The Foundation of Today’s Retail Ecosystem – 1

While companies such as A&P, Montgomery Ward, Sears and Kroger, founded in the second half of the 19th century in the United States, were expanding retailing and mail-order commerce across the country; in Europe where commerce had long revolved around traditional marketplaces and small shopkeepers, the situation was more complex. Following centuries of warfare, production accelerated with the Industrial Revolution; however, European powers soon entered intense economic and political competition to dominate countries rich in raw materials. In countries such as the United Kingdom, France, Italy and Spain, the structure of domestic food retailing was not much different from that of the Ottoman Empire. Apart from various types of small grocers selling both food and non-food items, large, institutionalized retail chains had not yet emerged. However, the social structures of Germany and Switzerland differed from other European societies. Interestingly, cooperative movements had begun to take shape in these countries.

Founded in 1907, EDEKA was established when various grocers and independent retailers organized under the same roof in order to reduce costs through collective purchasing. Today still, with approximately a 25% market share in Germany, this cooperative remains the market leader. Over the years, by opening stores across different retail formats and categories, it inspired the establishment of other cooperatives throughout Germany. One notable example is REWE, founded in 1927, which today ranks second in the German market. These two cooperative companies, which have survived successfully to the present day, continue to dominate the German retail sector. Another successful example of cooperative organization in grocery retailing comes from Switzerland. Unlike EDEKA and REWE in Germany, the Swiss cooperative was founded in 1925 through the intense personal efforts and ideals of entrepreneur Gottlieb Duttweiler. Born in Zurich into a family of rural origin, Duttweiler was the only son among four sisters. His father was a manager at a food company in Zurich. After graduating from high school, he completed an internship at an import company that purchased various food products and raw materials from around the world. With savings he had earned himself, he spent nearly three years traveling across Europe. During this time, he became deeply influenced by the cooperative movements developing in Germany. After marrying the love of his life Adele, the company he was a partner at went bankrupt due to the economic crisis following World War I. Drawing on his experience and professional connections in import trade, he and his wife moved to Brazil in 1923 to engage in agriculture and commerce. In such a short time, he gained a strong understanding of sugarcane, corn and coffee cultivation and the commercial importance of these commodities. However, Adele struggled to adapt to the different climate and frequently fell ill, causing them to abandon their new life in 1924. On the journey back to Switzerland, Gottlieb continuously reflected on Kroger’s operations in the United States, the innovations he had heard about, EDEKA’s business model in Germany, and the wholesale trade of in-demand agricultural products. While engaged in agricultural work, he had already noticed the significant gap between the price at which producers sold their goods and the price consumers had to pay, a situation that still persists in many countries today. Combining the experiences he had accumulated and the business models he had observed in different countries, he founded Migros in Switzerland with the goal of becoming a bridge between producers and consumers. The brand name literally meant ‘half-wholesaler.’ Following Kroger’s example, he purchased five Ford Model T trucks but implemented his own innovation by converting them into mobile sales stores. He printed flyers specifying where and at what times the mobile stores would stop and distributed them to every household in Zurich. Initially, he focused on six core products: coffee, rice, sugar, pasta varieties, cocoa butter and soap; items for which he had strong supply capabilities. True to its name, Migros offered products directly to consumers at prices close to wholesale levels. With only an 8% profit margin, virtually no retail outlet could compete with Migros. In 1926, he opened his first physical store and subsequently increased both the number of mobile units and store locations regularly. Many brand manufacturers and established retailers in Switzerland boycotted Migros due to its low profit margins. However, Gottlieb Duttweiler was not someone who gave up easily; he invested in various manufacturing facilities and also acquired existing factories. By the mid-1930s, the products he sold were predominantly from his own production and imports. He later transformed the company into a cooperative and gifted company shares to his customers. To prevent any future actions that might harm his ideals after his lifetime, Gottlieb and Adele established the Gottlieb and Adele Duttweiler Foundation, which continues to provide consultancy and oversight related to Migros.

While these developments were taking place in food retailing in Europe (particularly in Germany and Switzerland), progress in the United States, homeland of chain retailing and the most liberal application of capitalism, continued at full speed. As mentioned in previous articles, at the end of the 19th century and the beginning of the 20th century, grocery stores were far from their present-day appearance; their interiors and operating styles resembled large pharmacies. Customers entered stores with their own bags and baskets, told clerks what they needed, and waited as the clerks, like waiters taking orders, retrieved items from “shelves behind the counter”. One afternoon in 1916 Clarence Saunders, an entrepreneur who had gained experience working in various grocery stores and wholesalers, took one look at the long line of customers in his store, Piggly Wiggly, and another at his hardworking clerks… Customers were right to complain, but employees were also working diligently and efficiently. He realized there was a problem and he held himself accountable. After a brief renovation, customers encountered a completely new concept: the world’s first self-service grocery store. Removing unnecessary counters and cashiers, creating detailed aisle displays, and allowing customers to see all products along an uninterrupted path produced extraordinary positive results. As if for centuries, customers had been waiting for this ‘to handle and examine the products displayed by the seller, to choose what they desired and to purchase what they wanted.’ Even today, especially in fresh produce markets, this remains a key difference between farmer’s markets and supermarkets. (A couple of days ago I witnessed in a farmer’s market, there are still some sellers who don’t let their customers choose and pick the produce they want). The two most fundamental problems in grocery and grocery chain operations, which average around 100 square meters, had been solved; thanks to self-service retailing, personnel costs per branch were now decreasing and the ability to display more products was gained. Clarence Saunders was perhaps an entrepreneur 50 years ahead of his time; he also introduced the first printed checkout receipt after purchase, but what was truly remarkable is that in 1937, he opened Keedoozle, a fully automated grocery store! Yes, there were no staff inside the store. The wall-mounted cabinets were actually automated vending systems. Customers used a large key-like device at the entrance to press the numbers corresponding to the products they wanted and items were transported via machinery and conveyors behind the walls to the pickup point, neatly packaged and placed in a bag before being delivered to the customer. Although the store opened and closed three times on different dates, demand was tremendous. However, in all three attempts, the technological conditions of the time could not meet the demand and failed to achieve the desired speed. Derived from the slogan ‘Key Does All,’ the Keedoozle store is worth researching online, look at the real photographs, they are astonishing. We will continue from where we left off in the next article.