Differences between traditional trade and modern trade

In emerging markets, modern trade is still in the early stages of development, especially in some less developed economies in Africa and Asia. The numerous traditional trade outlets remain the biggest segment in most markets — and the outlet base is often unstable with new shops opening and closing. Servicing traditional trade, provide companies with a range of challenges, and the fragmented nature of these outlets, make it costly and time-consuming.

In the section below, I will look at the definition of modern retail and traditional retail, and what are some of the differences when servicing them.

What is traditional trade?

Traditional trade is a complex distribution network of micro- retailers, kiosks, hawkers, stockists, open market traders, wholesalers, and distributors. Traditional trade builds on inter-personal relations between the customers and the retailers. Traditional trade is less organised than modern trade and is more likely to run out of stock or push alternative products to customers.

Traditional trader in Cairo, Egypt

What is modern trade?

Modern trade outlets are chains or groups of businesses. They include larger players such as hypermarkets, supermarket chains and mini-markets. Retail operations are more planned and operations use a more organised approach to inventory management, merchandising and logistics management.

Differences between traditional trade and modern trade

IssueModern TradeTraditional Trade
Profile– Chains with multiple locations with investors run by a trained management team– Mostly one outlet run by an entrepreneur, family or employees
Decision maker-Multiple layer decision-making process that requires time
– Central offices and in some cases individual branches
– One or two decision makers
– Often the owner or manager
Relationship with customers– Limited inter-personal relationships– Focus on inter-personal relations between the customers and retailers
Demand– Consistent demand– More seasonal — stop selling certain products during off-season
Customer base– Large customer base and service areas that could include thousands of customers– Mostly services the neighbourhood and local community
Brand and pack listing– Required and could include lengthy and detailed processes, presentations, and documentation, prior to receiving approval – Not required — negotiate with owner
Product range– Extensive range with thousands of products– Mostly limited range with hundreds of products
Economies of scale– Retailers can absorb costs, often sell products as a loss leader or give promotional discounts to drive purchases– Goods are traded mostly on maximum retail price (MRP)
Out of stocks– Less common with improved inventory management– More common and substitute brands based on availability at wholesale or distributor level
Promotions– Provide ongoing promotions
– Centralised promotion negotiations
– Some promotional prices
– Negotiate promotions with owner or manager
Location– Often in high traffic areas in a strategic location– All locations, but some in congested areas and narrow streets
Financial flow– Long credit cycle & bank transfers– Cash and short credit cycle
– Often provide credit to customers based on relationships
Procurement– Purchase directly for manufacturers
– Mostly centralised procurement
– Require sales teams to provide detailed information e.g. sales, pack contribution, trends
– Mostly procure products though intermediaries, such as distributors and wholesalers
– Purchase for a single store
– Owner or manager makes the procurement decision
Deliver– Scheduled – on-time delivery
– Deliver to specified stores or warehouses
– More flexible on delivery times
– Deliver to individual store
Lead times– Longer but more structured– Shorter to manage cash flow
Merchandising equipment – Require specialised equipment
– Multiple points available to display or cross-promote products
– Placing equipment requires detailed negotiations with multiple stakeholders
– Standard equipment e.g. racks
– Limited space available for equipment placement
– Often use equipment such as coolers to store personal items e.g. milk, butter
Technology– Enterprise point-of-sale (POS) scanning, vendor management inventory (VMI) and electronic data interchange– Mobile phone or smartphone, and limited technology such as personal computers

Even considering all the challenges, complexity, and cost implications, companies are looking at traditional trade with renewed interest. Modern trade has been growing steadily, but mom-and-pop shops still have a lot to offer. Micro-retailers provide a unique value proposition for its customers. They mostly can’t compete on price against modern retailers, but their close relationships and proximity to customers, make them competitive in many markets.

For more information on how to analyse, design, and pilot, a route-to-market model to service micro-retailers, visit our Route-to-Market model page.

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