Agricultural retail businesses in South Africa: 
The higher demand on competition 
By 
R Jacobs 
Mini dissertation submitted in partial fulfilment of the requirements for the degree 
Masters in Business Administration (MBA) 
at the 
University of the North West: Potchefstroom Campus 
Project supervisor: Prof. L. van der Walt 
Potchefstroom 
Date submitted: November 2007 
TABLE OF CONTENTS 
ABSTRACT 1 
CHAPTER 1: INTRODUCTION 2 
1.1 INTRODUCTION 2 
1.1.1 The background of co-operatives 2 
1.1.2 The definition of a co-operative 2 
1.1.3 The values, forms and types of co-operatives 3 
1.1.4 Privatization and mergers in the agricultural co-operative market 3 
1.1.5 Introduction and growth of competitors to the agricultural retail business 5 
a. Builders Warehouse 5 
b. Mica Hardware 5 
c. Build-it 6 
d. Cashbuild 6 
1.2 PROBLEM STATEMENT 6 
1.3 OBJECTIVES 8 
1.4 METHODOLOGY 8 
1.5 OUTLINE AND STRUCTURE 9 
CHAPTER 2: KEY SUCCESS FACTORS IN THE RETAIL ENVIRONMENT 11 
2.1 INTRODUCTION 11 
2.2 FLEENER'S MODULE FOR RETAIL SUCCESS 11 
2.2.1 Product 12 
2.2.2 Process 12 
2.2.3 People 13 
2.3 KEY SUCCESS FACTORS (KSF'S) 13 
2.3.1 Product 13 
a. Pricing Strategies 14 
b. Managing Known Value Items (KVI's) 18 
c. Price Zoning 18 
d. Pricing Decisions 20 
2.3.2 Process 23 
a. Ownership 24 
b. Future Planning 25 
c. Use of Technology 26 
2.3.3 People 31 
a. Merchandising 31 
b. Sales Analytics 32 
c. General appearance 35 
d. Distinguishable stores 35 
2.4 CONCLUSION 37 
CHAPTER 3: RESULTS 39 
3.1 INTRODUCTION 39 
3.2 RESULTS FROM THE AGRICULTURAL AND HARDWARE RETAIL INDUSTRIES 40 
3.3 RESULTS FROM SUPPLIERS TO THE AGRICULTURAL AND HARDWARE RETAIL 
INDUSTRIES 62 
CHAPTER 4: CONCLUSIONS AND RECCOMMENDATIONS 65 
4.1 INTRODUCTION 65 
4.2 CONCLUSION 71 
BIBLIOGRAPHY 73 
TABLES AND FIGURES 
LIST OF TABLES 
Table 1.1 - South African agricultural retail businesses and their registered status 3 
Table 1.2 - Traditional geographic locations of the agricultural retail businesses 4 
Table 1.3 - Agricultural retail supply chain 7 
Table 2.1 - Corporate vs. store control of pricing 20 
Table 2.2 - Types of promotions used by Hardline stores 21 
Table 2.3 - Corporate vs. store influence on promotions 21 
Table 2.4 - Management-Owner Profiles 24 
Table 2.5 - Existing quantity of hardware stores in the study population 26 
Table 2.6 - Existing quantity of Agricultural Retail Businesses 26 
Table 2.7 - Example of sales per square metre 29 
Table 2.8 - Financial profiles of hardware stores and Home centres 2006 30 
Table 2.9 - Product sales reporting and analysis areas 33 
Table 3.1 - Financial information 52 
Table 3.2 - Roll-out plans for new stores 56 
Table 3.3 - List of suppliers included in the study 63 
Table 3.4 - Average rating of key performance areas by suppliers 64 
LIST OF FIGURES 
Figure 2.1 - Fleener's module for retail success 12 
Figure 2.2 - Pricing policies 15 
Figure 2.3 - Pricing strategy mix 16 
Figure 2.4 - Customer satisfaction 34 
Figure 2.5 - Power of analytics 34 
Figure 3.1 - Respondents of the agricultural businesses 40 
Figure 3.2 - Different types of stores 40 
Figure 3.3 - Frequency of product range measurements 42 
Figure 3.4 - Frequency of price measuring 43 
Figure 3.5 - Pricing strategies used 44 
Figure 3.5a - Frequency of price monitoring of the top 10% of the products 44 
Figure 3.5b - Frequency of price measuring of the top 25% of the products 45 
Figure 3.5c - Frequency of price measuring on the top 50% of the products 45 
Figure 3.6 - Perceived price competitiveness 46 
Figure 3.7 - Price decision-making level 46 
Figure 3.8 - Frequency of promotional effectiveness measurements 47 
Figure 3.9 - Frequency of promotional program measurements 48 
Figure 3.10 - Promotional types used 49 
in 
LIST OF FIGURES (Continues) 
Figure 3.11 - Promotional decision making level 49 
Figure 3.12- Advertising budgets 50 
Figure 3.13 ■ Advertising mediums used 51 
Figure 3.14 ■ Promotional measuring tools 52 
Figure 3.15 ■ ■ Frequency of management evaluations 54 
Figure 3.16-■ Management levels 54 
Figure 3.17 ■ ■ Use of manager incentive schemes 55 
Figure 3.18 ■ ■ Update of IT systems 55 
Figure 3.19 ■  Location of stores 57 
Figure 3.20 ■ ■ Store visibility and accessibility 57 
Figure 3.21 ■ Elements used to create better customer experience 58 
Figure 3.22 ■  Using of merchandising software 59 
Figure 3.23 ■  Influence of changes in customer behaviour on merchandising 59 
Figure 3.24 ■  Use of POS systems 60 
Figure 3.25 ■  Use of staff incentive schemes 61 
Figure 3.26 ■  Standard of retail training 61 
Figure 3.27 ■ Rating of customer service elements: Agricultural businesses 62 
Figure 3.28 ■  Rating of customer service elements: Hardwares 62 
Figure 3.29 - Suppliers' opinion of the two distribution channels 63 
IV 
ABSTRACT 
Since the establishment of agricultural co-operatives they have been in a privileged situation of 
having a captured market in the sense that farmers were shareholders in these stores which 
ensured some loyalty and commitment. Hardwares trade in the same product ranges as the 
agricultural retail businesses which imply direct competition. The main concern is seeing the rate in 
which these non-agricultural stores are growing in the sense of opening new stores and 
competitiveness compared to the agricultural retail stores. 
For the purpose of this paper, Fleener's model for retail success was used as key success factors 
to measure the agricultural retail business against the hardwares. Fleener's model is based on a 
combination of three components namely Product, Process and People. By product he means; the 
type of product to be sold, the price the consumer pays for the products offered and the promotions 
done. By process he means; financial performance, the organizational structure and the physical 
site and location management. By people he means; what the customer experiences when doing 
business with the retailer, what the employee experiences when working for the retailer and the 
quality of service delivered by the retailer. 
Information was gathered with the aid of two questionnaires; the first questionnaire measures the 
response of the hardwares against the response of the agricultural businesses with the key 
success factors in mind; the second questionnaire was aimed at suppliers who supply both the 
hardware industry as well as the agricultural retail industry. 
Conclusions reached include the following: To be able to become competitive, agri businesses 
should focus on their skill levels, not only on retail level but also on management level. They 
should increase effective training opportunities and get creative in the presentation of their stores 
and products. They also need to have some strategic vision and plan their product strategies, 
pricing strategies and marketing strategies to align with their strategic vision. They should further 
drive marketing campaigns that would build awareness around them as being the preferred 
suppliers of goods to the DIY, hardware and farming community. 
The agricultural retail businesses should investigate ways to strengthen an already well-structured 
infrastructure of retail outlets to increase the barriers of entry for newcomers through means of co­
operations, joint-ventures or franchising. They should guard their market share and aggressively 
start implementing growth strategies to show the market that they are serious about retailing. 
CHAPTER 1: INTRODUCTION 
1.1 INTRODUCTION 
1.1.1 The background of co-operatives 
All over the world people have come up with different ways to co-operate in the production and 
distribution of goods and services across different economic areas. According to Philip (2003), the 
formalising of some of these co-operational agreements was set against the backdrop of the 
Industrial Revolution in Europe during the nineteenth century. Philip also stated that the 
introduction to formal co-operatives in South Africa started in white "organised agriculture". 
Essentially 250 Agricultural co-operatives emerged in South Africa with around 142 000 members, 
total assets of some R12.7 billion, total turnover of some R22.5 billion and annual pre-tax profits of 
more than R500 million. 
With the initial commitment of their members, the co-operatives started out to be very successful. 
Finance availability for farmers was limited and mostly done through the co-operative structure 
which contributed to the loyalty factor of these farmers to their co-operative. This loyalty factor, or 
rather lack of competition for the business of their members might be the reason for them 
becoming content with the way they do business unaware of coming changes that could influence 
these market players to a great extend. Personal finance through the banking sector opened the 
door for these members to obtain finance somewhere else and more competitors entered the 
market with credit facilities and other modern attractions that lured these once loyal co-operative 
customers away from their traditional buying patterns. These changes forced the once content co­
operatives into a new playing field with a higher demand on competition and a struggle to survive. 
1.1.2 The definition of a co-operative 
A universal definition and a set of values and principles for co-operatives have been formally 
established more than a century ago. The universally accepted definition of co-operatives 
according to the new Co-operatives Act no. 14 of 2005 and quoted in the Co-operative 
Development Policy (Gauteng, 2004) is recognised by the national government policy framework, 
the International Co-operative Alliance and the International Labour Organization and states the 
following: 
A co-operative is an autonomous association of persons united voluntarily to meet their common 
economic, social and cultural needs and aspirations through a jointly-owned and democratically-
controlled enterprise. 
2 
Simply said, a co-operative is a business undertaking whereby a group of individuals strive on a 
voluntary basis to meet their mutual needs in such a way that the economic advantages derived 
from it are greater than what the individual could achieve on its own. 
In South Africa these co-operatives are stand alone entities each managed by a board of directors 
elected by the members of the co-operative (Competition Commission, 2006). 
1.1.3 The values, forms and types of co-operatives 
The International Co-operative Alliance (1995) defined the values of a co-operative as follows: Co­
operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and 
solidarity. In the tradition of their founders, co-operative members believe in the ethical values of 
honesty, openness, social responsibility and caring for others. 
The values of co-operatives speak of great integrity but lack aggressiveness in a competitive 
market. Some of these co-operatives attempted to move away from these values and became 
companies while continuing their struggle to make up lost ground in their growing competitive 
market. The main question is whether the values and good intent of the co-operatives can 
withstand the harsh arena of competition in the retail environment? 
1.1.4 Privatization and mergers in the agricultural co-operative market 
After the deregulation of the agricultural sector in 1995, a number of co-operatives converted to 
companies. These conversions involved a change of ownership and have the advantages of an 
expanded range of products and services offered by companies such as Afgri (Pty) Ltd. and 
Senwes Ltd. In addition, following deregulation, various mergers and acquisitions have taken 
places within the agricultural industry responding to the change in market structure and the field of 
competition. On the level of retail outlets, most of these mergers can be seen as horizontal 
integration where the core of the business stayed the same. 
Table 1.1: South African agricultural retail businesses and their registered status 
Co-operatives Private Companies 
Public Companies 
(mostly not listed) 
COASTAL FARMERS CO-OP 
LTD 
EAST CAPE AGRIC CO-OP 
LTD 
GRIEKWALAND WES KORP. 
BPK 
KAROO-ORANJE LANDBOU 
AGRI ORANJE (EDMS) BPK 
OBARO (MGK 
BEDRYFSMPY(EDMS)BPK 
SUIDWES LANDBOU 
(EDMS) BPK 
BNK LANDBOU (EDMS) BPK 
BKB BEPERK 
KAAP AGRI BEDRYF BPK 
KLK LANDBOU BPK. 
NTK LIMPOPO AGRIC BPK 
KOOP 
KAT RIVER CITRUS CO­
OPERATIVE 
MOORREESBURGSE 
K/BOERE EDMS BP 
NWK BEPERK 
LANGKLOOF BOERE KOOP 
NOORD-BOLAMD LAMDBOU 
(EDMS)BPK 
OVK BEDRYF BPK 
VRYSTAAT KOOP BPK SENWES BPK 
ORANJE KOOP BPK TWK LANDBOU BPK 
HUMANSDORP KOOP CRK LANDBOU BPK 
SENTRAAL SUID KOOP BPK KAAP AGRI BEDRYF BPK 
KLEIN KAROO KOOP BPK KLK LANDBOU BPK. 
WES KAROO KOOPERASIE OVERBERG AGRI 
BEPERK BEDRYWE BPK. 
TUINROETE AGRI BPK 
AFGRI OPERATIONS LTD 
(listed) 
(Source: Agrinet, 2007) 
Because of these conversions to companies and mergers, this paper will refer to agricultural retail 
businesses which include the present agricultural co-operative retail outlets, as well as the 
agricultural companies' retail outlets as shown in table 1.1 above, as the focus point of further 
discussions. These retail outlets include product ranges such as hardware, irrigation, paint 
products, building material and outdoor products, but exclude products like agricultural fertilizers, 
chemical products, crop seeds and fuel. Again a question can be raised whether by converting to a 
company had any effect on their competitiveness. 
These agricultural retail businesses across South Africa could ideally be developed into one of the 
leading retail outlet networks in the country, but even with such a great infrastructure and 
representation in every province and almost every town in South Africa as shown in table 1.2, they 
still struggle to compete on the same level as other competitors in their market. 
Table 1.2: Traditional geographic locations of the agricultural retail businesses 
c o Ol 
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ifl a. 
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(0 Q- a, £ z i s, o a 
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® (0 O CO co co S> £ N 3- 5 cc o » 5 o z o 111 O U- </) * s « _ i (3 z 5 
Overbe 
Senwes Afgri Afgri Afgri Afgri NTK Afgri Afgri 
rg Agri 
Coastal 
MKB GWK ECAC Senwes 
Farmer 
TWK Obaro Senwes Senwes 
4 
s 
Kaap 
Agri 
OVK OVK VKB BKB Afgri Obaro Obaro 
SSK BKB OVK 
BKB 
NWK 
1.1.5 Introduction and growth of competitors to the agricultural retail business 
Since the establishment of agricultural retail stores, they have been in a privileged situation by 
having a captured market in the sense that farmers were shareholders in these stores which 
brought some loyalty and commitment. They also had the advantage of being the only suppliers, 
especially in the rural areas, of agricultural goods and other complimentary products to the farming 
community. Hardware stores trade in the same product ranges as the agricultural retail 
businesses, which imply direct competition if their focus is on the same market segment. 
Recognising an opportunity, formally city and town located hardware businesses like Builders 
Warehouse and Mica started moving into the rural areas and thus became competitors to the 
agricultural businesses. Once loyal customers suddenly had a choice where to buy which left the 
agricultural businesses in most instances with only the agricultural products to supply. Some of 
these hardware stores grew into franchises and strong chains and four of these are included in this 
study because of their aggressive roll-out plans, successful brand names and presence in the 
same areas as the agricultural businesses. They are Builders Warehouse, Mica Hardware, Build-it 
and Cashbuild. 
a. Builders Warehouse 
Builders Warehouse is an Urban DIY home improvement retailer. They focus on high volume, low 
margin and low cost distribution of mainly branded goods. Their first aim is to have a national 
footprint in all major metropolitan areas and after that to develop a concept for smaller towns in 
South Africa called Builders Express Home and Garden Centre. Their slogan reads "Biggest range, 
Better value, Best advice - Open 7 days a week", which indicates an aggressive competitive 
strategy (EIG, 2006). They already have 21 Super stores and 14 Express stores in the country 
(Builders Warehouse, 2007). 
b. Mica Hardware 
Mica is a DIY and hardware chain and probably the best-known of all the competitors. Their aim is 
to become the first choice destination for the home improver. They are also embarking on a new 
store roll-out strategy across the country, both in rural and urban areas. Their slogan "Let us show 
you how" indicates a personal and more emotional competitive strategy (EIG, 2006). They have 
176 stores in and around South Africa (Mica, 2007). 
5 
c. Build-it 
Build-it is affiliated with the Spar group and they also focus on rural and urban areas. Their aim is 
to capture the building market with specific focus on the black market. Their representation is well 
developed in Natal, Gauteng and Mpumalanga with new roll-out plans in other areas as well (EIG, 
2006). They have 240 stores with another 150 planned (Build-it, 2007). 
d. Cashbuild 
Cashbuild is a hardware and builders' store focusing on the business of building contractors. They 
are very well represented in the urban areas while at present they are busy rolling out their concept 
in the metropolitan areas as well. According to their website (Cashbuild, 2007), Cashbuild is the 
largest retailer of building materials and associated products, selling directly to cash paying 
customers through its 160 (and growing) stores in Southern Africa. Cashbuild carries a focused in-
depth quality product range at the most competitive prices, to meet the needs of the local market 
for home builders, home improvers, contractors, farmers, traders and any persons wanting to 
purchase quality building materials for cash (EIG, 2006). 
Between these four competitors they have a present total of 631 outlets. There are around 400 
agricultural retail outlets in South Africa (Agrinet, 2007) which should bring the opportunities of the 
agricultural retail businesses with their already well-developed infrastructure into perspective. 
1.2 PROBLEM STATEMENT 
The "Vrystaat en Transvaal Sentrale Aankoops Kooperasie" (Vetsak) was founded in the early 
1950's as a secondary co-operative acting as a central buying and distribution centre for the old 
Free State and Transvaal co-operatives (Agrinet, 2007). Over the years, Vetsak became stronger 
and acquired Boeresake, a secondary co-operative acting as a central buying and distribution 
centre for the Cape region, and developed an infrastructure servicing the whole of South Africa's 
agricultural businesses" retail outlets with product ranges from general farming and hardware to 
irrigation and outdoor products. Vetsak also converted to a company in 1999 and became Vetsak 
Ltd. In 2004 Vetsak Ltd. conglomerated and Agrinet Ltd. became a entity on their own still 
functioning as the wholesaler and distributor of a product range including nearly 30 000 line items. 
Agrinet's shareholding is made up by some of the traditional co-operatives which now have mostly 
become companies. Over the past 10 years Agrinet have expanded their supply structure to 
distribute their products not only to these agricultural business retail outlets, but also to non-
agricultural, privately owned hardware stores, bigger groups including Mica Hardware, Build-it, 
Cashbuild and even to Builders Warehouse's bigger superstores. (Agrinet; 2007). 
With Agrinet's involvement in both the agricultural retail market as well as the non-agricultural retail 
market, the main concern is seeing the rate in which these non-agricultural stores is growing in the 
6 
sense of opening new stores, compared to the agricultural retail stores which are even closing 
some of their outlets. Old, traditional and sometimes even outdated systems and business 
principals are being utilised which leads to all kinds of handicaps and eventually customer 
dissatisfaction. 
The research will be addressing a growing concern for the supply chain to these agricultural retail 
outlets shown in table 1.3; and the fact that the increasing level of competition in their market, 
might harm and eventually disable the once comfortable market share they have had through the 
agricultural retail businesses. If something or someone threatens this agricultural retail market, it 
has a direct impact on their distributors and therefore on the whole supply chain connected to 
these agricultural retail businesses. 
Table 1.3: Agricultural retail supply chain 
Manufacturer 
I 
Wholesaler/Distributor 
I 
Agri Retailers 
Consumers 
(Source: Agrinet, 2007) 
The worldwide trend of the superstore module is increasingly growing in South Africa. These 
stores, including those of Builders Warehouse, Outdoor Warehouse, etc., are capturing the 
consumers in terms of the prevailing norm in the specific specialist category, their great product 
depth within a specific range and unique design, as well as service features. The superstore format 
is perhaps one of the most powerful retail innovations of this century. Superstores have emerged in 
both food and non-food retail categories with dramatic impact. Almost every year there is another 
retail category where a firm pioneers the superstore format for the category, with the format now 
represented in supermarkets, hardware, furniture, stationery, videos, fabrics, clothing stores and 
pharmacies. 
If this trend continues, which it probably will, it will place great pressure on the agricultural retail 
businesses to maintain a competitive market share. 
Traditionally, these cooperative retail shops keep categories that overlap with the hardware 
superstore segment in terms of building, hardware, gardening, irrigation, paint and outdoor product 
ranges. The agricultural retail shops are also more often situated in the rural areas and smaller 
7 
towns, while the superstores focus on the highly populated metropolitan areas and cities. As the 
metropolitan market gets saturated with these retailers, one of the ways to increase their retail 
market share will be to move into new markets, as they have already started doing, including the 
rural and urban markets where the agricultural businesses once flourished. Afgri (Pty) Ltd., a 
traditional agricultural retailer, has for instance developed a concept to expand into the 
metropolitan areas where they had not been before and for that same reason, superstores 
endeavor to develop concepts for the smaller towns which will be in direct competition with the 
agricultural retail outlets. 
1.3 OBJECTIVES 
• Main Objective 
Agricultural retail businesses struggle to stay competitive because of their lack of focus on the 
retail aspects of their businesses which results in an inability to keep up with retail trends and 
standards. 
The main objective of the study is to evaluate the competitive effectiveness of the current 
agricultural retail business outlets against other retailers in this market using certain key success 
factors. The objective will be to determine if these agricultural businesses are still competitive if 
measured against these retailers. The main question to ask is why they struggle to keep up with 
these competitors while having an ideal infrastructure which can actually help them to become one 
of the largest retail chains in the agricultural and hardware arena of South Africa. 
In order to achieve the above, the secondary objective would be to research the following: 
• Perceptions of these traditional agricultural businesses surrounding their brand strength 
compared with perceived brand strength of their competitors. 
• The implementation of key business principals. 
• Whether those that opted to become companies are more effective in their struggle for 
competitiveness regarding some key success factors than the ones which stayed co­
operatives. 
• To find out which chain suppliers prefer distributing their products through: the agricultural 
chain, other distribution chains, or direct distribution. 
1.4 METHODOLOGY 
The study will consider some key success factors for retail businesses and compare how the 
agricultural retail businesses manage to control these factors in their retail environment. The study 
will also involve three audit levels starting with the agricultural retail outlets' brand perceptions of 
their head office management level, then the perceptions of their branch managers and lastly the 
8 
perceptions of their customers. These perceptions will be measured against the same sample's 
perceptions of hardware superstores and other competitors in this market such as Builders 
Warehouse, Mica Hardware, Built-it and Cashbuild. A differentiation will also be made between 
agricultural co-operative businesses which have not become companies yet, and those that have. 
Primary data will be collected through interviews and questionnaires for research purpose 
on the perceptions of suppliers and co-operative managers. 
A questionnaire aimed at the perceptions of agricultural retail businesses surrounding these 
success factors will be used. A comparison on the answers is done between the perceptions of 
suppliers, agricultural retail businesses which have not became companies yet, and those that 
have. 
• Study population 
The main population for the research include the key players in the agricultural business arena 
such as their Trade Managers, Buyers and Branch Managers, as they are the closest to the 
operational side of these retail outlets. The same people connected with retailers including Builders 
Warehouse, Mica Hardware, Built-it and Cashbuild will also be approached. Also included in the 
sample population are the comments of suppliers who are connected to both these supply chains 
such as Wholesale Hardware Distributors, Agrinet, Lasher Tools, Dulux Paints, Afrox, Cadac, etc. 
to find out which chain they prefer distributing their products through. 
1.5 OUTLINE AND STRUCTURE 
Chapter 1: Introduction 
Chapter 1 will provide an introduction to the history of the retail co-operatives in South Africa, the 
growth of specific competitors in the agricultural retail business market and the problem at hand. 
Chapter 2: Key Success Factors in the Retail Environment 
This chapter will concentrate on the theory surrounding the problem. The most important key 
success factors will be gathered and discussed. These success factors will include general basic 
principles, as well as industry specific principles to be applied that contributes to greater 
competitiveness. 
Chapter 3: Results and Outcomes 
This chapter will contain the questionnaire and a discussion on the findings compared to the 
success factors discussed in chapter 2. 
9 
Chapter 4: Conclusion and Recommendations 
Various solutions will be investigated and reported. Conclusions and recommendations will be 
dealt with. 
10 
CHAPTER 2: KEY SUCCESS FACTORS IN THE RETAIL 
ENVIRONMENT 
2.1 INTRODUCTION 
According to Burke (2005), the ultimate goal of retailing is to: bring together supply and demand; 
and to provide consumers with a selection of goods and services that satisfy their needs profitably. 
The key success factors are the elements which contribute the most to the success of a retail 
business. These factors exist in all retail environments and can therefore be used as a benchmark 
to measure individual- or company performance against the market performance. The factors 
which make you a successful retailer are basically the same across all spectrums of the retail 
environment whether they are agricultural retail businesses, the FMCG markets, fashion or the 
hardware industry. Segel (2006) selected the following success factors: location, merchandising, 
store image, staffing responsibilities, advertising and promotions, sales techniques and financial 
evaluation. 
The seven cornerstones of retail success are a store in the right location, the appearance of the 
store, the size of the store, advertising, publicity and marketing, merchandising and management 
(Anon. 2004:1). Smith (2005) gave four tips on retail success. According to him, location, 
merchandise, management and customer experience are the key factors to retail success. 
According to the British Chamber of Commerce (BCC) (2003), smaller independent retailers must 
provide special experiences like excellent service, niche products and targeted marketing to appeal 
to clearly defined customer segments. They stated that achieving such excellence is not always 
easy, because small stores find it harder to attract and retain the best staff, their managerial 
resources are limited and training can be neglected. There is light at the end of the tunnel for small 
businesses, however, as they can learn to emulate the successful larger chains, in that they can 
track their merchandising techniques, product layouts and promotional tricks and apply the same 
ideas to their own businesses. 
2.2 FLEENER'S MODULE FOR RETAIL SUCCESS 
Some writers or retail specialists place more importance on certain key success factors than 
others, but in general all of them agree upon a few basic factors which need to be in place to 
survive in the harsh world of retailing. For the purpose of this paper, Fleener's (2007) model for 
retail success, which basically includes all the above mentioned factors, will be used as a 
benchmark to measure the agricultural retail business against. 
Fleener's (2007) model for retail success depicted by figure 2.1 is based on a combination of three 
components namely Product, Process and People. By product he means, the type of product to be 
11 
sold, the characteristics of the segment, the price the consumer pays for the products offered and 
the promotions done. By process he means, performance, the organisational structure and the 
physical site and location management. By people he means what the customer experiences when 
doing business with the retailer, what the employee experiences when working for the retailer and 
the quality of service delivered by the retailer. 
Figure 2.1: Fleener's module for retail success 
(Source: Fleener, 2007) 
2.2.1 Product 
• Product Selection: Product selection is made up of three elements: 
■ Market segment. This determines the type of product to be sold. 
■ Scope. The range of the segment. 
■ Quality. The characteristics of the segment and scope. 
• Price: The price the consumer pays for the goods offered by the retailer. 
• Promotion: The way the product is introduced and presented to the market. 
2.2.2 Process 
• Financial Performance: Includes inventory procurement, inventory management, category 
management and all necessary administrative activities that lead to financial performance. 
• Structure and Management: The organisational structure necessary to operate the retail 
enterprise. 
12 
• Location: The physical location. 
2.2.3 People 
• The customer experience: What the customer experiences when conducting business with the 
retailer. 
• The employee experience: What the employee does and experience when working for the 
retailer and interacting with the customer. 
• Services: Services are considered a people component as they are most often performed by 
people and their quality is determined as such. 
The key to success, according to Fleener (2007), is that one must always meet the market 
standards with all the elements of the model. These often changing standards are mostly set by 
the consumers' expectations as well as the competitors' ability to achieve them. 
2.3 KEY SUCCESS FACTORS (KSF's) 
2.3.1 Product 
KSF 1: Product Selection 
Decisions regarding the product, price, promotion and distribution channels are decisions on the 
elements of the "marketing mix". It can be argued that product decisions are probably the most 
crucial as the product is the very core of marketing planning, but errors in product decisions are 
legion (Carter, 1997). 
The structure of a product can be distinguished in three layers (Wikipedia, 2007): 
• Core product - focus on the benefit and core advantage which determines the product 
decision. These product decisions need to match up with the basic needs of the target market. 
• Actual product - emphasis on 5 physical characteristics of a product: Quality, brand name, 
features, style and design, and packaging. 
• Augmented product - post-purchasing services and additional services provided by the 
company. 
Agricultural retailers are well aware of who their target market is and what products that target 
market require. It has already been established that times have changed and the question remains 
if their target market is still the same. If there is a possibility that there might be new markets 
available then they must ensure that they have the right product for their future market. 
13 
KSF2: Pricing 
The price of any product should be in the range that a customer is willing to pay and is determined 
by supply and demand. It is the responsibility of any distribution channel to make sure that a 
product's selling price at the end of the channel is reasonable and competitive. According to Carter 
(1997), three basic factors determine the boundaries of the pricing decision: the price floor, or 
minimum price, bounded by product cost, the price ceiling or maximum price, bounded by 
competition and the market and the optimum price, a function of demand and the cost of supplying 
the product. Although these factors are the main determinants and the reason that the same 
product could differ in price per region, other influences on the pricing structure are the cost of raw 
materials, manufacturing costs, distribution costs and merchandising costs. Any manufacturer or 
supplier's aim is to get their products to the end user at the lowest possible price with reasonable 
profit margins. 
a. Pricing Strategies 
Carter (1997) stated that in setting prices, it must be made clear what the objectives and policy are. 
There is hardly a sector of industry where competition or potential competition is not prevalent. 
Three frequently encountered price polices are market penetration, skimming and holding. A low 
price (penetration) is a volume policy. A high price (skimming) is used if the product is fairly unique, 
development costs are high and demand is relatively inelastic. Market holding is a strategy 
intended to hold share. Here products are not based on straight exchange rates at current rates 
but on what the market can bear. These three price policies are illustrated in figure 2.2 and 
although the source is relatively old, it is still applicable today. 
14 
Figure 2.2: Pricing policies 
Price 
P1 
P3T 
P32 
P2 
Q1 Q31 Q2 
P1 Q1 = Price skimming 
P2 Q2 = Price penetration 
Q32 
Quantity 
P31 Q31 = Price market holding 
P32 Q32 = Price market holding 
(Source: Carter, 1997) 
The assumption behind all three pricing policies is that the underlying conditions governing supply 
and demand apply. In reality, these do not always do so, if indeed ever. 
With the reasonable ease of comparing the prices of products due to the fact that there are more 
competitors selling the same products, there are different price strategies according to Marketing 
teacher (2007) that one could use on retail level to sell more products. These different pricing 
strategies flow from the Pricing Strategy Matrix depicted by figure 2.3 and discussed thereafter. 
15 
Figure 2.3: Pricing Strategy Matrix 
Pricing Strategies Matrix 
(Source: Marketingteacher, 2007) 
• Premium Pricing 
Use a high price where there is uniqueness about the product or service. This approach is used 
where a substantial competitive advantage exists. Such high prices are charged for luxuries such 
as Cunard Cruises and Savoy Hotel rooms. In the hardware industry, this strategy can be applied 
to decorative products. 
• Penetration Pricing 
The price charged for products and services is set artificially low in order to gain market share. 
Once this is achieved, the price is increased. This is done especially with the introduction of new 
products. 
• Economy Pricing 
This is a no frills low price. The cost of manufacture and marketing are kept at a minimum. 
Hardware manufacturers or stores often have economy brands for their tools, electrical equipment, 
etc. A retailer can promote itself as being the cheapest and able to better any quote from a 
competitor. Normally these retailers will be the ones with bulk buying power and a great 
differentiation of products like some superstores is doing. A good example is Game's policy of 
beating any price. The disadvantage is obviously less profit, but there is a good chance of a 
customer buying something else while in the store. 
16 
• Price Skimming 
Charge a high price because you have a substantial competitive advantage. However, the 
advantage is not sustainable. The high price tends to attract new competitors into the market and 
the price inevitably falls due to increased supply. 
Premium pricing, penetration pricing, economy pricing and price skimming are the four main pricing 
policies/strategies and they form the basis for the exercise. There are, however, other important 
approaches to pricing including the following: 
• Psychological Pricing 
This approach is used when the marketer wants the consumer to respond on an emotional, rather 
than a rational basis. For example, price point perspectives of 99 cents not one rand. 
• Product Line Pricing 
Where there is a range of product or services, the pricing reflects the benefits of parts of the range. 
• Optional Product Pricing 
Companies will attempt to increase the amount customers spend once they start buying. Optional 
'extras' increase the overall price of the product or service. In some sense, hardware groups like 
Builders Warehouse are masters in this strategy. They manage to create a perception of low prices 
while they are actually more expensive than their competitors. One way of creating these 
perceptions is by managing and promoting known value items or KVI's. The prices advertised on 
these products are so good that it draws the buyer to their stores and while there, there is a good 
chance of them buying non-advertised products at a premium. Having such a perception 
connected to a retailer's brand is a great advantage and therefore there is a great responsibility on 
the management of these KVI's for once the perception of being expensive connects itself to a 
brand, it starts getting difficult to shake it. 
• Captive Product Pricing 
Where products have complements, companies will charge a premium price where the consumer 
is captured. For example, a drill bit manufacturer will charge a low price and recoup its margin (and 
more) from the sale of the only design of bit which fits the drill. 
17 
• Product Bundle Pricing 
Here sellers combine several products in the same package. This also serves to move old stock. 
• Promotional Pricing 
Pricing to promote a product is a very common application. There are many examples of 
promotional pricing, including approaches such as BOGOF (Buy One Get One Free). 
• Geographical Pricing 
Geographical pricing is evident where there are variations in price in different parts of the country 
or world. For example rarity value, or where shipping costs increase price. 
• Value Pricing 
This approach is used where external factors such as recession or increased competition force 
companies to provide 'value' products and services to retain sales e.g. the value paint pack from 
Dulux. 
b. Managing Known Value Items (KVI's) 
For many retailers, price monitoring and the decision to match or beat a competitor's price are only 
relevant for a few of the products. These products will mostly fall under the KVI classification of 
products. KVI's are national brand products, widely available at competitors, whose prices are 
commonly known to the general shopper and which are used by these shoppers to measure the 
value-for-money of one retailer against another. The danger of too high prices on these products 
might result in a general perception that a retailer is expensive. The GartnerG2 (2004) reports that 
25% or less items carried in a store are monitored by retailers and that 53% of these retailers 
monitor these products on a weekly basis. 
c. Price Zoning 
LeHung (2004:3) stated that price zoning is used by retailers to better match pricing to the 
distinctiveness and competitive environment of a local market area. If a store chain uses only one 
price zone, it means the price for the item is the same across the chain - regardless of the 
location. Naturally, price zoning makes pricing operations more complex, but helps retailers to stay 
more competitive. The use of multiple price zones usually indicates a highly price competitive 
environment. Only one price zone is used by 13% of USA retailers while 75% use more than five 
price zones (GartnerG2, 2004:3). 
18 
According to Waters (2007), besides cost, the following more popular pricing strategies can be 
considered: 
• Mark-up on cost is achieved by adding a pre-determined profit margin to the cost of the 
merchandise. The initial mark-up should be large enough to cover anticipated expenses and 
reductions and still produce a satisfactory profit. If you have a diverse selection of products, 
you can use different mark-ups on the product lines with different characteristics. 
• Suggested retail price is a common strategy used by smaller retail shops to avoid price wars 
and still maintain a stable level of profit. Some suppliers have minimum advertised prices but 
also suggest the retail pricing. By pricing products with the suggested retail prices supplied by 
the manufacturer, the retailer is out of the decision-making process. 
• One problem with using pre-set prices is that it does not give you an advantage over the 
competition. Another way would be to price your products the same as your competitors. Be 
sure you are comparing prices with other retailers comparable in size and sales volume. 
• Competitive pricing below competition simply means beating the competitor's price. This 
strategy works well if the retailer follows an inventory plan, buys at the best prices and designs 
a marketing plan to concentrate on price specials. 
• Competitive pricing above competition should only be considered when location, exclusivity or 
special service considerations can justify higher prices. For example, a retailer may stock 
merchandise of well-known brand names that are not available at any other location. This 
would allow the retailer to price above competitors. 
• Psychological pricing is a strategy where price is based on popular price points and what the 
consumer perceives to be fair. The most common method is odd pricing using figures that end 
in 5, 7 and 9. It is believed that consumers tend to round down a price of R19.95 to R19, rather 
than R20. 
• Multiple pricing is a method which involves selling a number of units for one price, such as 
three for R1.00. Retailers find this an attractive pricing strategy for encouraging larger 
commitments. It is also a desirable strategy for clearance sales. 
• Discount pricing and price reductions are natural components of retailing. Discounting can 
include coupons, rebates, buying clubs, markdowns or seasonal prices. The decision of when 
and what type of discounting will vary greatly with the type of merchandise, the amount of 
competition and the stock on hand. 
19 
d. Pricing Decisions 
Pricing decisions could again be made either at store level or at head quarter/corporate level. The 
most desired solution is a centralized control, as indicated in table 2.1, that can also track local 
prices and react locally. 
Table 2.1: Corporate vs. store control of pricing 
Corporate headquarters control pricing 33% 
Stores control pricing but follows corporate guidelines 44% 
Regional/district store management controls pricing 11% 
Stores control pricing with no help 11% 
(Source: GartnerG2, 2004) 
According to a comparative price study done recently by Eales (Agrinet, 2006) on a selected KVI 
range of products, the agricultural businesses and Cashbuild came out with the lowest prices while 
Builders Warehouse was in general, the most expensive. Build-it and Mica Hardware's products 
were priced in the middle. 
KSF3: Promotion 
In the GartnerG2 Report (2005), they started off by stating that retailers need to play the 
promotions game better, implying a shortage of focus on promotions. LeHung (2005:1) stated that 
promotional tools and capabilities must be improved and aligned according to the importance they 
hold in retailers' competitive strategies. Amit (2006) stated that in highly competitive markets, 
retailers are constantly looking for different ways on how to improve their financial results. This can 
be done through increased sales levels, enhanced productivity, or reduced costs. To achieve this, 
according to Amit, they have fully automated their supply chains and have rapidly moved from 
mass marketing strategies to segment based strategies and customization. Even through these 
improvements, Amit stated that retail promotions had still been overlooked. Retail promotions can 
account for up to 30% of sales but have essentially remained unchanged for years. 
• Type of Promotion 
There might be a lack of implementation and differentiation between the different types of 
promotions, for example, temporary price reductions, buy-one-get-one-free, rebates, etc., where 
one type of promotion might have outlived its effectiveness and there exists a slag to change to 
another. According to the GartnerG2 Report (2005) the simple temporary price reduction has been 
the most common form of price-reducing promotion rover a 12 month period in 2005 (see table 
2.2). Although these are again international figures, one could use them for benchmarking. The 
20 
Hardline industry which the G2 report refers to in table 2.2 consists of home improvement, building 
and hardware stores in the USA which co-aligned with the industry being researched. 
Table 2.2: Types of promotions used by Hardline stores 
Temporary price reductions 100% 
Buy-one-get-one-free or buy-X-get-Y-free 56% 
Vendor funded mail-in or instant rebates 89% 
Buy X units or more and get discount 78% 
Buy one item and get the second at a discount 67% 
By Y Rand of merchandise and get discount 44% 
Storewide sale: everything in the store is on promotion 44% 
Scratch card or loyalty card discounts 22% 
(Source: GartnerG2, 2005) 
• Promotional Decision Making 
It can be harshly debated about who should be in charge of the decisions concerning what 
products at what prices need to be put onto which promotion: the marketing department, the 
merchandising department or the buyers of the products. Although marketing can control the brand 
image across the chain, they might be out of sync with the day-to-day pricing tactics of the 
merchants. Therefore the ideal promotion process requires that all three parties take on 
responsibility and accountability. The question needs to be raised what will happen in the case of a 
chain where there is decision-making to be made at head office level as well as at branch level. In 
table 2.3 it shows who will influence the promotional decisions the most. 
Table 2.3: Corporate vs. store influence on promotions 
Corporate headquarters control promotions 56% 
Stores control own promotion, follow corporate events 33% 
Regional/district store management control promotions 11% 
Stores control own promotions with no other help 0% 
(Source: GartnerG2, 2004) 
• Advertising Expenses 
According to Randall (2007), the percentage of revenue that one should be spending on 
advertising will be influenced by the following factors: 
21 
• Type of business 
It is common for a new or growing business to spend 10 to 15 percent of the year's anticipated 
revenue on advertising. As the business becomes better known, this percentage could be 
decreased. But even then revenues should be monitored closely to see whether the reduction in 
the advertising budget resulted in reduced revenues. 
• Location 
A store in the heart of a busy mall can afford to spend a lower percentage than an out-of-the-way 
shop. A well located store could spend 1 to 5 percent of revenue on advertising while the same 
type of store in a bad location might spend 10 to 15 percent. 
• Competition 
If your main competitor showers the newspapers with ads every week, you might look to up your 
budget. If you enter a new market and want to take business away from competitors, you need to 
spend more on advertising. 
Although these three factors do play a big role in determining advertising expenditure, the most 
commonly cited method is by percentage of sales which traditionally should be around 1.5 percent 
of sales (Ranklin, 2007). 
Statistics SA (2005) reports average advertising expenditure in the hardware industry on R123 
million while they also reported total sales for the same year of R20 315 million. This brings the 
advertising expenditure for South African hardware stores to a well below the 1.5 percent average, 
to 0.6 percent of total sales. There is an old saying that 50 percent of your advertising is successful 
- you just don't know which 50 percent. 
• Advertising Mediums 
Times have changed for the big three advertising media namely print, TV and Radio (Anon. 2006). 
General magazines made place for specialised magazines and with an assortment of stations to 
advertise on, one finds it difficult to find the correct medium which will support your specific 
product. The world is changing to personalised advertising. Retailers are gradually moving from 
mass-marketing techniques to segmented, more customized marketing approaches which targets 
customers with messages focussed on their specific needs and tastes. Technology has put a 
retailer in a position where they can use direct marketing methods aimed to reach the right buyer 
via the right channel at the right time. The result is a more focussed and mostly cheaper marketing 
campaign. 
22 
In the future prediction of the G2 report (2005), over the next five years, customer-specific 
promotions will progress as technology enables more one-to-one interaction with store clients. 
What happens in the USA or Europe normally makes its way to South Africa as well, therefore we 
will find customer-specific promotions on the rise. With the help of Point-of-Sale systems, cell 
phones and emails, the use of technology taking giant leaps in South Africa can already be 
noticed. 
• New Product Introduction 
From a distributor's or supplier's point of view, the ability of a retailer to introduce a new product 
into the market is of great importance (Manby, 2007). If a great effort is put into a new product 
regarding research, development and marketing, the supplier would expect the retailer to continue 
and build on the groundwork being done to get the new products into the market. The effort of a 
retailer to introduce these products successfully would generate confidence with the supplier and 
make him the preferred route of distribution. 
In the end, one should be able to measure the effectiveness of a promotional or advertising 
campaign. The top five key performance indicators for measuring promotion effectiveness 
according to the best-in-class companies used in researched done by the Aberdeen group (2007) 
shows to be: gross margin (63%), merchandise turn (57%), vendor performance (52%), 
cannibalization (49%) and trade promotion performance (48%). 
2.3.2 Process 
KSF 4: Structure and Management 
Passion is what keeps you trying, keeps you looking for new ways to delight the customer and to 
beat your competition (Hammond, 2003:2). Management needs some of this passion to drive a 
retail business. 
Good managers lead and produce good, quality employees (Anon, 2004). Everything rises or falls 
on leadership (Maxwell, 1998). Managers can take a retail store to its next level or they can 
manage it to bankruptcy. Although in most cases in the agricultural businesses as well as the non-
agricultural hardware retail environment, the network consists of a head office and branches. The 
branches could be managed by a manager on behalf of the head office, or it can be owner-
managed via a franchise system. A branch manager is responsible for the management of a bank 
branch, a speciality or department store and his responsibilities would include the profits of the 
branch or store, the costs, stocks, security, administration, the selection, interviewing and training 
of staff members and staff development. The planning, organising, co-ordinating and control of the 
branch would be entirely in his hands, but all under guidelines from head office. In both cases the 
manager should take full responsibility and ownership of the management of the store. According 
23 
to Parker (2006), there can be a few elements from management's point of view that can influence 
the success of a retail store which could be benchmarked against the industry. These elements, 
are not limited to, but are mostly the following: 
• Ownership 
• Future Planning 
• Use of Technology. 
a. Ownership 
As briefly mentioned, the ownership of a store plays an important role. Some ownership is at head 
office level where a manager is appointed to manage the store, while others are at branch level 
where the owner also manages the store. Table 2.4 gives the management-owner profiles which 
exist within the companies which form part of the study population. 
Table 2.4: Management-Owner Profiles 
Head Office Managed 
(Centralized) 
Owner Managed 
(Franchised) (Decentralized) 
Agricultural businesses Mica Hardware 
Builders Warehouse Build-it 
Cashbuild 
(Source: Agrinet, 2007) 
One of the great debates about management structures, according to Kaufman (2000), has been 
over whether management should be highly centralized or decentralized. Both concepts have been 
in vogue over the years. He also stated that more recently, technology allowed for better 
centralized management. Decentralization is back in vogue as companies strive to generate new 
business and adapt to changing market conditions. Those businesses that have them are not 
scrapping the investment in centralized dispatch centres, but are blending more decentralized 
management with centralized planning. Although allowing better centralized management, 
technology also took managers further and further away from customers and from the field people 
who had to deal with a myriad of things. He further stated that rather than swinging towards either 
extreme, the pendulum seems to have settled somewhere in between. According to EIRMA (2001) 
the important drivers of the management level decision are: 1) increasing competitive pressure, 2) 
need to improve added value, 3) customer orientation, 4) globalization, 5) improving effectiveness 
and efficiency. 
24 
Some advantages of Head Office Management (Parker, 2007) 
• It creates consistency through all the branches in the look and feel as well as the pricing 
structure. 
• It is easier to negotiate deals as it can be forced down to the branches. 
• It takes some costs out of the system as some activities can be centralized. 
• Continuity and lifespan increase as changes to store management will not upset the normal 
flow of business. 
• Successful head office managed retail chains normally include an outstanding training program 
to assist their store managers perform to the required standard. 
Some advantages of owner operating managers (Parker, 2007) 
• There is more flexibility and changes can be implemented much faster. 
• You have immediate decision making available. 
• Owners have a more practical and operational approach to pricing, merchandising etc. 
• Owner-managers are closer to the business and know what really works. 
• An owner-manager will undoubtedly put all his efforts into the success of the business, 
otherwise he himself will lose a lot of money - there is therefore more personal commitment. 
• Owner operators will increase sales as much as 30% compared to store managers. 
The question remains which of these two approaches are more successful? A head office 
management approach works in the case where it is a strong branded group where all the activities 
and implementation of ideas is the same at all stores and is given to the managers as in the case 
of a Builders Warehouse and Cashbuild. No creativity or innovation is necessary from the 
managers' side to make the business successful. The owner operating manager on the other hand, 
invested his own money in the business and will go much further in making sure of the success of 
his business. Losses in this approach directly affect the owner's back pocket. Although the owner 
operated managers option appears to be the better alternative, successes and failures are 
recorded under both conditions. 
b. Future Planning 
In most cases a business began with a vision, a capable team of supporters, good advice and of 
course, some capital. This was followed by an ongoing commitment to adapt and evolve with the 
modern world, while always upholding the ideals that made it the great business opportunity in the 
beginning (Boulder, 2004). If there is no vision for a business, it will surely not stand the tests of 
time. According to Theunissen (2007), one way of knowing if there is a healthy vision is to evaluate 
the historic growth in outlets and future roll-out plans of the retail business. Seeing where a retailer 
comes from, how many stores he has opened until now and how many he still plans to open, tells a 
25 
great deal about the retailer growth. Especially if the retailer is part of a dynamic chain or group, it 
must have positive roll-out plans to penetrate other and new markets. In table 2.5 the planned 
opening of new stores over the next few years gives us an indication of the vision and aggressive 
growth strategies these hardware stores, or -groups implement and can be compared to the vision 
and growth strategies of the agricultural retail businesses in table 2.6. 
Table 2.5: Existing quantity of hardware stores in the study population 
Hardware stores Branches at present Planned new stores 
Builders Warehouse/Express 64 15 
Mica Hardware 204 30 
Build-it 210 55 
Cashbuild 156 10 
(Source: Agrinet, 2007) 
Table 2.6: Existing quantity of Agricultural Retail Businesses 
Agricultural retail 
Businesses 
Branches at present Planned new stores 
Afgri 90 5 
Senwes 38 2 
Noordwes 19 1 
Suidwes 20 0 
Obaro 14 0 
Limpopo Agric 21 1 
OVK 41 0 
VKB 14 0 
TWK 19 1 
Kaap Agri 31 0 
Tuinroete Agri 8 1 
(Source: Agrinet, 2007) 
c. Use of Technology 
Technology is undeniably the future of any successful business and therefore included. In every 
leading retailer in their respective market you will find the latest technology being implemented in 
ordering, stock management, receiving procedures and point-of-sales systems. According to NSW 
(2007), technology provides the tools for business to increase its productivity and profitability. Key 
applications of technology include: 
26 
• using technology to reduce wastage and resources consumption in the business process; 
• through use of computers, the business's performance can be monitored to ensure changes to 
the process are carried out in a timely fashion; 
• using the Internet to access information to ensure the most appropriate decisions are made. 
Some of the advantages of information technology include (Small Business Bible, 2007): 
Globalization - IT has not only brought the world closer together, but it has allowed the world's 
economy to become a single interdependent system. This means that we can not only share 
information quickly and efficiently, but also bring down barriers of linguistic and geographic 
boundaries. The world has developed into a global village due to the help of information 
technology allowing countries like Chile and Japan, which are not only separated by distance, but 
also by language, to share ideas and information with each other. 
Communication - With the help of information technology, communication has also become 
cheaper, quicker and more efficient. We can now communicate with anyone around the globe by 
simply text messaging them or sending them an email for an almost instantaneous response. The 
internet has also opened up face to face direct communication from different parts of the world 
thanks to the help of video conferencing. 
Cost effectiveness - Information technology has helped to computerize the business process, thus 
streamlining businesses to make them extremely cost effective money making machines. This in 
turn increases productivity which ultimately gives rise to profits that means better pay and less 
strenuous working conditions. 
Bridging the cultural gap - Information technology has helped to bridge the cultural gap by helping 
people from different cultures to communicate with one another and allow for the exchange of 
views and ideas, thus increasing awareness and reducing prejudice. 
More time - IT has made it possible for businesses to be open 24 x 7 all over the globe. This 
means that a business hours are not subject to local time zones which results in making purchases 
from different countries easier and more convenient. It also means that you can have your goods 
delivered right to your doorstep without having to move a single muscle. 
Creation of new jobs - The best advantage of information technology is probably the creation of 
new and interesting jobs. Computer programmers, systems analysers, hardware and software 
developers and web designers are just some of the many new employment opportunities created 
with the help of IT. 
27 
KSF 5: Financial Performance 
To succeed financially is the main object of any business and the heart of all the key success 
factors discussed here, in the sense that all factors are applied to improve the financial situation. In 
most cases the financial performance is the easiest and most obvious way to find out if a business 
is performing or not and how well it compares to similar retailers. The other factors are all strategy 
and a bit more difficult to measure, while financial information can easily be obtained and 
compared. If a business is in a financially healthy situation, the other success factors can only 
contribute to growth, but if not, these success factors can help you get there (Tratensek and 
Jensen, 2006:29). 
Operating-, Productivity- and Profitability Profiles are the key elements of a financial profile 
(Tratensek and Jensen, 2006:29). 
• Operating profile 
The difference in the size of the shop will have an effect on quantity of stock you can place in the 
selling area. More space means more stock, more creativity, more sales and more differentiation, 
but it also means a need for better management and higher rent. The size of the shop is important 
when it comes to per square metre figures which you benchmark, target and measure against. 
• Productivity profile 
The target in the productivity profile is to increase sales with a bigger ratio than the increase in 
variable expenses. Strategic plans need to be in place to raise sales through better merchandising, 
sales techniques and shrinkage control which in turn will up the average transaction size. 
An increase in inventory per square metre should increase safes and profit per square metre and 
therefore the reason for the successes of the Home Centre format stores which use shelving of up 
to 2 metres high, increasing their inventory per square metre and also sales per square metre. 
Every business aims towards the highest gross profit, but in order to achieve this, the retail 
environment's most useful tool for measuring success is sales per square metres. Unless a 
satisfactory sales per square metre ratio is achieved, all other financial benchmark tools are 
meaningless (O'Rourke, 2003:1). 
There can be many reasons for low sales per square metres (SPM). O'Rourke (2003) described 
them as follows: (Reason followed by an * means it falls under one of the other nine key success 
factors and will be discussed in detail). 
28 
• The retailer has too much space which results in high fixed costs like excessive rent, higher 
labour and flooring costs and higher insurance and theft costs. 
• Poor product/merchandising mix*. 
• Insufficient floor inventory (empty shelves, missing sizes)*. 
• Uncompetitive pricing*. 
• Poor location*. 
• Poor sales and customer service personnel*. 
• Non-optimal store hours. 
• Poor store layout and design*. 
• Insufficient / poor marketing*. 
• Fixed consumer perception. 
A healthy SPM will prevent you from getting burned in the retail business. See the following real 
case scenario in table 2.7 as an example where retailer X had an SPM of R2571 and his 
competitor an SPM of R3085. Retailer X filed for bankruptcy but it could have been avoided and 
instead of making a loss, could have made a profit of R600 million. 
Table 2.7: Example of sales per square metre (SPM) 
If retailer X matched competitors 
Retailer X 
SPM 
Sales per m* R2 571 R3 058 
Total selling area 14 million m* 14 million rrr* 
Total sales R36.2 billion R42.8 billion 
Net income (loss) R(1.4 billion) R600 million 
The productivity of staff will influence the success of the retail business tremendously. The retail 
success factors given by PACE (2005) advise to rather increase employee performance than to 
budget for man hours. Although both methods will achieve the same payroll cost percentage, the 
first will achieve the same ratio but with a higher gross profit rand value. 
• Profitability profile 
The main goal of any business is to generate a higher turnover while limiting the cost of sales for 
each product. This will increase the gross profit margin which will have an effect on nett profit; 
depending on the variable expenses linked to the business. 
Where a retail outlet has more than one department, as in the case of the agricultural retail 
businesses, each department should be operated as its own profit centre responsible for their own 
29 
financial profiles. This makes the management, measurements and evaluations of the shop in total 
easier. 
The most important square metres number is the gross profit rand value, not sales. 
To improve your business's financial performance, you must first see how you stack up against 
similar retailers. The financial profiles given in table 2.8 represent the typical hardware and home 
improvement centre store in the USA and South Africa 
Table 2.8: Financial profiles of hardware stores and Home centres 2006 
Operating profile 
USA USA 
Home Centres 
South Africa 
Hardware 
Stores 
South Africa 
Hardware 
Stores 
Home Centres 
Average size of 
selling area 
795m2 1300m2 700m2 5000m2 
Total sales R1 320 495 R4 361 500 R 840 682 R15 000 000 
Productivity profile 
Sales per square 
metre 
R1661 R3355 R1200 R3000 
Average size of 
transaction 
R165 R451 R90 R335 
(Sources: Tratensek, D and Jensen, C , 2006; Annual Report, Statistics South Africa, Retail Trade 
Industry, 2005) 
KSF6: Location 
In order to grow a retail business, there must be enough people around your store to support it. An 
article about the seven cornerstones of retail success (Anon. 2004) stated that the right population 
in the right location is needed to grow a customer base. In the "10 Insider's tips for retail success", 
Smith (2005) said that choosing a location is the most important step in making a dream of owning 
a retail store comes true. What good is it when you have a great staff and awesome merchandise 
but no one to sell it to? A location with a high traffic count should be chosen. Resources exist that 
can support a business in the decision on where to place a store and what the potential of that 
area is, based on income levels, population, age groups, cultures and competitors' locations. 
According to the BCC (2003), finding the right location may be retailing's Holy Grail, but the same 
location is not right for every retailer. Retailers focusing on convenience need to be located within 
easy distance from their target customers. For those aiming at customers wanting to make a 
specific purchase, a location which draws shoppers from a wide area and already has a good mix 
of shops can be more appropriate. 
30 
Some options they identified include: 
• Main shopping street in a major town 
• Side streets off the main shopping street 
• Neighbourhood locations, e.g. village or near an industrial plant 
• Shopping centre - local, regional, specialist, open or covered 
• Out-of-town retail park - generally the preserve of superstores 
2.3.3 People 
KSF 7: The customer experience 
As with any new business, the BCC (2003) believes that creating a memorable image is a vital 
component for success. That image, or brand, is everything the consumer associates with you -
quality, style, value, fashion, prestige, innovation, care, concern..., or whatever else is important to 
your business. 
According to Fleener (2007), any retailer who wishes to survive long-term in today's competitive 
arena must be able to answer the following fundamental question: What makes your store different 
enough for the consumer to choose to do business with you? Fleener further stated that 
experiences are how customers act and feel as a result of being engaged with your employees, 
your products and your physical store. It is to take key in-store activities like selling, merchandising 
and collateral and use them to better educate your customer and give them the best possible 
experience. Whalin (2001) stated that customers who receive great experiences are more likely to 
purchase, be loyal and recommend you to friends and family. Burke (2005) placed the following 
emphasis on creating a better customer experience: show the products and provide effective 
navigational aids, simplify presentation and minimise clutter, make the shopping experience 
enjoyable, convenient and be flexible. Customer experience is more than just customer care and 
the following elements, according to Fleener (2007), all contribute towards a great customer 
experience: 
• Merchandising. 
• Sales analytics. 
• General appearance. 
• Distinguishable stores. 
a. Merchandising 
Times have changed. According to Olson (2007:1) consumers will not be dictated to anymore and 
the smart merchants have realised it. Consumer tastes are more complex than ever before and 
profitable life-cycles have shortened, requiring all-time quick turnarounds. Olson states that the 
31 
"knock-off cycle" has been reduced from years to months and private lable merchandising has 
commoditised everything. The smart merchants have started to combine the art and science of 
merchandising to create a new form of merchandising using computer software programs as a 
resource and support system. 
In Olson's 2007 benchmark report about customer-centric merchandising (2007) he reported that 
more successful retailers utilise advanced integrated packaged software sofutions, than the rest by 
more than a three-to-one margin. Whalin (2001) stated that retailers know that to stand out, they 
must offer unique merchandise, provide their customers with an environment that is interesting and 
exciting and always deliver a shopping experience that is pleasant and memorable. He states that 
a constant changing mix of unique and interesting merchandise should be displayed in creative 
ways. Using merchandising "hot spots" where traffic flow is concentrated will increase the product 
consciousness and impulse buy possibilities. When you add terrific presentation and friendly 
people, you'll get a result that brings loyalty and growth. He says that winning retailers proactively 
look to meet and beat consumers' expectations, and are concerned with the ability to anticipate 
customer preferences in their merchandising practices. 
Olson (2007) reports an incredible 46% of respondents in the non-winning category indicated that 
a change in customer preferences had no influence on their merchandising process while 81% of 
the winners category said that it did had a great influence on their process. Of the successful 
retailers, 63% believe merchandise management systems to be very valuable compared to 46% of 
the lesser successful retailers. 
b. Sales Analytics 
The role of the retail industry is to present the right product to the right consumer, at the right place, 
at the right time and in the right way to stimulate purchases. The role of the information industry is 
to provide the right information to the right people, at the right place, at the right time and in the 
right way to stimulate informed and profitable decisions (Business Objects, 2007), Competitive 
advantage in retail through analytics, develops insights and creates value. The use of point-of-saie 
data can assist retailers to better understand customers' shopping habits. Analysing these habits 
will result in more focused marketing and merchandising efforts. Product sales analyses, most 
commonly used by retailers, enable the continuous monitoring of point-of-sale data to uncover 
sales trends, investigate product demand and optimise merchandising strategies (Microstrategy, 
2007). Various levels of analyses, from summary reporting to statistical trending, are required by 
executives, store managers, product managers, marketing analysts, as well as external suppliers 
who provide materials or finished goods. Business intelligence makes sense of the growing volume 
of transactional data by identifying trends and opportunities that create competitive advantage for 
companies that know and understand their sales drivers. Table 2.9 shows the basic reporting and 
analysis areas which technology makes available. 
32 
Table 2.9: Product sales reporting and analysis areas 
Product Sales Reporting & Analysis Areas 
Category performance 
Analysis/Category Management 
Fraud Analysis & Loss Prevention 
Inventory Analysis Product Scorecards 
Merchandising Analysis i Discounts and Promotions Analysis 
(Source: Microstrategy, 2007) 
Through point-of-sale data, retailers can better understand their customers, for example, the 
analysing of the typical market basket. The GartnerG2 Report (2004) identifies the most common 
uses for market basket analysis as follows: 
• Segmenting customers 
When studying market baskets, one will usually find basket compositions that are more common 
than others. An example of one such common basket could consist of items found mostly in the 
paint/hardware/ladder categories. Insight in purchasing patterns could be reached by analysing the 
frequency and magnitude of spending generated by each basket type. Through this, one can 
identify the store as a destination store, a one-stop shop, a specialist shop or whatever patterns 
start to occur over time, 
• identifying item relationship 
Basket analysis can be helpful in identifying which items are purchased together. This in turn is 
helpful with promotional planning and whether a customer shops in multiple departments or not. By 
knowing which items are purchased together, an item can be promoted which in return influences 
the purchase of related items. 
Assessing "cherry picking" and "pantry loading". 
"Cherry picking" is the tendency to buy only products on promotion. "Pantry loading" is where 
customers stock up on promoted items and buy less in future trips. Loyalty cards can be used in 
conjunction with the point-of-sale data to measure the effect of these to shopping patterns more 
accurately. 
According to Das and Vidyashankar (2006), customer satisfaction is not a logical conclusion of 
management of the selling process any more; it requires in-depth understanding of customers and 
products which can be achieved by implementing technology as depicted in figure 2.4. 
33 
Figure 2.4: Customer satisfaction 
CUSTOMER SATISFACTION 
CUSTOMER 
Predict customer 
behaviour based on 
demographics and 
purchasing habits 
PRODUCT 
Improve product 
positioning, identify 
products associations 
and plan shell 
positioning 
CHANNEL 
Campaign 
management, 
Analysis and design 
for different channels 
TECHNOLOGY as an enabler to 
Reaching the pinnacle of customer service 
Achieving high success rates in adoption of new products 
Exceeding planned ROI's on every campaign through accurate targeting 
(Source: Das and Vidyashankar 2006) 
Technology acts as an enabler to provide insights into customer behaviour, product 
interrelationships and successful promotion types for all the different channels. As data from point-
of-sale, credit cards, loyalty cards and store cards are synchronized and mapped along data from 
other sources, analyses of this integrated data has the power to impact a retailer's bottom line 
positively whether it is to use as a benchmark too! or as a future prediction tool. Figure 2.5 
depicting the power of analytics, explains how the different analysis tools help with drfferent 
outcomes. 
Figure 2.5: Power of analytics 
POS LOYALTY/STORE CARDS 
PRODUCT PLACEMENT 
SOFTWARE 
1 1 
1 ' 
ANALYTICS 
* ^ * 
CASUAL PREDICTIVE 
Sales analysis 
Category trends 
Brand dynamics 
Out of Stock 
analysis 
Promotion 
effectiveness 
Benchmarking 
Lifetime value 
analytics 
Basket Analysis 
Response 
modelling 
analysis 
(Source: Das, K and Vidyashankar, D.S., 2006) 
34 
c. General appearance 
The store appearance influences the experience of the customer even before entering the store. 
The seven cornerstones of retail success (Anon. 2004) also state that a store with dirty or empty 
windows will not invite a customer in. The first merchandise seen by the customer should be 
exciting and attractive and when you get the customer in the store, you dazzle him with an easy 
layout where they have enough space to walk through the aisles, ample lighting and neat and 
clean shelves. 
d. Distinguishable stores 
To be better, you must be different. Fieener (2007} stated that it does not necessarily mean that 
you have to offer something totally unique, rather that you have to do something to set you apart 
from your competition and also that you do a better job than them. If you do not add value to you 
customer, they are simply going to buy on price. Fieener gives the following suggestions to 
differentiate through experience: 
• Educate your customer - Help them obtain information necessary to make an intelligent 
purchase. 
• Focus on benefits - Translate what you sell as benefits for customers rather than focusing on 
price. 
• Be inviting - Make sure customers are welcomed to the store. 
• Be a great place to work - Happy employees make happy customers. 
• Be a fun place to visit - Entertain customers. 
• Keep the focus on the customer - Well-kept stores and replenishment of inventory are not as 
important as focusing on a customer when entering a store. 
• Invest in your people - Find great people and keep them. Invest in training and development. 
• Have a retail floor strategy - Define desired outcomes and create tools for employees to 
engage the customer. 
KSF 8: The employee experience 
Companies with employees who understand the mission and goals enjoy a 29 percent greater 
return than other firms {Heathfield, 2007). 
• Training 
Good management will ensure that weli-trained and skilled people are part of their success 
formula, especially in businesses where management is done through head office must ensure that 
their staff and store personnel are well trained and capable. The more training, the better the 
35 
performance will be to achieve the set standards of the business. Training should be an important 
part of the business whether it is a head office managed or owner operator managing the store. 
• Staff motivation 
Much has been said about the different ways of staff motivation with the most common one being 
incentives. Incentives can also take on different forms but again the most common way is a 
commission structure where sales people get commission as a percentage of the sales they 
generate. According to Whalin (2001), most retail businesses have some sort of incentive scheme 
as part of their sales motivation strategy. Therefore, regardless of which incentive program is 
implemented, the majority do use them and "if" or "if not" implemented, can be seen as a 
benchmark against the industry. 
KSF 9: Customer Service 
Customer service can be seen as the basics of successful retailing. Because of so many elements 
in the field of technology, customer service in itself evolved into customer experience where the 
service part is but one factor in the experience realm. By simply thinking back to one's most recent 
shopping experience, one realises that although customer service is the first answer everybody will 
give when asked what the top differentiator in retail is, it is the last thing to be implemented and 
monitored. 
Key aspects of good service include (Whalin: 2001): 
• Product availability 
As a customer one would shop at a store where you know the needed products are in stock. Again 
market basket analysis plays a role in that one can tailor the store according to the customers who 
are most likely to visit it. 
• Easy-to-find products 
Well merchandised and customer friendly merchandised products will increase the ease of 
shopping and of finding specific products. 
• Shorter queuing times 
We live in a world of fast food, instant coffee and quicker service. A differentiator of a retail outlet 
could be the ability of the store to shorten waiting time through better and faster point-of-sale 
systems, improvement in queuing formats and minimising delays. 
36 
• Skilled staff and product champions 
Another way of distinguishing a store is with knowledgeable, friendly staff who genuinely cares 
about servicing customers. Although this message has been spoken about for ages, it still is being 
ignored by a great many retailers. Fleener {2007) stated that the way to differentiation is through 
experience. Retailers who are leaders in customer experience are also the leaders in employee 
experience most of the time. The tell-tale sign is a company's employee turnaround rate and how it 
compares with the industry average. 
2.4 CONCLUSION 
It is of utmost importance to all retail businesses to benchmark the performance of the store, or 
group, or company against the standards in the market place. To know about the standards is one 
thing but not to use it as a business tool will be a sign of ignorance and soon to be failure. These 
standards are set as key success factors commonly used throughout the retail industry and 
indicate whether a retail business is on the right track or not. Nine success factors are mentioned 
in this document which is common to the hardware industry as well as the agricultural retail 
businesses in South Africa. 
Firstly the right product must be supplied to the customers who have the need for the products in 
the quantity needed. Not having a satisfactory range of products and decent availability levels will 
drive customers away. Apart from just having the products, an effort should be made to assure the 
presentation of the right quality product for the specific market that you're operating in. 
Secondly, pricing and the management thereof should be market related and profit driven. This 
means competitive pricing, but with a sense of category management whereby losses on one 
product can be played off against good margins of another. To strive towards always being the 
lowest on price are almost impossible and only achievable by Home Depot type of stores where 
they have the buying power. The challenge is to create the perception of being a low price store by 
managing categories and known value items. 
Promotions and the implementation thereof are the third success factor. There are many different 
types of implementation of promotions, but again the challenge is finding the correct combination of 
the different types of promotions without getting stuck on one type or no type at all. Promotions 
should be measured to evaluate the success of each type. 
Fourthly, structure and management also play an important roie. There are certain advantages and 
disadvantages of head office management strategies and the same for owner-operated strategies. 
The one most suited to your business should be found and stuck to. The research indicated that on 
the whole only franchises are owner-operated, whereas the groups are head office managed. The 
37 
success and vision of management will flow through to their future roll-out plans for new stores and 
market growth. 
Financial performance, the fifth success factor, is probably the most commonly used benchmark 
tool for all businesses and the most driven figure should be the sales per square metre. The more 
safes per square metre, the better the sales, the faster the stock turnover and ultimately better 
profits should be generated. 
Location is the sixth success factor. The best suited locality will be the one with the best visibility, 
highest traffic flow and the easiest accessible. 
The seventh success factor is customer experience. The ability of a store and its staff to create an 
attractive shopping environment and atmosphere through good merchandising, proper sales 
analytics and an acceptable general appearance will distinguish the store from its competitors. 
Good employee experiences will help create good customer experiences and eventually good 
customer service. Motivated staff will walk the extra mile to be successful for themselves as well as 
be willing to play a part in the success of the business. 
Lastly customer service is probably the most sought after success factor that possibly plays the 
biggest role in the customer's mindset but are rarely achieved. Product availability, the ease of 
finding products, waiting times and well trained staff are the highlights of every customer service 
training session, but for some or other reason the most difficult to implement. Maybe it is because 
of the persona) touch, or lack thereof needed to make it work, while the other success factors do 
not rely on emotions and continued efforts. 
The final conclusion will be in the words of Doug Fleener (2Q07) who harshly stated that the 
marketplace is more competitive than ever before with national chains and big box retailers 
dominating the marketplace and predictions of even tougher competitive conditions ahead. Central 
to these changes will be the mid-size chains, small stores and any retailer who cannot be a market 
leader in their primary position. This change may not mean that these retailers will not exist in the 
future, but if they do exist, they will be faced with no, or reduced growth, small margins and limited 
profitability. 
38 
CHAPTER 3: RESULTS 
3.1 INTRODUCTION 
Benchmarks and industry standards for agricultural retail groups were researched. These are listed 
and discussed in chapter 2. The data for the study were collected with the aid of two 
questionnaires; Coming from the assumption that the hardware stores are a threat to the 
agricultural businesses, they are used as the benchmark and their responses to the first 
questionnaire was measured against the responses of the agricultural businesses; The second 
questionnaire was aimed at suppliers who supply both the hardware industry as well as the 
agricultural retail industry, to find out which of the two distribution channels they prefer to use in 
getting their products to the consumer. Only suppliers that supply on a national basis were 
considered for this questionnaire. The questionnaires were sent and responses received by e-mail. 
The first questionnaire was sent to 34 agricultural retail groups representing over 400 retail outlets. 
Responses were received from 56% of the total agricultural hardware retail industry as listed in 
table 1.1. Of these respondents, 25% are still operating as co-operatives, 50% are privately owned 
and 64% are publicly owned companies. The worst response was received from co-operative 
registered agricultural businesses. For this reason comparisons were only made between the 
agricultural businesses in total against the hardware businesses. These agricultural businesses 
represent 348 stores which can be compared against the 471 stores represented by the responses 
from the hardware dealers. From the four hardware groups operating in South Africa and included 
in this study, 67% of their responses came from their area managers and 33% from head office 
buyers. No response was received from Cashbuild. The percentage responses received from 
various staff components in the agricultural businesses are set out in Figure 3.1. 
39 
Figure 3.1: Respondents of the agricultural businesses 
Agricultural respondent make-up 
5 0 % -
4 0 % * 
!V. 
2 0 % ■ 
1 9 % 
1 3 % 13% 
10% ■ 
0% -
Trade Area Head Buyer Buyer 
Manager Manager 
The following terminology and abbreviations will be used in this chapter. 
• Agri / Agricultural Businesses 
companies 
• Hardwares 
The combination of co-operatives and agricultural 
Builders Warehouse, Cashbuild, Mica and Build-it 
3.2 RESULTS FROM THE AGRICULTURAL AND HARDWARE RETAIL INDUSTRIES 
• General information 
Figure 3.2 gives a summary of they way in which the two groups of respondents regard their 
stores. 
Figure 3.2: Different types of stores 
100% 
80% 
60% 
40% 
20% 
0% 
Type of stores 
100% 
50% 
4 5 % 
TT1 
6% 
1 
□ Speciality 
store 
■ One-Stop-
Shop 
0 Destination 
store 
Agri Hardwares 
Businesses 
In the hardware spectrum, Mica, Build-it and Cashbuild described their outlets as a destination 
while Builders Warehouses' - all under one roof strategy - put them in a bit of a different class than 
40 
a one-stop destination. The agricultural retailers also qualify themselves as being destination 
stores, but then also attempt to provide everything that is hardware related, DIY related and 
agricultural related under one roof. Although having the space more often than not to do that, in the 
remote rural areas where they are also represented, they do not have the number of customers to 
justify a one-stop-shop. Agricultural retail businesses like Afgri Ltd. is developing a concept for the 
metropolitan areas called the "FarmCity" where they plan to become a destination store which will 
provide customer experiences rather than the one-stop-shop option. 
The following results were obtained by comparing the key success factors identified in chapter 2 to 
the results of the questionnaires. 
KSF1: Product 
The hardwares as well as the agricultural businesses seemed confident that the product and 
product ranges they supply are measuring up to the needs of their customers. Among the 
agricultural businesses though, the confidence level is a bit lower with 67% of them feeling that 
they are meeting their customers' needs product wise, compared to 75% of the hardwares. Under 
this success factor it must be kept in mind how the suppliers responded to the question on which 
distribution channel they prefer. This will reveal their confidence in these two supply chains and will 
confirm whether these figures are correct. 
In figure 3.3 a comparison between the frequency of measuring the success of a product or 
product ranges, shows large differences between the agricultural businesses and the hardwares. 
Less than half the agricultural businesses revisit their product ranges on a quarterly basis, while 
over 90% of the hardwares do so. Such revisits ensure the correct products and correct quality 
products on the shelves. This means that the hardwares can be more confident that they are 
supplying the correct products to their customers. 
41 
Figure 3.3: Frequency of product range measurements 
Product range measurement: Frequency of 
measurements 
V/o - ! 
50% 
? — D Never 
D Annually 
■ Semi-
Annually 
a Quarterly 
■ ' mKM 
■ ; : . . : : ■ ■ 
: 38% 
13% 
Agri Businesses Hardwares 
As the theory states, the right products needs to be supplied to the right market. With the few times 
the agri businesses do measure their product effectiveness, they can not assume that they will stay 
competitive in that the products they sell currently might be outdated already. 
KSF2: Pricing 
Both agricultural businesses and hardwares use pricing as a competitive tool, but the question 
needs to be raised on what level this strategy is used and managed. The agricultural businesses 
do measure pricing, but as indicated in figure 3.4, compared to the hardwares, only 26% of them 
apply this technique on a quarterly basis, while 50% of the hardwares do. Not measuring their 
pricing strategies frequently, can put the agricultural business behind in the race for 
competitiveness as they will not know how competitive their prices are, 
42 
Figure 3.4: Frequency of price measuring 
Price Measuring: Frequency of measurin 9 
• 
: ■ ■ Annually 
n Semi-
Annually 
O Quarterly 
■ Monthly 
ED Weekly 
| 
6 1 % 
8 1 % 
i 
50% 
26% 
8% *?©/_ 
1 ' i 1 
Agri Hardwares 
Businesses 
Out of the 13 price strategies researched in chapter 2 under KSF 2-Pricing, only 7 are utilised by 
agricultural businesses and 12 by hardwares. Again assuming that the hardwares are winning 
ground, figure 3.5 shows that the agricultural businesses need to put in more effort and 
creativeness into their pricing strategies. Using less price strategies than your competitor does not 
necessarily mean that you have a competitive disadvantage, but with the lack of price measuring 
combined with the lack of differentiation in price strategies, one can assume a disadvantage. It 
seems like the agricultural businesses are more afraid of out pricing their products than really 
driving different pricing strategies. The fact that they do not utilise premium-, optional-, product 
bundling-, value pricing and only a few KVI strategies confirms this. This might be because of a 
lack of price management or know-how. Another strategy which the hardwares use much more 
often than the agricultural businesses is the penetration pricing strategy. This might also be 
because of poor management, bad ptanning or not enough product and price research. 
43 
Figure 3.5: Pricing strategies used 
Pricing strategies used 
100% 100% 100% 
Still part of the management function will be the control of pricing, especially on the fast moving 
products. These products are the drivers of a business and most of the time they also fall into the 
category of known value items which requires on-hand frequent management. Figure 3.5 shows 
that at least 50% of hardwares check 10% their fast moving products on a weekly basis, while 75% 
check at least 25% of their top products' prices monthly. They also manage to check each product 
at least once a year. Comparing the agricultural businesses to this, where 50% of the hardwares 
check at least their top 10% products a month, not even 50% of the agricultural businesses check 
any prices at all on a monthly basis. 
Figure 3.5a: Frequency of price monitoring of the top 10% of the products 
44 
Figure 3.5b: Frequency of price measuring of the top 25% of the products 
Frequency of price mintoring on top 25% 
products 
100% 
Et Monthly 
■ Quarterly 
Agri Businesses Hardwares 
Figure 3.5c: Frequency of price measuring on the top 50% of the products 
Figure 3.6 gives a summary of the perceived price competitiveness of agricultural businesses 
versus hardwares. Keeping in mind the results from the previous pricing figures, figure 3.6 is quite 
interesting. Although previous figures have already established that the agricultural businesses' 
pricing strategies lack some management, most of them still perceive their pricing strategy as 
market related. There is nothing wrong with a market related price strategy, but then you need to 
be absolutely sure that you are market related and not just think that you are. Agricultural 
businesses are content with their situation and this might come from past co-operative situation 
where the member or shareholder had the right to a price advantage. Comparing this to the better 
controlled hardwares proves the point of lack of price management in the agricultural businesses. 
Half of the hardwares perceive their prices to be more expensive than those of the competitors and 
while knowing this, whether they do this on purpose or not, they are seen as the danger to the 
agricultural businesses. This clearly indicates that the hardwares know what their strategies are, 
they drive it and they are successful. They do not even care that they are not the cheapest around; 
they simply focus on the different pricing strategies to create a perception to the public that they 
are price competitive. 
75%wffl ". 
— ■HI—: 
45 
Figure 3.6: Perceived price competitiveness 
Percieved price competitiveness 
-56%-
25%25% 
Agri Businesses Hardwares 
a Cheaper than 
competition 
■ Market 
related 
D More 
expensive 
than 
competition 
Agricultural businesses place great focus on head office guidelines within which the stores can 
operate. The only reason why this might differ from the hardwares is that two out of four hardwares 
under discussion are franchises and therefore owner operated. As far as price decision-making 
levels are concerned, figure 3.7 show that there is not much difference between the agricultural 
businesses and the hardware stores in that both implement a combination of head office and store 
pricing decision levels. Builders Warehouse is the only one that differs in the sense that most 
pricing decisions are made at head office level and the stores need to comply with those decisions. 
Figure 3.7: Price decision-making level 
100% 
80% 
60% 
40% 
20% 
0% 
Price decision making level 
38% 50% 
9 m 
Agri Hardwares 
Businesses 
I Stores but follows 
corporate 
guidelines 
□ Corporate 
headquarters 
If the current price strategy works for the agri businesses, it's fine but when they perceive 
themselves as being the cheapest or market related, they should at least evaluate their strategies 
more often as the theory indicates that the ones doing this will stay more competitive. It also 
doesn't help being the cheapest but nobody knows about it which brings us to promotions. 
46 
KSF3: Promotions 
It is of no use to do a promotion without measuring the effectiveness thereof. It provides an 
indication of whether the same promotion should be used again and if the return on the 
promotional investment is satisfying. Again the agricultural businesses trail the hardwares and in 
figure 3.8 it shows that none of them measure weekly promotional effectiveness compared to 20% 
of hardwares that do. Only 8% of them are measuring promotional effectiveness on a monthly 
basis compared to 65% of hardwares, while 51% of them measure it quarterly compared to 100% 
of the hardwares. The frequency of advertising and promotions piays an important part in the 
awareness and perception forming campaigns which are carried out exceptionally well by the 
hardwares. In figure 3.9 it shows that at least 75% of the hardware role players are doing some 
sort of promotion or advertising once a month while only 1% of the agricultural businesses have a 
monthly advertising strategy. A problem reveals itself in that 40% of the agricultural businesses do 
not even do a promotion once in a four month period and 10% of them doing none at all. 
Figure 3.8: Frequency of promotional effectiveness measurements 
47 
Figure 3.9: Frequency of promotional programs 
100% T 
80% 
60% 
40% 
207c 
Frequency of promotions 
100% 100% 100% 
Agri Businesses Hardwares 
I Weekly 
Monthly 
D Quarterly 
Q Semi-
Annualy 
■ Annually 
In the promotional types used, the agricultural businesses again lack some initiative as only 4 of 
the 8 different types of promotions are used compared to the 5 out of 8 by the hardwares. Using 
fewer types of promotion does not necessarily give you a disadvantage in your competitive 
strategies. A certain method might found to be very successful and the need to change therefore 
unnecessary. The other elements of promotional strategies also need to be looked at to find out 
whether the promotional type being used is successful, or whether it is again a lack of good 
management, abilities and innovation. However, looking at the lack of measuring of effectiveness 
and infrequent promotional efforts of the agricultural businesses, one tends to go for the latter 
option. Agricultural businesses do not change the type of promotion on a regular basis and they 
rely on mostly the discounting options to do promotions year in and year out. The hardwares on the 
other hand are differentiating considerably between the different types of promotions, even running 
different types of promotions parallel with one another. 
48 
Figure 3.10: Promotional types used 
1 0 0 % 
1 00% 
8 0 % 
6 0 % 
4 0 % 
2 0 % -
0% 
6 0 % 
i>% 
P r o m o t i o n a l T y p e s u s e d 
100% 
5 % 
XL 
Agr i Bus inesses 
8 0 % 
4 0 % 4 0 % 
Hardw ares 
□ Temporary price reductions 
r Buy-one-get-one-free or buy-X-
get-Y-tree 
j I a Vendor funded mail-in or instant 
rebates 
P Buy X units or mo re and get 
discount 
■ Buy one Item and get the second 
at a discount 
i a By Y Rand of rnerchand ise and 
I get discount 
I ■ Storswide sale: everything in the 
store is on promotion 
D Scratch card or loyalty card 
discounts 
Agricultural businesses should explore the possibilities of buy-one-get-one-free and buy Y rand 
and get discount options as these strategies seem to be quite successful in hardwares. 
In all instances, the headquarters of the different businesses, whether agricultural or hardware, 
control the main promotions as indicated in figure 3.11. All of them are allowed to do additional 
individual store promotions but have to adhere to approval of headquarters. The promotional 
decision making of agricultural businesses therefore looks on par with the hardwares. 
Figure 3.11: Promotional decision making level 
Promotional decision making 
100% 
80% 
60% 
40% 
20% 
0% 
5% 4% 
- ■ — 
94% 96% i 
— I 
Agri Hardwares 
Businesses 
I Stores control 
own promotion, 
follow corporate 
guidelines 
D Corporate 
headquarters 
control 
promotions 
49 
As have already been mentioned, the industry norm for advertising expense should be around 
1.5% of turnover. Among the agricultural businesses, the average budget for advertising is less 
than 0.5% with 25% of them not knowing what it is, while 19% do not budget at all. The hardwares, 
as indicated in figure 3.12, spend around 1% of their turnover on advertising and promotions, 
which is also below the standard. This figure is different from the 0.6% figure derived from literature 
research on advertising expenses for the hardware industry, which might be skew as this study 
only includes 4 groups in the hardware industry and no independent hardware stores. 
Figure 3.12: Advertising budgets 
Advertising budget as percentage of sales 
100% 
80% 
60% 
40% 
20% 
0% 
Agri Businesses Hardwares 
19% 
25% BH9E 
56% 50%. ! 
■ '" ■ : i 
□ Don't 
Budget 
D Don't 
know 
■ 1%-2% 
D<1% 
Not budgeting enough for advertising and promotions will obviously limit the mediums which can 
be used for advertising. Figure 3.13 clearly shows the result of the gap between the agricultural 
businesses and the hardwares regarding their advertising expenses. Because the hardwares 
budget more, they are able to make effective use of all the mediums, while the agricultural 
businesses lack opportunities, especially in utilising radio as a medium. Using television as a 
medium to advertise is understandably not in the interest of the agricultural businesses because of 
them not being national, although their customers do watch television, but surely some local radio 
stations can be utilised. The use of a specific medium does not make a business more competitive, 
but all the promotional elements should be looked at as a whole. 
50 
Figure 3.13: Advertising mediums used 
100% 100% 
Advertising mediums used 
100% 100% 100% 100% 
100% 
80% 
60% 
40% 
20% 
0 % -!■ 
44% 
Prim 
6% 
□ Agri Businesses 
■ Hardwares 
Radio Television Publicity 
As far as the measuring and evaluating of a promotion's success are concerned, all the businesses 
use the amount the merchandise has turned as a measurement. The hardwares use gross profit 
margins as a second measurement tool whereas the agricultural businesses use sales as their 
second measuring tool. The measuring in itself does not give you the competitive edge, but using 
the right tools for measuring does help with decision making and that will lead towards the 
competitive edge. Using sales as one of the top two measuring tools is great but very dangerous if 
gross profit is not the other tool. Sales look good in the books but you can sell at small margins, at 
cost or even below cost which will lead to liquidity problems if this is unplanned. As discussed in 
chapter 2 under KSF 4- Financial performance, gross profit will help the store maintain good cash 
flow, and also help with the management of buying patterns, quantities and discount levels and 
should be used as the preferred measuring tool, 
51 
Figure 3.14: Promotional measuring tools 
Tools used to evaluate promotional success 
100% 100% 
Q Agri 
Businssses 
Hardwares 
Promotions as a key success factor might be the worst implemented factor by the agricultural 
businesses and therefore the best opportunity for rectifications. If nothing is done to increase 
competitiveness in these areas, the agricultural retail businesses might be in trouble. 
KSF 4: Financial performance 
Table 3.1: Financial information 
Agri Businesses Hardwares 
Average size of selling area 750 800 
Total sales average 712 500 960 000 
Sales/in*1 950 1200 
Inventory turn 3.4 5.75 
GP 18% 24% 
Table 3.1 compares the three most effective tools to measure financial performance, namely, sales 
per square metre, inventory turn and gross profit margins. Looking at sales per square metre, the 
agricultural businesses lag behind the hardware benchmark of Rl200/m2. Walking through some 
of the agricultural retail businesses one does get a feeling that there are many unused spaces 
above shelves where no sales are generated. The shelves that are there are not always 
merchandised to maximum capacity which in turn links to the use, or rather lack of use, of 
merchandising software packages. To create greater sales per square meter figures, higher 
shelving systems have been installed in Cashbuild and Builders Warehouse, while most 
agricultural businesses are more afraid of theft and use 1,5m high shelves so that they can have a 
52 
clear view over the top of the shelves around the store. The increase in sales per square meter of 
floor area compared to shrinkage when using higher shelves might be an interesting topic for future 
research. 
Inventory turn is slower on average in the agricultural businesses. Reasons for this can be 
anything from ineffective promotions, wrong pricing, bad category management or recruitment, etc. 
One needs to get this figure as high as possible through the correct application of the above 
mentioned factors. 
Better gross profit margins should become a driving force among agricultural businesses. During 
the discussion on price strategies it was clear that the agricultural businesses focus on low pricing, 
while hardwares focus more on management and therefore generate higher gross profits than the 
agricultural businesses. Some of these agricultural stores even run on gross profit margins as low 
as 11%. A target benchmark should rather be around 25%. Low gross profits in itself will not make 
a business less competitive, but there will be less money available for improvements, revamps and 
upgrades which might influence the customers' preferred choice of retail outlet in terms of 
experience. 
KSF 5: Structure and management 
Evaluation of management in hardware and agricultural businesses should happen on two levels. 
The first is more difficult and includes the evaluation of head office management and structures 
including, sales managers, buyers, area managers and trade managers.- As most of the pricing, 
product and management decisions are made at this level, their skill levels should be on par with 
the industry's standards, A failure at this level will have disastrous effects. The second level is the 
evaluation of store and branch managers. Build-it and Mica are franchises and therefore owner 
operated. The rest, including the agricultural businesses, have branch managers. The danger of 
having a strong head office structure is that a branch manager is able to hide his incompetence 
which makes effective branch manager evaluations even more important. These evaluations 
should be done frequently to keep the business healthy. To never do management evaluation 
might be a misrepresentation and this should rather be seen as evaluation done in longer than one 
year periods. Not doing manager evaluation at least once a year might on the other hand be just 
as good as never doing it. Figure 3.15 reveals that only 3% of agricultural businesses do 
evaluations on a yearly basis in contrast to 60% of hardwares, again the franchise factor must be 
kept in mind. The question might be asked whether there is so much confidence in the agricultural 
retail store managers that they do not need to be evaluated. This will be reflected in the branch 
performance and using the information gathered so far, it is not the case. The problem might lie 
with the first level of management namely, the head office. 
53 
Figure 3.15: Frequency of management evaluations 
Management Effectiveness Measurement: 
Frequency of measurements 
60% 
■ Never 
E Annualy 
Agri Businesses Hardwares 
Whereas Mica and Build-it are franchises and therefore managed by the owners, Builders 
Warehouse and Cashbuild are strictly head office operated. The agricultural businesses are almost 
all head office managed with respect to buying, negotiations and debtors as shown in figure 3.16, 
while in hardwares there is more of a co-managed structure in place. In figure 3.17 it shows that 
75% of the hardwares have some form of incentive scheme for managers which results in them 
taking ownership of their stores. The franchises (Mica and Build-it) are owner operated, while only 
30% of the agricultural businesses have an incentive scheme in place for their branch managers to 
motivate them to perform and develop a kind of store ownership. Research has established that 
incentives and ownership definitely contribute towards the effectiveness of a store and will 
therefore also contribute to the competitiveness of the store. 
Figure 3.16: Management levels 
Management level 
100% 
Agri Businesses Hardwares 
El Head office 
managed 
■ Co-managed by 
head office and 
branch manager 
□ Ow ner/Branch 
managed 
54 
Figure 3.17: Use of manager incentive schemes 
80% 
60% 
40% 
20% 
0% 
Use of manager incentive schemes 
75% 
Agri Businesses 
3 
• • ■ 
:::: 
25% 
i 
hi : ' \ \ 
40% 
■—39%39%| 
Hardwares 
□ Yes 
■ Sometimes 
a No 
It is necessary to have updated in-time IT systems available to assure good and effective 
management. It is therefore of great importance to keep up with technology and IT systems to 
contribute towards management and decision making processes. To stay competitive, managers 
need up to date and as far as possible real-time information to base management decisions on. 
Without this type of information, it is impossible to make the best possible decisions for the 
business and it will therefore start lagging behind those who do use up-to-date information and 
have the opportunities to make informed decisions. Updating the IT systems are directly related to 
better management as discussed in chapter 2 and also shows the seriousness management 
places on staying competitive. In chapter two it shows that the heart of any business today is the 
effectiveness of the support systems available which can give a competitive advantage if used to 
its fui potential. From figure 3.18 it is clear that not much importance is placed on up-to-date IT 
systems that support retail by agricultural businesses, where more than 50% of them have not 
received an update in the last 5 years, while all of the hardwares have. The implications are quite 
clear. 
Figure 3.18: Update of IT systems 
100% 
80% 
60% 
40% 
20% 
0% 
IT System last updated 
Agri 
Businesses 
19% 
fi-
43%; 
I 
1 — 
Hardwares 
□ Longer than 10 
years ago 
■ Last 6-10 years 
■ Last 5 years 
Table 3.2 compares the opening and roll-out plans of the agricultural businesses with those of the 
hardwares. If opening and roll-out plans of new stores are an indication of success, then the 
55 
agricultural retail businesses look like a sector heading for extinction. Opening of new stores does 
necessarily mean that you are not competitive, however. It can simply mean that you are content 
with market share and not afraid of any new entries into the market that can be a threat to your 
market share. The regional boundaries which the agricultural businesses traditionally used to have 
might be another reason for not opening new stores. Both of these reasons have become 
irrelevant because if the agricultural businesses were content with their market share, a study like 
this would not have been necessary, while regional boundaries are also something of the past. 
Opening new stores is indicative of aggressive competitive intentions on the side of the hardwares, 
something which is almost non-existing in agricultural businesses. 
Table 3.2: Roil-out plans for new stores 
Agri businesses Hardwares 
Stores opened in the last 5 years 2 180 
Stores planned for the next 5 years 5 240 
KSF6: Location 
The agricultural businesses have a problem in that most of their buildings are old and they have 
been established between 15 and 50 years ago focusing on the agricultural markets. They are 
therefore not in the best locations as indicated in figure 3.19 and they are also not present in new 
developing areas. There are many factors which play a roll when it comes to location. Poor location 
can in parts be overcome by exceptional service or differentiation, but good locations make it much 
easier. With all other elements set apart, the store with the better location should be more 
successful. When it comes to store visibility and accessibility, the agricultural businesses in distant 
rural areas do not have a problem because most of the time there is only one road going through 
the town and the business is normally in that road. In bigger towns and cities, hardwares are 
situated in better locations more often, with better accessibility and visibility than agricultural 
businesses. Figure 3.20 shows that of the lone standing agricultural retailers in industrial areas, 
only 30% are visible from the main road with good access points, whereas 93% of all hardwares 
are visible from the main roads. This also plays a roll in off the head awareness and buying 
patterns. From a competitive point of view, the agricultural businesses in the small towns are still 
fine, but their locations in the bigger towns and metropolitan areas lack visibility, accessibility and 
comfort compared to the hardwares. 
56 
Figure 3.19: Location of stores 
100% -i 
80% -
60% -
40% -
20% -
0% -
Locatior description 
34% 3 1 % BMaii 
O Lone stand-
industrial area 
B Lone stand-
residential area 
□ Lone stand-
retail area 
58% 
' 
59% 
I I 
Agri Hardwares 
Bus smess es 
As location is the retailers holy grail as stated in chapter two, agri businesses should focus more 
on the possibilities of moving poorly placed stores to better locations to increase awareness and 
possible customers. 
Figure 3.20: Store visibility and accessibility 
80% 
60% 
40% -I 
20% 
0% 
Store visibility and accessibility 
—50%-
28% 
Agri Businesses 
63% 
35% 
3% 
Hardwares 
□ No 
■ Poor 
□ Fair 
□ Good 
The research has shown that location plays a big role in business competitiveness and bad 
locations will make you less competitive. The agricultural businesses do have a problem with too 
many of their stores being in industrial areas where they lack visibility and accessibility. This will 
influence their overall brand awareness which in turn will influence their competitiveness 
negatively. Although malts charge high rent, they also draw the customers and awareness for the 
brand can be buiid this way. Agricultural businesses should investigate this option. 
57 
KSF 7: Customer experience 
The use of elements to better the customer experience as depicted in figure 3.21 seems to 
generally lack enthusiasm. Although the hardwares are performing better, even their figures are 
not impressive. The agricultural businesses definitely fall short on sales analytics, general 
appearance and the merchandising elements of customer experience where their efforts are 
almost half of those of the hardwares. 
Figure 3.21: Elements used to create better customer experience 
120% 
100% 
80% 
60% 
40% 
20% 
0% 
Elements used to better customer experience 
100% 
75% 
56% GhaM —SG3^fco% 
44% 
— | 3 1 % ■■ 
13<Bl3% 
Agri Businesses Hardwares 
Q Merchandising 
B Sales Analytics 
□ Customer Service 
D General 
appearance 
■ Skilled staff 
Q Distinguisable 
store 
In figure 3.22 it can be seen that only a few agricultural businesses and hardwares are utilising 
advanced integrated packaged software solutions to support their merchandising, which put South 
African businesses somewhat behind the USA hardwares. The utilisation of "hotspots" and gondola 
ends to increase sales in the agricultural business is not really taking place, as only 8% of them 
use gondola ends as a sales tool, while 92% of them use it as normal shelve space, rarely 
changing what is displayed on them. Compare this to the 100% of Builders Warehouses that use 
gondola ends as sales increasing tools and 69% use of gondola ends by the other hardwares. The 
use of merchandising software in both cases are low and it can therefore not be seen as an 
element that provides hardwares with a competitive edge at this time. It will, however, provide the 
edge to the ones utilising it the best, first. 
58 
Figure 3.22: Using of merchandising software 
Merchandising software used 
Agri Businesses Hardwares 
There is still on average 19% of the agricultural businesses that believe that changes in customer 
preferences have little influence on their merchandising processes as indicated in figure 3.23. This 
indicates the lack of importance they place on customer needs and it again confirms the 
shortcomings in product and price management discussed earlier. 
Figure 3.23: Influence of changes in customer behaviour on merchandising 
Influence of changes in customer behaviour 
on merchandising 
D Little 
influence 
■ Fair 
influence 
□ Great 
influence 
Only 31% of the agricultural businesses use Point-of-Sale (POS) data to analyse shopping habits 
compared to the 100% of hardwares as shown in figure 3.24. Of the 31%, 25% use it for 
segmenting customers and 6% to identify item relationships. All of the hardwares use POS data for 
segmenting customers, identifying customer relationships and assessing cherry picking. It must 
again be reiterated that the use of this information helps with better decision making and strategic 
planning which in turn will increase normal sales and impulse buying. 
75% 
11% 
59 
Figure 3.24: Use of POS systems 
Anallzing data through POS systems 
100% 
60% 
60% 
40% 
20% 
0% 4 
:i00% 
669% 
3*% 
■ No 
□ Yes 
Agri Businesses Hardwares 
KSF 8: Employee experience 
The annual employee turnover rate for agricultural businesses is 3 compared to the 6 of the 
hardwares. The reason for this big difference might be because hardwares operate more often in 
the bigger towns and cities where work and employee opportunities are more available than in the 
rural areas where most of the agricultural businesses operate. Therefore staff moves more freely 
between jobs in the cities than in the rural areas. 
To improve their employee experience, 100% of the hardwares have a performance motivation 
scheme in place for their sales staff, while only 19% of the agricultural businesses have simiiar 
schemes (Figure 3.25). To further improve the relationship between employer and employee, 
sufficient and relevant training needs to be provided. If employee experience increases sales, it 
means that you are more successful and more competitive. Figure 3.26 shows the standard of staff 
training conducted and disappointingly most training provided by the agricultural businesses are 
perceived by their employees to be below standard. This might be due to different reasons, but one 
reason might be unwillingness to spent money on employees. This situation can lead to employee 
dissatisfaction and negativity which can create a bad atmosphere which customers can pick up. 
60 
Figure 3.25: Use of staff incentive schemes 
Use of staff incentive schemes 
100% 
100% - 81% 
80% -
60% -fZ U Yes 
40% - : ■ No 
19% 1 
20% -. 
0% - wjm 
Agri Businesses Hardwares 
Figure 3.26: Standard of retail training 
KSF 9: Customer service 
Agricultural retail businesses seem to outperform the hardwares only on the skill levels of their staff 
and the reason for this might be because they sell some specialist products like irrigation and 
chemicals. On product availability, the hardwares outperform the agricultural retail businesses by 
far as indicated in figure 3.27 and figure 3.28. 
Another customer service element is the average number of floor salesmen per store. The more 
sales people and floor walkers in a store the better the customer service can be in the sense that 
more attention can be given to more customers. A lack of staff might results in longer queuing 
times which are shown in chapter two to give a customer a bad experience. The agricultural retail 
businesses average around 3 floor sales people compared to the 4 of the hardwares. 
61 
Figure 3.27: Rating of customer service elements: agricultural businesses 
Rating of customer service elements 
2% 
□ Excellent 
a Above 
Average 
■ Average 
D Below 
Average 
Figure 3.28: Rating of customer service elements: hardwares 
100% -| 
80% -
60% -
40% -
20% -
0% -
Rating of customer service elements 
; I0°A 
10> 
!0°/ 
0 10% 
151 3 a Excellent 
□ Above 
Average 
B Average 
E Below 
Average 
i w, 
{° H i 10c 
Le
ng
th
 o
f 
qu
eu
in
g 
tim
e o 
O 
| 
(0 
c 
'S 
c 
o 
CD 
in 
cc 
LU 
o 
XI 
0 
Le
ng
th
 o
f 
qu
eu
in
g 
tim
e 1 
c 
\ 
a 
c 
0 
3.3 RESULTS FROM SUPPLIERS TO THE AGRICULTURAL AND HARDWARE RETAIL 
INDUSTRIES 
The objective of the questionnaire sent to the suppliers was to establish how they perceive the 
agricultural retail businesses in comparison to the hardwares and to establish which distribution 
network they prefer. It was sent out to 25 suppliers that are familiar with both the agricultural retail 
industry as well as the hardware retail industry on a national level. Eighteen of the questionnaires 
were received back, which represents a response rate of 72%. The responses came mostly from 
representatives of the suppliers working directly with both the distribution chains under 
investigation. Table 3.3 gives a list of the suppliers that were targeted. 
62 
Table 3.3: List of suppliers included in the study 
Afrox Dulux Paints Henkel Ryobi 
Agrinet Eureka Hunter SA Ladder 
Arch Chemicals/HTH First National Battery Lasher Spanjaard 
Bosch Gedore Matus Two Ten Chemicals 
Bostik Grinding Techniques Pferd Usabco/Addis 
Cadac GUD Powafix WHD 
Wynns 
According to suppliers servicing the agricultural retail outlets as well as the hardwares, there is a 
major gap between the agricultural retail outlets and the hardwares as can be seen in figure 3.29. 
Even more worrying are the ratings of some of the key performance areas by the suppliers as 
shown in table 3.4. The categories of rating were poor, below average, above average and good. 
The agricultural businesses scored below average overall compared to the above average scored 
by the hardwares. 
Figure 3.29: Suppliers' opinion of the two distribution channels 
Suppliers opinions 
80% ■ 
60% ■ J9HHJ ~~—m — » — n D Agri Businesses 40% -
20% - s \~~A + M M ■ Hardw ares :::: 0% i 
Average deferred Distribution 
percentage C istribution netw ork 
involvement Network which 
in the introduces a 
agricultural new 
retail products 
business She best into 
vs. the non- the market 
63 
Table 3.4: Average rating of key performance areas by suppliers 
; 
Agricultural Retail Business Non-Agricultural Retail 
Business 
Product Availability Above Average , Above Average 
Pricing Strategies Below Average Above Average 
Merchandising Skills ' Below average Below Average 
Promotional strategies Below Average Above Average 
Location Below Average Above Average 
Length of queuing times Above Average Above Average 
General Appearance Below Average Above Average 
Skill level of staff Below Average Above Average 
Distinguishable Stores Below Average Above Average 
Promotion efforts Below Average Above Average 
Category Management Below Average Below Average 
Taking this information into account it really becomes a concern when suppliers are not even 
choosing you as their preferred supply route. This aione reveals that some drastic steps should be 
taken to rectify the situation. 
64 
CHAPTER 4: CONCLUSIONS AND RECCOMMENDATIONS 
4.1 INTRODUCTION 
Retail means competition and competition means that there is going to be a winner and a loser. 
Every retailer's goal is to win every potential customer and influence every decision that has the 
potential of becoming a transaction. In the world of retail there is no room to become stagnant or 
content because there will always be someone who wants your business and who will be prepared 
to chase after it until they get it. The agricultural businesses have for a long time enjoyed the 
comfort of being the only store in their area, especially in the far-off rural areas. They have also 
enjoyed the loyalty of their members, being the farmers. Looking at the research results it seems 
that these comfort zones might come to an end sooner than they think. Agricultural retail 
businesses must be careful not to be caught asleep while other retailers move into their market 
segments at an aggressive pace. Measuring hardwares and agricultural businesses against the 
key success factors researched revealed that although the hardwares did not perform that great, 
the agricultural retail businesses are still well behind them when it comes to the implementation of 
these factors. 
Discussion of the key success factors with conclusions and recommendations: 
KSF1: Product selection 
Product range evaluation is done by most agricultural retail businesses, but only on an annual 
basis compared to the bi-annual rate of the hardwares. Both perceive their product mix to meet the 
needs of their customers, but to be only 67% sure as in the case of the agricultural businesses, is 
just not enough. This perception can be a research topic for future papers by testing these 
perceptions against comments from their customers themselves. Products, the availability thereof 
and its presentation should be visited on a more frequent basis. Management and their capabilities 
play a big part in the research and development of their product ranges. More emphasis needs to 
be placed on evaluating whether the right products are available and of the correct quality to meet 
the needs of their customers. They should focus on innovation to keep their customers interested 
in visiting the store frequently. 
KSF2: Pricing 
Hardwares drive their pricing strategies more aggressively with 25% of them visiting their 
strategies monthly compared to the 17% of the agricultural companies. The battle on being the 
lowest in price is lost by most hardwares as their aim is to better manage their categories and 
known-value-items to drive profits. They are creating perceptions that they are priced well in 
comparison to their rivals through clever advertising, but looking at the basket, they are in fact 
more expensive. Agricultural retail businesses lack in the category management area. Most of the 
65 
time, products in a category are bought at a certain price and the same mark-up is applied to all 
products in that category. Well-known products that should be used to attract customers are priced 
more expensively than the same product promoted by their rivals, but only their rivals implemented 
category management which allow them to sell this product cheaper. A good example is paint. 
Dulux has a big range of paint products of which some are more popular than others. The prices of 
the popular ones are generally known to the frequent buyers. Hardwares price the popular paint 
products at a lower margin than the rest of the range, while the agricultural businesses price all the 
products at the same margin. Although both might have the same gross profit margin for the 
category, the hardwares create the perception that they are cheaper by advertising the product 
with the lower margin and therefore attract more customers. Although the agricultural retailers can 
provide a basket of products cheaper than most of the hardwares, they are perceived to be more 
expensive. 
The management of pricing strategies, or the lack thereof, can be noticed in the frequency that 
pricing on products are checked. Of the hardwares, 25% check 10% or less of their products 
against their pricing strategy on a weekly basis, while agricultural businesses do not check on a 
weekly basis at all and only 17% check on a monthly basis. These 10% or fewer products are 
normally the top sellers and therefore need to be managed hands-on. The agricultural retail 
businesses' figures reveal that there are some that do not even check the pricing on their top 10% 
products for a whole year. The hardwares measure at least 50% of all their products' pricing during 
a year, while only 58% of the agricultural businesses measure 50% of their products' pricing during 
a year. Agricultural retail businesses should choose which pricing strategy they want to use and 
then clearly communicate it through all they do. Trying to have the lowest prices on all products is 
actually impossible. There will always be someone cheaper. It is therefore recommended that 
businesses should start playing the perceptions game. They should identify the products that are 
responsible for most of their sales and then manage those products' prices at regular intervals, co-
align it with good advertising and work on their perceived pricing. 
In connection with on what level pricing decisions are made, the difference between the agricultural 
businesses and the hardwares comes in with the hardwares that operates as franchises. All 
decisions, excluding promotional decisions, are made at branch or store level with little help from 
head office. The pricing decisions in the agricultural retail business measure up well against the 
Builders Warehouse and Cashbuild strategy, as well as the international tendency, in that the 
decisions can be made at store level, but within corporate guidelines. It might be a good option to 
make pricing decisions at store level within the boundaries set by the head office if the business is 
not operated as a franchise. 
66 
KSF3: Promotions 
The hardwares' promotional efforts are also more aggressive with all of them having at least one 
promotional campaign per month. Some even has promotions on a weekly basis compared to the 
co-operatives' 67% and the agricultural companies' 75% on a quarterly basis. None of the 
agricultural businesses does monthly promotions. Promotion types like vendor funded mail-in or 
instant rebates, have not even been touched on in the South African market yet, while used by 
89% of hardwares in the international markets and the second most used promotion types in the 
USA. Another type which might be overlooked is the store wide sale where everything in the store 
is for sale. In the USA , 44% of the hardwares use of this method and while there is some 
businesses in South Africa that use it, for instance the music industry, this is unfamiliar ground to 
the hardware and agricultural industry in South Africa. 
Different types of promotion should be applied more often. Agricultural companies make use of 
four of the eight promotional types while the hardwares utilise six of them. 
The South African hardware industry and agricultural retailers compare well against the USA 
hardware industry on where promotional decision making lies. All of them see it as a head office 
function which can be rolled downstream to all of their branches. 
Agricultural retailers mostly argue that everyone knows where they are and what they sell and by 
everyone they mean their members. For this reason they are not putting too much effort into 
promotions and advertising. This is true for the members, but what about non-members and other 
possible clients who do not know them, know who they are, what they sell or where they are? 
There might still be a perception amongst the general public that only members can buy from the 
agricultural retailers, which is no longer true. Therefore, they do need to advertise and attract more 
customers to their stores. Agricultural retailers definitely need to invest more in advertising and at 
least match what the hardwares are spending if they cannot reach the ideal 1.5% of turnover. 
Agricultural retailers maybe need to plan their promotions more strategically, making use of a 
diversity of promotional types, focus on specific target markets and carefully budget their 
advertising efforts for most success. After every promotion they should evaluate the success of the 
promotion not only by the amount of sales generated, but also by the effectiveness of the 
promotion type and the gross profit made from it. 
KSF 4: Financial performance 
At least some form of financial performance measurements are done by all on a monthly basis 
which should be obvious, but the type of financial analysis used plays the key in the success. 
Agricultural businesses should start focusing on the measurement tools that can make a difference 
to the bottom line of the company. They need to raise their gross profit margin by another 7% on 
67 
average to get them to around 25% which is a lot to ask if you are used to working on low margins. 
Much creative thought and innovation should go into strategies on how to increase these margins. 
Increased profit margins will result in more money to spend on the maintenance, improvement of 
customers experience and marketing efforts. 
Another challenge for them will be to raise their stock turnover by utilising a combination of key 
success factors more frequently. 
Agricultural businesses should adapt their IT systems to accommodate acceptable stock-holding 
levels to create the perception that "you will find what you are looking for". This will lead to better 
merchandised shelves and an increase in stock turnover. The use of merchandising techniques 
increase impulse sales which help with the stock turn levels. 
Agricultural businesses should also look at ways to better utilise the space available to them. 
Space is money and with the introduction of new innovative ideas, products or services, they will 
be able to add something more attractive and acceptable to customers in their presentation. 
KSF 5: Structure and management 
It became clear from the research results that none of the agricultural businesses knows whether 
there is some sort of management effectiveness measurement and if this is done as situations 
present themselves, while all of the hardwares measure their management effectiveness factor at 
least once a year. 
As long as a store is not a franchise, co-management should be applied between the store 
manager and head office. Although there is currently no franchise specifically operating in the 
agricultural market, agricultural businesses still have the option of giving shares or incentives to 
branch managers. This might provide them with the opportunity to increase their store 
management performance and at the same time give them a sense of ownership and 
responsibility. If this option cannot be implemented, they need to follow the Builders Warehouse 
and Cashbuild route, where they will have to provide managers with sufficient training 
programmes, effective evaluation systems and control methods to ensure proper management. 
Without these elements in place, it is easy to loose control over the stores' management, as well 
as to miss out on possible opportunities. The combination of work effectiveness and management 
success of agricultural retail stores is a good topic for future research. 
We are living in the age of technology and it has been noticed that some of the agricultural retailers 
do not even have email facilities. If such a basic operating tool is not in place it can be suspected 
that their IT systems might be outdated and unable to provide fast, accurate and modern reports 
for effective management. The hardwares fully understand the effective management tool the right 
68 
IT system can provide and therefore strive to upgrade at least every two years. IT systems also 
assist when it comes to basket analysis and merchandising discussed under the customer 
experience success factor. 
Comparing the opening of new stores in the last five years as well as their future planned new 
store openings, the agricultural retailers are almost out of the picture. Hardwares are increasing 
their footprint at an accelerating rate, opening stores wherever they find feasible. With the 
exception of Afgri Ltd., it looks as if the agricultural businesses are content with their regional 
boundaries and small far-off stores, which might actually run on a lost, but are carried by other 
bigger stores, or their fuel, crop seed and fertilizer sales. Without plans to open new stores and 
grow market share, potential barren land is left to the aggressive competitor and once they have 
entered, possibilities fade away. Hardwares move into the markets of the agricultural businesses 
and will therefore have opportunities to open more stores. On the other hand, the agricultural 
businesses might look to move into the hardwares market but then they first need to step up their 
competitiveness otherwise they will not make it. 
KSF6: Location 
Location effectiveness measurements are done on longer than annual periods. For existing stores, 
there is no real indication if their location effectiveness is revisited on frequent intervals. It seems 
as if the location factor plays more of a role in the planning and opening of new stores. 
Unfortunately agricultural businesses opened their doors before the likes of Builders Warehouse, 
Cashbuild, Mica and Build-it in times when they had been the destination store and centre of 
attention. Meanwhile new areas have developed and main business centres might have moved to 
other locations and in the process have left the settled agricultural retailer at a disadvantage, while 
at the same time they opened up new opportunities for their competitors. The number of 
agricultural retailers in business areas and not in retail areas proves their disadvantage when it 
comes to location. Agricultural retailers might consider moving some stores to areas where there is 
better access, better visibility and more customers. The cost involved in moving might just proof to 
be an investment with great returns. 
KSF 7: Customer experience 
The people factor of Fleener's module also does not attract the focus that it should by neither 
agricultural businesses nor the hardwares. The highest customer experience element score is the 
67% by the hardwares that succeed in creating an acceptable general appearance. In this same 
element, only 8% of agricultural businesses are perceived as being in an acceptable state. The 
only element where agricultural retailers scored higher than the hardwares was in the skilled staff 
department but even there, less than 40% are successful. There most certainly is an opportunity in 
the market for a retailer who can succeed in generating good customer experiences, whether it is 
69 
an agricultural business or a hardware store, by implementing good merchandising practices 
through the use of sales analytics, by working on a good and clean general appearance, by 
training staff to deliver good service and be creating a distinguishable store by using elements not 
commonly found in other stores. 
Utilising advanced integrated packaged software solutions to support merchandising is not yet 
happening in the hardware or agricultural retail sectors. Software programs including AC Nielsen, 
Apollo and DotActive are available in South Africa and are currently used by supermarkets, 
pharmacists and other retail stores. Hardwares in the USA using these software programs outsell 
their competitors by three to one. 
Commonly used tools within reach of the agricultural retailers can be utilised to improve the 
customer experience and increase their sales. These tools are the following: 
• The correct utilisation of gondola ends as main selling areas and not as shelving; 
• The use of merchandising software packages to improve merchandising of products; 
• The use of point-of-sale data to analyse customer habits, product mixtures and to increase 
basket sizes. 
Hopefully the day might come when agricultural retailers will realise the advantages of 
merchandising and then start merchandising to create a better customer buying experience, rather 
than placing products on a shelf and keep it in a way which will help them with their stocktaking 
once a year. After all, is merchandising a method to draw the customers' attention or to facilitate 
stocktaking? 
KSF 8: Employee experience 
Not one of the respondents to the questionnaires indicated employee experience as a necessary 
success factor to be focused on. Employee experience is a relatively new concept and the author 
is not sure that everyone is at a point where they agree that employees should have a positive 
work experience and that it can contribute to an improved success rate. One of the main 
challenges in retail is to hold onto sales staffs as the good ones with experience are highly sought 
after. Here money is not everything. By creating a pleasant work experience employees might think 
twice before jumping to the next retailer. One of the ways to better the employee experience is 
through incentives. Again this concept is relatively new at branch manager level and here the 
agricultural retailers have followed the hardwares by implementing incentives for their managers. 
This should not stay only at manager level, however, but should be rolled out to the sales staff and 
to everyone who can positively influence the people factor and ultimately sales. Another way to 
better the employee experience is to equip the employee to do the job to the best of their ability. 
Frequent training should be provided, especially in category management that together with 
70 
training in sales, customer service and merchandising might contribute to the success of the store 
in a great way. 
KSF9: Customer service 
Surprisingly, none of the industries performed well with their customer service. Most of them 
scored average on elements like product availability ease of finding products, length of queuing 
times and the skill levels of the staff. These are all factors that will see a customer coming back to 
a store or not. Again as with customer experience, gaps exist in the market for a retailer who can 
do this job well. From the suppliers' point of view, hardwares lean towards the above average 
scores on customer service which leaves the agricultural businesses again to play catch-up. 
Continuous developments take place in connection with customer service techniques and tools to 
better these techniques. The agricultural retailers need to stay in touch with these developments or 
stand the change of loosing their customers to the business next door that is willing to walk the 
extra mile. 
Retail is a dynamic industry and examples of retailers who have failed to change with the times are 
all too common. In Britain, companies like Sainsbury, Marks & Spencer, WHSmith, Dixons and 
Boots, were once the mainstay of any high street. In recent years they have all been struggling to 
stay ahead of the game and have seen their market shares fall (Whittaker, 2006). A problem for all 
has been the failure to understand how much customers have changed. Shoppers are busier, have 
more choices where to spend their money and are more demanding, expecting 24-hour service 
and rapid delivery. These sophisticated shoppers are also bored with the sameness of what the 
retailers offer and are continually searching for something new. Shopping is one of our most 
popular leisure activities - it is fun and often part of a family day out, even for farmers who often 
travel long distances to get to town. Retailers who can deliver the 'wow factor' will be among the 
winners, or as Richard Hammond, author of Smart Retail, puts it: "Surprise is about delivering on a 
customer expectation. Make a customer say 'wow' in your store and you've got a sale." 
4.2 CONCLUSION 
The question should be asked by the management of agricultural retail businesses whether they 
want their retail business to be of service to their members, or do they seriously want to participate 
in the joys of managing and competing in an action-filled retail environment. To many agricultural 
businesses, retail is but one of their many functions and in most cases the one that generates the 
least sales. Because of this they tend to spend more time and effort on the bigger money turners 
like crop seed, fuel, silo's etc. The irony is that these efforts run on very low margins most of the 
time and volumes are their main driving factor. Retail could be a great alternative to support them 
when agricultural times are tough. If they start placing the same sort of urgency and effort into the 
retail function one might see the rising of a sleeping giant. To be able to succeed they need to do 
the following: 
71 
• Increase their skill levels, not only on retail level but also in management positions. These 
positions should be seen as highly important and need to be filled by people who know the 
industry, know the trends and the standards of retailing. These people should be well trained in 
product management, category management, pricing strategies and other retail principals. 
They should have the courage to implement strategies and get rid of unchangeable, 
conservative retail killers. 
• Training should be provided to staff at all levels. It can be utilised as a motivation or incentive, 
but by training staff to become skilled sales people, they attract more customers, invest in their 
own futures as well as in someone else's. Skilled sales people sell more because of their self 
confidence. This also creates an employee friendly environment. Together with staff incentive 
schemes they should try and create an atmosphere where employees want to work for them. 
• Agricultural businesses should get more creative in the presentation of their stores and 
products. They already have the sentiment and history behind them to successfuliy 
differentiate themselves. They need to upgrade facilities to create a better environment and 
together with the upgraded facilities, they should revamp the interior presentation of the store. 
Products should be merchandised well in strategic ways. Traffic flow should be taken into 
account and strategic goals should be set. They need to get rid of a know-it-all attitude and 
unwillingness to deviate from their mindsets, as this alone can prove to be dangerous and can 
destroy a business single-handedly. 
• They need some strategic vision. They also need to plan their product strategies, pricing 
strategies and marketing strategies to align with their strategic vision. 
• They should not be scared to spend on marketing. They should drive marketing campaigns 
that would build awareness around them as being the preferred suppliers of goods to the DIY, 
hardware and farming community. 
• They should investigate ways to strengthen an already well-structured infrastructure of retail 
outlets to increase the barriers of entry for newcomers through means of co-operations, joint-
ventures or franchising. 
• They should guard their market share and aggressively start implementing growth strategies to 
show the market they are serious about retailing. 
72 
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