Friday, February 23, 2024

Modern trade vs traditional trade

by damith
December 3, 2023 1:00 am 0 comment 419 views

By Hemantha Kulatunga

General trade, also known as traditional trade or conventional retailing, is a method of exchanging goods for money, typically operated most often by entrepreneurs who do not possess large infrastructure. In many countries, traditional trade remains a major source of revenue for companies, thus offering a substantial contribution to the economy in general.

General trade encompasses the bulk of commerce conducted through small-scale retailers, local shops, and independent distributors. It involves a decentralised network of distribution, where products flow through multiple agents and liaisons before reaching consumers.

In contrast, modern trade is the opposite of general trade that operates on a much larger scale and structure, often with either a national or a global presence. Modern trade symbolises a more planned and consolidated form of retailing characterised by larger systems such as supermarkets, megastores, specialty stores, and chain outlets. It characteristically operates on a bigger scale, involving streamlined supply chains and most often with direct relationships with manufacturers and importers.

General trade mostly relies on family retail concerns, local markets, convenience stores, and neighbourhood shops as its primary retail outlets. In Sri Lanka, these outlets are often small-scale, serving localised and limited customer bases and offering a limited range of products, typically on day-to-day needs of customers. The infrastructure supporting general trade is assorted but uneven, with many small participants contributing to the distribution chain.

Modern trade, on the other hand, operates through larger, standardised formats like supermarkets and customised wholesalers who sell to local customers. These small-scale wholesalers can be seen in almost every mini township in Sri Lanka. Modern trade establishments possess broader infrastructure, advanced inventory management systems, superior channel management capabilities, and well-planned logistic processes across multiple locations.

In general, the supply chain of general trade is somewhat complicated and multi-phased. Before reaching the ultimate customer, products transit via a number of intermediaries, including wholesalers, distributors, and small retailers. Participation of several companies in the distribution process can frequently lead to longer lead times and higher prices.

Direct ties

Whereas, modern trade stresses a more streamlined and efficient supply chain process, which is frequently characterised by direct ties between merchants and producers or often by completely circumventing middlemen. This enables for greater inventory control, shorter lead times, and potentially cheaper expenses, resulting in competitive pricing for customers.

In general trade, although the offered product range is limited, the consumer is often provided a personalised service with retailers selling localised products and services most suited to specific community market preferences. However, as the product range is restricted, the shopping experience might lack the convenience compared to the variety found in modern trade formats. Whereas the modern trade format concentrates more on offering a wide collection of products at a single location, providing larger accessibility and convenience. These establishments often incorporate additional services such as loyalty programs, online ordering, home delivery, and a more standardised shopping environment.

General trade holds a significant share in many emerging markets and serves as the foundation of distribution of essential commodities throughout the country. Particularly, in most areas in Sri Lanka where modern trade is still evolving or faces limitations due to infrastructure, cultural factors, or economic constraints, traditional trade still holds a very strong presence.

Modern trade, while currently seems to be rapidly growing around the country, confronts its own set of challenges to maintain a competitive edge. This includes market saturation, fierce competition among big players, and the need for substantial investments in infrastructure and technology. In the context of advantages of modern trade, Operational efficiency and the ability to function with increased and expanding workload is one of the most valuable advantages. Supermarkets and other similar chain stores typically operate on a much larger scale than traditional retailers.

This allows the trader to purchase products in bulk and pass on lower prices to customers. Also, bulk purchases allow the purchaser extra negotiating power to reduce buying prices. Diversity of the product range that can be offered to the consumer through the modern trade outlets is another distinct advantage. Unlike general trade stores with usually lesser space, modern trade outlets can stock a large range of products, from groceries to household items to electronics, and more to provide a wide variety of choices. These large outlets can provide a more convenient shopping experience where customers can save time and effort.

Modern trade practices place emphasis on standardised procedures and layouts across all its outlets creating shopping convenience for customers. This can provide consumers with a similar and familiar purchasing experience regardless of the location of the chain they visit. Customers benefit from a predictable and easily identifiable shopping experience, from the layout of aisles to the display of items and the checkout procedure.

Modern trade outlets focus on enhancing the overall customer experience. They often offer additional benefits such as loyalty programs, home delivery options, online ordering, and various payment methods, catering to the evolving preferences of consumers. These value-added services contribute to customer satisfaction and loyalty, encouraging repeat visits and increased spending.

Conventional retailing, on the other hand, presents its own set of advantages that have sustained its relevance. Despite the rise of modern trade formats, general trade continues to serve a different market segment to cater to specific consumer needs.

Predominantly, general trade offers localised and highly personalised services, customarily through neighbourhood markets. The local retailers establish a close relationship and understand the needs of their customers better than a modern trade establishment. Hence, the services offered to customers are specifically tailored to local communities. This personal relationship fosters a stronger sense of loyalty.

Retailers often specialise in niche or unique products that might not be readily available in larger modern trade outlets. Therefore, they can supply goods to specific demands that may only appeal to the neighborhood communities, who in turn, may appreciate authenticity and uniqueness.

Local retail stores in traditional trade contribute to nurturing a sense of belonging by serving as social hubs where people interact and engage with each other beyond mere businesses. They create a social fabric of the local community to foster intimacy.

Local economies

General trade often supports local economies by providing employment opportunities. Also, by sourcing products from local suppliers, they further assist small-scale producers to stimulate the local economy.

For consumers in certain areas where access to modern trade outlets might be limited, general trade establishments serve as convenient and accessible shopping destinations. These stores are often within walking distance or a short commute for residents, offering convenience. Because of the comparatively lower overheads, traditional trades can operate swiftly in response to market changes without confronting complexities.

The fundamental difference between modern trade and general trade is identified in their operating models, size, infrastructure, and attitude to client involvement. Both paradigms coexist in many markets, catering to distinct customer segments and providing unique advantages and challenges to firms navigating the broad spectrum of retail commerce landscape. Both these paradigms can coexist because in two different methods, they serve different consumer segments and both have a distinctive set of advantages and disadvantages.

Their coexistence is important to product brands as well. While well-known brands may easily penetrate modern trade, lesser-known brands are more dependent on general trade and local retailers to reach less financially able buyers.

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