Proximity Distribution Model

Ignacio García Magarzo  Director General, ASEDAS

Ignacio García Magarzo  Director General, ASEDAS

Ignacia García Magarzo, the director general of ASEDAS, said that Spanish supermarkets had shown exceptional resilience in the face of a challenging few years with the pandemic, extreme weather, economic crisis and war in Ukraine.

This was a common denominator for Spain when, along with Canada, it was one of the few countries with the lowest out-of-stock products back during the swine-flu outbreak.

This was made possible by a proximity distribution model, widely used and known for its efficiency in Europe.

The model is supported by a business structure that can be characterised by a better balance between formats and types of companies than in other neighbouring countries. A significant role played for regional companies supported by purchasing alliances and wholesale distribution with broad reach, equating to one food distribution establishment for every 1,886 inhabitants in Spain. This territory coverage means that 96 percent of the population can shop within 15 minutes of their home.

Magarzo said that it was essential to highlight the ability of entrepreneurs to make quick, flexible and risky decisions during these times of crises and to acknowledge the commitment and responsibility service food distribution employees have shown to consumers during this time.

Companies in Spain have responded to the current cost of living crisis by raising prices as little as possible, as late as possible. This is possible due to the competition within the sector in Spain, driving companies to reduce margins and has resulted in losses for some due to the high cost of energy.

“Faced with this situation, the sector is calling for measures to ensure access to energy at competitive prices and fiscal restraint, among other things,” said Magarzo.

When addressing how supermarkets have catered to the changing consumer, Magarzo said that adaptation and its broad reach for locals was one of ASEDAS’ strengths. During the pandemic, the locality of ASEDAS was an essential part of the company’s success. Shopping locally allows customers to adapt food purchasing to their needs in a convenient location.

Secondly, ASEDAS’ locality has meant that with the current cost of living crisis, customers are monitoring and controlling spending, shopping more frequently for value deals.

Magarzo continued that Spain’s efficiency of food distribution means that consumers’ purchasing trends and preferences can be quickly communicated to suppliers, allowing the agri-food chain to adapt to consumer demands and needs at any given time.

“This has been seen in recent months, with a greater consumer preference for substitute products with lower value.”

Magarzo explained that E-commerce in the food sector had grown significantly due to the pandemic. Many companies were motivated to adapt digital and logistical platforms to meet the consumer demand for easy-to-use, efficient platforms for shopping while facing pandemic-related restrictions. Following the pandemic, research showed that there had been a ‘return to the physical store’ based on the consumer feeling more significant control over their spending in the physical challenge.

However, this return to the physical store is in conjunction with a now-established omnichannel spending option, allowing consumers to choose preferred channels according to their needs.

Magarzo stated that Spanish supermarkets, like the European retail sector, faced a triple transformation, its three categories organised between digital, environmental, and skills transformation. He continued that these were all areas of growth that supported the sector’s competitive edge, with a need for investment of up to six billion euros by 2030.

Digital transformation enables the sector to evolve into an omnichannel industry that can deliver excellence for the customer experience. Investment in this area promotes automation across the value chain and creates opportunities for expanding advanced analytics to allow businesses to grow and increase their operational efficiency.

Sustainability transformation is a critical area that could help reduce the impact of volatile energy prices and promote and drive environmentalism across regulatory compliance and the growing consumer demand for sustainable food options and choices.

In the third category, skills transformation, Magarzo said that developing professional skills was an imperative foundation for the growth of the other two categories, increasing performance and ability to adapt.

The Spanish food distribution sector’s most significant transformation over the last two decades was with the development of the modern business structure, which Magarzo said made it possible for businesses to attain high levels of efficiency throughout the supply chain. This, in turn, supported businesses in developing specialised insights into consumers, allowing the marketing of products to be done more effectively.

Magarzo continued that the industry faced the coexistence of regional companies and large supermarket chains, as well as family businesses, cooperatives and franchises, each offering unique and varied store models and product ranges.

“All of these contribute to an enormously rich and very competitive local offer that consumers benefit from every day. Other essential elements are the development of associationism, especially reflected in purchasing alliances, which allow the smaller companies to compete on a level playing field.”

The rise in investment in innovative products, logistical processes, internal organisation, marketing, and the integration of technology were essential factors that allowed small companies to compete, particularly with the growth of technology to support the management of the ranges of goods available, logistics, and gaining insight into consumers and their demands and behaviour.

The current cost crisis, which has driven inflation that the likes of Europe have not seen for decades, has significantly impacted every aspect of the grocery industry, as businesses have attempted to pass on as little of these costs to the consumer as possible.

According to Magarzo, food distribution, being the closest link to the consumer, has acted as a dam and instead passed on to suppliers the changes in consumption. However, the Spanish agri-food chain has shown again its efficient model, working together in service to the consumer.

The availability of online shopping has transformed the Spanish supermarket industry less than it has other sectors, such as electronics, fashion, or travel. Magarzo attributed this to the widespread availability of local supermarkets, with supermarkets close to consumers nationwide, making shopping convenient.

However, he added that many supermarkets offer omnichannel grocery options to meet consumer needs, and are experiencing consistent growth in online services to achieve equal economic, social, and environmental sustainability as physical distribution.

“In terms of physical store changes, it is important to note that almost 50 percent of the retail network in Spain is new.”

This newness is a combination of refurbishment and new openings of retail stores. These investments are significant for their role in the economy and employment rates, including the investment they put into energy efficiency and customer convenience.

When discussing industry challenges, Magarzo stated that food distribution would need to keep pace with consumer demands and needs, a challenge Spanish supermarkets must overcome and learn to adapt their stores and offers to suit varying consumer groups and their differing needs.

Magarzo said that the supermarket was likely to evolve towards a service centre model, with supermarkets offering additional services with their primary function as a food store, such as banking.

The sector has begun its path towards the circular economy, and this will be an ongoing challenge that will need to continuously evolve to meet and potentially exceed targets set by the United Nations and the European and national administrations.

“To this end, it is essential that fiscal burdens do not accompany environmental obligations and that we, as a sector, are allowed to assess ways of achieving them with flexible and realistic deadlines.”

To achieve all this, the Spanish supermarket sector will need a training framework capable of providing committed and motivated talent to meet the standards of what Magarzo concluded was valuable in terms of quality employment and the offer of great career opportunities.