing industries towards the market, producing what the market needs. Therefore, the interests of the producers are always associated with

Distributor's rights. Following that trend, the power of the distribution system is increasingly growing, dominating and even imposing the game on the manufacturing industry.

The distribution system helps businesses promote the product consumption process, ensure sustainable business development, and create long-term competitive advantages in the market . The distribution system is the path through which goods are circulated from producers to consumers. Developing and managing effective distribution systems will help businesses shorten the time it takes for goods to reach consumers, thereby increasing capital turnover, expanding business scale, and enhancing competitiveness in the market.

The distribution system provides manufacturers with a lot of necessary information to adjust production and business activities according to consumer needs . With the function of organizing and bringing products to consumers, distributors are the ones who have better access to information from the market. Therefore, businesses should establish strategic partnerships with distributors to exchange information, grasp consumer needs and tastes, thereby making business plans and improving products to quickly respond to market needs.

 Role with consumers

The distribution system offers a wide range of products to meet the diverse needs of consumers. In addition, distribution activities also provide consumers with a range of additional services such as convenient locations, home delivery, consumer advice, etc. to help make more accurate choices and increase convenience when shopping.

1.3 Development trends of distribution systems in modern economy

The development trend of the distribution system from the late 90s to present is:

 The distribution system is increasingly centralized. With the emergence of giant companies in the distribution sector, the relationship between

Manufacturers, wholesalers and retailers are increasingly working together to create an increasingly efficient system of goods distribution.

 In retailing, there is a replacement of small, independent retail stores by large-scale department stores.

 The average size of stores (area, sales, labor…) increased

 There are more and more supermarkets and hypermarkets with extremely large scale, operating in chains.

 The franchise business method of large companies has linked small-scale stores in the same system to improve competitiveness.

 The participation of retailers and manufacturers in the traditional distribution system makes the role of traditional retail methods increasingly reduced, especially with daily consumer goods.

 The emergence and rapid development of non-store sales methods such as online sales, television, post offices, etc. E-commerce creates a new sales trend, appearing in the "digital" era, helping customers transact quickly, businesses save on store costs, and at the same time eliminating geographical barriers between countries.

 The expansion of operations of giant retail distribution corporations: along with the trend of globalization and the gradual removal of trade barriers between countries, large distribution companies are actively conducting surveys and investigations to penetrate potential markets.

2. Overview of retail systems and modern retail systems

2.1 Overview of retail

2.1.1 Concept

Currently there are many different definitions of retail, of which the following two are widely accepted:

 In the book "Marketing Management", Phillip Kotler gave the definition:

Retailing is any activity involved in selling goods or services directly to final consumers for their personal, non-commercial use. 3

 In the book “Retail management”, Micheal Levy defines:

Retailing is a set of business activities that add value to products and services sold to consumers for personal or family use. 4

Thus, it can be understood that a retailer or retail company is a commercial company whose total revenue mainly comes from retail activities. Any organization (manufacturer, wholesaler, retailer) that sells to the final consumer performs the retail function.

2.1.2. Position and function of retail in the distribution channel

Location of retail

Manufacturers typically market their goods through distribution channels. Retailers are at the end of the distribution channel. They purchase goods from manufacturers, importers, or wholesalers and sell them directly to end consumers. Retailers not only deal directly with consumers but also act as purchasing agents for the public by identifying, selecting, negotiating, and selling goods.

3 Phillip Kotler (2003), “Marketing Management” , Statistical Publishing House, page 314

4 Michael Levy (2003), “Retail management” , McGraw Hill Higher Education Publishing House

Agree on prices with suppliers to satisfy the needs of goods and services for everyone in society.

Diagram 2: Position of retail in distribution channel 5

Manufacturer (Importer)

Consumer

Manufacturer (Importer)

Retailer

Consumer

Manufacturer (Importer)

Wholesaler

Retailer

Consumer

Manufacturer (Importer)

Wholesaler

Small wholesaler

Retailer

Consumer

Functions of retail

Retail is a part of the distribution process, so it also fully undertakes the basic functions of distribution. However, due to its nature as the final channel to bring goods to consumers, retail has some unique characteristics.

 Firstly, research and collect necessary information to plan and facilitate the exchange . Retailers are the ones who directly contact consumers, so they can collect information about customers' needs and tastes... to satisfy consumers' needs. This information from retailers is very necessary for manufacturers to have

5 Source: Philip Kotler (2003), Marketing Management , Statistical Publishing House, page 290

Can grasp feedback from customers, promptly improve products to suit market needs.

 The second is to stimulate consumption, providing information about goods to consumers. Retailers can conduct their own sales promotion measures to increase retail sales. At the same time, they can act as a messenger of advertising messages or manufacturer recommendations to consumers.

 Third is to complete the goods, making the goods better meet the needs of buyers . At retail stores such as supermarkets, the number of items can be up to 15,000 from more than 500 different manufacturers. This arrangement and classification helps consumers have a wide choice of products with all brands, designs, prices... Besides, although retailers can receive finished goods from manufacturers or wholesalers, due to the characteristics of the retail industry, retailers must conduct preliminary processing, packaging... to bring products to consumers in the best conditions and most suitable form.

 Fourth is warehousing: This is an important function of retailers to ensure that there are always goods to serve the needs of consumers. Consumers can easily buy many goods anytime, anywhere. In addition, some production activities are seasonal, while consumption occurs year-round, so the function of storing goods of retailers is needed.

 Fifth is providing support services: retailers provide services to help consumers buy and use products more easily, by measures such as allowing buyers to pay in installments, inviting customers to try products, consulting and being ready to provide more information about the product.

2.1.3. Classification of retailers

As the socio-economy develops, retail activities are carried out in many different and diverse forms, so classifying them is difficult.