Hownew consumers’ consumption patterns causedchanges in fooddistribution channels in Croatia

Sanda Renko, Faculty of Economics & Business, University of Zagreb[1]

Introduction

During the past decade, some trends in food distribution channels became evident in Croatia: the proactive role of modern places of purchase suchas supermarkets, and hypermarkets,technological advances, increasing stringent regulations, growing mergers, etc.Reasons for these trends are changes in the sociodemographicsof the Croatian population which have led to an increasing demand forconvenience foods, ready-to-serve meals and food products in smallerpackaging units. Additionally, a significant number of events affecting food market (e.g. Bovine Spongiform Encephalopathy – BSE in the meat industry, genetically modified food in the fruit and vegetables industry, etc.) increased consumer concern relating to the place of food purchase and the food purchasing habbits as well.

Those new consumers` preferences are especially evident in meat purchasing and meat consumption patterns. In the pre-transition era (prior to 1990), Croatia was the part of Yugoslavia, characterized with the planned economy. Croatian consumers mostly focused on the kinds of meat that were common in the region of their origin.Geographically, Croatia could be divided into three clearly distinguishable regions: Mediterranean, Mountainous and Panonian region. Mediterranean region (Istria and Dalmatia) is the coastal zone on the south, influenced by the Mediterranean climate. Mediterranean region had a tradition of seafish, lamb, goat and poultry consuming.Mountain region (Lika, Banovina, etc.) is the mountain zone that occupies the central part of Croatia and had a tradition of lamb, goat and venison consumption. Due to their windy climate and high temperature oscillations, both regions are familiar with the smoke-drying processing of meat. The third Croatian region, Panonian region, is the main agricultural area and the largest Croatian meat production is made there. Thereis a widespread practice that involves pig slaughtering, processing, and butchery of pig meat and making ham, bacon, and various sausages. Moreover, this region characterized large-scale poultry production. In that era, channels of fresh meat distribution included: a)small farms which supplied relatives or friends with meat which was cut manually; b) direct sale on open market area;b) local stand-alone butcher shopswhich co-operate with some farms offering their meat there; c) chains of butcher shops. Processed meat and dried meat snacks were mostly prepared and distributed by butchers in their own stores. Additionally, large meat producers such as Gavrilovic meat industry and Sljeme placed their products on the shelves of supermarkets these days.

The period of transition towards a market-oriented economy has caused substantial changes in the meat consumption patterns and distribution channels on the Croatian market. Urban population increased, while small farms population decreased. With the entry of foreign companies, like Western consumers (Veeck, 2010), Croatian consumers have been exposed to an increasingly diverse selection of foods. Those trends affected consumers` preferences and meat consumption patterns as well. Other factors affecting meat purchasing include sociodemographic changes in the Croatian society such as increasing number of working women, longer working-hours, off sets by food consumed away from home, etc. Accordingly,

meat producers and retailers induced some changes in their offers. They have become more concerned about health and meat quality, labelling, packaging and about offering more convenience to their consumers.The main goal of the paper is to find out whether new consumption patterns of Croatian consumers affects the way of butchering and choice of the distribution channels in the case of Croatian meat market. The fact is that meat processed products are mainly purchased in supermarkets and hypermerkats, while fresh products are bought in traditional stores and open markets, but in a smaller extent than before. A meat store within a supermarket or a hypermarket is a new concept, widely accepted in the meat distribution on the Croatian market. Regarding slaughtering and butchering, a large portion of animal slaughtering and butchering is still being carried out in small slaughterhouses.

The paper begins with the review of the relevant literature to provide a preliminary understanding of consumer choice in relation to channels of distribution. Thereafter, we report the results of a series of focus group interviews which sought to explore issues of channel choice. Based on these and the results of the literature review, conclusive remarks on Croatian consumers’ meat outlet preferences were drawn.

Rising consumer income, changing demographics and lifestyles, and shifting preferences due

to new information about the links between diet and health all contribute to newdemands for foods (Jensen, 2006). Moreover, consumers have experienced the benefits in lower commodity food prices and wider product choice (Manning et al, 2007). Rivera et al. (2010) argue that today`s food service consumers are dramatically different from previous generations because of two-income families, increased discretionary income and lack of time. On the example of American consumers, the same authors (Rivera et al., 2010, p. 21) point out that consumers` fast-paced lifestyle has led to their dramatically changed eating habits where they eat out more than they eat at home, and that their food preferences include prompt service, convenience, brand names, healthy alternatives, variety and high quality. Among various types of food, meat consumption and meat distribution have undergone major changes and have been a much-debated issue in the agricultural economics literature (Becker et al., 2000).

Literature review comprised issues such as meat supply chain, consumer perceptions relating to safety and quality of meat, the importance of meat packaging, the impact of some socio-economic factors on consumers` meat preferences. However, there is a lack of literature and a small number of studies on changes in consumers` purchasing decisions and sales outlet preferences.There is the worth mentioning work ofKizilaslan et al. (2008) who found out that socio-economic factors such as age, household size, place ofresidence, status of the mother, income, price difference, quality difference, hygiene, freshness and the seller’s image affected the Turkish consumers’ meat outlet preferences. Vignali et al. (2001) focused on consumer purchasing behaviour regarding meat, fish, vegetables and processed food within the Spanish food industry. De Melo et al.(2011)found out relation between lifestyle, attitudes and values of pork and pork products’ consumers and the consumption of these products in Brazil. The objectives of the research of Buzamat et al. (2009) were to evaluate the frequency of meat and meat products consumption in Romania and their preferences for meat types and products. Moreover, this research identified the place where Romanianconsumers purchase meat and meat products from. Lakner and Reti (2006) analyzed relationships between the members of the Hungarian meat distribution channel.

The consumer behavior literature has addressed the issue of distribution channel choice but often as a more peripheral topic, usually with attention focused on the choice of retail outlet which is then analyzed using conventional models of consumer behavior (Black et al., 2002, p. 161). A common assumption that is made in many writings in the area of distribution is that the choice of channel can be seen in the same conceptual framework as choice of products (Black et al., 2002, p. 162). McEachern and Schroder (2004) have an interesting approach to the area of distribution channels in meat industry. They discussed about reduced consumer confidence in the fresh meat sector and offered value-based labeling communications as the way for reestablishing consumer confidence. The development in the agri-food industry (meat industry presents an important component of the agri-food industry) is lagging behind changes in consumers` life styles and their purchasing habits (McEachern and Seaman, 2005). In order to develop and sustain long-term consumer loyalty, producers and agencies acting on behalf of producers must accurately identify consumer needs, concerns and understanding of the food production environment to ensure future market competitiveness. A fundamental pre-requisite of good marketing performance is that of awareness of the customer, and their needs (Leat and Revoredo-Giha, 2008, p. 398).Mousavi et al. (2002) and Quintavalla and Vicini (2002) discuss tools and techniques to improve the production process in handling and cutting meat portions suitable for end users. Clemons and Row (1993) investigated the impact of IT on interactions between manufacturers and retailers in the consumer packaged goods industry. Petrak (2007) argued that we can talk about the evolution of meat packaging and of meat outlets: from carcasses hanging from the hooks in open marketplaces, sides of beef or whole chickens wrapped in white butcher paper, case-ready packages of fresh meat and poultry unloaded and set into retail displays, hot entrees placed into recloseable containers at self-service bars, to frozen meats sold in zippered, standup pouches and processed meats piled in exact weights into recloseable tubs, sold in every type of store.

During numerous studies Grujic et al. (2012) have tried to change the current image of meat and meat products which are not the best for human health. Thus, the improvements that have been made throughout the production chain must continue to obtain a product increasingly healthy, without antibiotic residues, drugs and anabolic steroids and with less fat and cholesterol, nutritionally rich and with high protein value (Bender, 1992). Zaboj (2002) dealt with the problem of choosing the distribution channel for meat production the Czech Republic market and considered four possible distribution alternatives: distribution through own retail selling units; distribution through trans-national retail chains (supermarkets, shopping centres); distribution by using small independent retail units; and distribution through retail units net (retail co-operative). Each of meat distribution alternatives was analyzed related to factors such as: the sale control, the cost of distribution, the affect the final sale price, the number of potential consumers and the affect the cash-flow. The complexity of meat distribution channels was recignized by Leat and Revoredo-Giha (2008) because it includes the breeders and finishers of animals,marketing organisations (including livestock auction markets, where animals are soldon a liveweight basis, and marketing co-operatives, agents and dealers), primaryprocessors (slaughtering, meat-cutting and packing), secondary processors (cateringbutchers and meat product producers) and distributors (wholesalers, traditionalbutchers, multiple retailers and food service companies).

Although the research focused on the meat distribution channels in Croatia, the analysis of the exiting literature revealed the gap in the literature about consumer meat preferences and meat distribution channels in Croatia. Namely, we can almost conclude that there has been no research interest in the topic of meat distribution channels and consumer preferences in the case of Croatia at all. We found only the work of Gajcevic et al. (2007) who conducted the research on the sample of respondents from the Croatian region Slavonia and concluded that consumers mostly opt for buying and consuming chicken meat produced by domestic producers and that they mostly produce chicken meat in their households. Shopping centers and butcher shops were on the second, and on the third rank respectively. There are some researches about the importance of packaging in meat industry. Bratulic et al. (2012) investigated sustainability of fresh turkey meat packed in modified atmosphere. According to Plazonic et al. (2010) modified atmospheric packaging of meat has been expanded and improved with the arrival of new technologies and increasing demands of buyers.

Croatian meat market

In Croatia, meat production, distribution and consumption estimations are areas in which theofficial statistics are the most problematic. Namely, significant portion of the Croatian meat market is involved in „grey market“. Therefore, data presented in this chapter are not completely reliable and should be taken with caution.

According to the analysis of Trade Council of Denmark (2007, p. 21), there are three periods of africultural development in Croatia. In the period between mid eighties and mid nineties there was a significant reduction in livestock production, which was followed by the increase in livestock production, especially beef production, since mid nineties. However, global crisis in 2008, affected Croatian meat market as well. Thus, after 2008, significant decrease in meat production appeared. According to data in Table 1, an improvement in the production in 2011 was evident, and it is estimated to grow.

-Insert Table 1 -

The latest available data, shown in Table 2, show that farms production accounts for the largest portion of meat production (except poultry production).With the approaching the EU, Croatian meat industry is under pressure to comply with the standards of the EU and to modernize its facilities. At the end of 2011, there were 181 companies in the meat and meat processing industry ( , 2012). Few of them transformed themselves from state-run agricultural cominates to private-owned companies. However, the current domestic production of meat satisfies only 50 percent of meat consumption.

-Insert Table 2 -

Croatians consume most poultry (Table 3) and pork. Per capita consumption figures stand at 18.8kg of poultry, 16.5kg of pork and 9.9kg of cattle per year. Also, there are 15.4kg of processed meat per household member in 2011. Accordingly, annual average per capita meat consumption are 62kg.

-Insert Table 3 -

Figure 1 clearly suggests that Croatian meat consumption follows meat consumption trends in EU, where meat consumption has been stagnant in the last few years. Comparing the EU meat market and the Croatian meat market, some interesting results were found (Table 4).

-Insert Figure 1 -

-Insert Table 4 -

According to data in Table 4, the average EU consumer spends almost twice as much meat than the Croatian consumer. The difference between them is especially evident in the pork consumption.

Channels of meat distribution in Croatia

In general, channels of meat distribution in Croatia include: a) direct sale on open market area;b) local stand-alone butcher shopswhich co-operate with some farms offering their meat there; c) chains of butcher shops; d) supermarkets and hypermarkets; e) the channel of Horeca (hotels, restaurants, snack bars).

Nowadays, the harmonization of vertical integration in the meat supply chain (including farms, meat processors, distributors and trade) is the key for gaining competitiveness of the Croatian meat market. Croatian meat producers realized that outputs should be adapted to changed market preferences, such as:

-Retailing –requiring convenience, ready to cook meat, strong meat brands, etc.,

-Butcher shops –preferringlarge chops and packages,

-HoReCa channel members – asking for institutional customers` adjusted offer.

There are several very strong meat processing companies with their own network of retail stores and whole distribution centers. Some of the most important Croatian meat producers are “Meat industry Braca Pivac”, “PIK Vrbovec”, “Belje”, “Podravka Danica”.

As there is no official data about meat sale per particular distribution channel,only data about the Croatian retail market structure can be given. Table 5 shows the retail market structure related to retail formats, while table 6 gives the insight into top grocery retailers in Croatia.

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Supermarketsare leading retail format and they account for 40% of value of grocery retail. Croatian top retailer Konzum accounted for a 9.4 per cent of the Croatian market share in 2002, while it reached almost 30 per cent in 2012 (Croatian Competition Agency, 2012). It operates a variety of formats from convenience stores, supermarkets, hypermarkets and Internet. Its market success is mainly due its central position in the vertical system, where few leading national food producers (such as meat producers “Belje” and “PIK Vrbovec”) are incorporated. It should be pointed out that in order to improve insights into the Croatian meat distribution channels, step-by-step analysis of retail structure per particular Croatian town was conducted. In such a way, only 405 meat stores were found. However, there were some towns with no registered meat store, suggesting that this data cannot represent the Croatian retail meat market.

-Insert Table 6 -

Methodology

The objective of this study is to understand how changing demographics and lifestyles caused changes in meat distribution channels in Croatia. Therefore, given the exploratory nature of the research it was felt that a qualitative approach,using focus group inteviews, was appropriate. Focus groups produce the qualitative data necessarry in an exploratory study, where scientific explanations are desirable and the researcher is uncertain of the nature of the construct to be employed (Black et al., 2002, p. 164). Kennedy et al. (2004) point out that studies of meat have tended to use quantitative methodologies providing a wealth of detailed statistic information, but little in-depth insight into consumer perceptions of meat.