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Analysing supermarket performance with the high-performance organisation framework

Design/methodology/approach – In this paper, the authors introduce the high-performance organisation (HPO) framework, a validated technique for evaluating the strength of the internal organisation of companies and for proposing quality improvements. The aim of the research is to test whether the HPO Framework can be used to analyse the strength and supermarket performance and to come up with recommendations for improvement. A questionnaire into the drivers of success of supermarkets was constructed which was send to 400 supermarket franchisers, and the received data were subsequently analysed.

Purpose – The Dutch supermarket industry is dominated by a small number of powerful companies which capture the majority of sales and which compete fiercely with each other. This competition is mainly quality based, in the sense of offering increasingly more products of higher quality and striving for better distribution mechanisms. Interestingly there does not seem to be much attention for the quality of the internal supermarket organisation, i.e. quality of people, internal processes, and performance reporting. Thus there seems to be a gap in both current literature and the quality improvement attention of supermarkets which needs to be addressed, to uncover new sources of improvement. The paper aims to discuss these issues.

Findings – On average the participating supermarkets are well-performing but they cannot yet be classified as high performing according to supermarket performancethe HPO Framework. The supermarkets with the highest HPO scores indeed achieve better financial results (both in terms of revenue and margin achieved) than those of supermarkets with lower HPO scores. Finally, the authors find that larger supermarkets (in square metres floor area) outperform smaller supermarkets on all HPO factors.

Research limitations/implications – As the HPO Framework is shown to be useful for not only analysing the supermarket performance but also to generate recommendations for improvement of those supermarkets, individual supermarkets should evaluate their performance and operations using the HPO Framework to come up with improvement recommendations tailored to their own situation.

Originality/value – The HPO Framework has been applied during the past years in many sectors but not yet in the supermarket industry. Thus this research provides a unique insight in this industry. In addition academic researchers can use the HPO Framework to further investigate specific areas and factors of the supermarkets, in order to add to the literature on the quality of supermarkets.

Keywords – supermarket performance, HPO, Performance, High-performance organisations, Supermarkets

Introduction: Analysing supermarket performance

The supermarket as retail concept is a fairly new phenomenon in the Dutch market. At the beginning of the twentieth century most groceries in the Netherland were sold mainly through small grocery shops, bakers, butchers, greengrocers and milkmen. Around that time in the USA a revolutionary retail concept was invented: the supermarket. Chains such as Piggly Wiggly (1916) and Safeway (1926) are examples of pioneers from that time. The supermarket offered a large assortment for competitive prices in a shop where no longer the goods were sold over a counter but where self-service was the norm. Just after the Second World War the supermarket made its appearance in the Netherlands when the brothers Van Woerkom opened in the city of Nijmegen in 1946 the first self-service shop of the country. They were followed quickly by Dirk van den Broek (1948), Albert Heijn (1952), Deen (1953) and Jan Linders (1958) (Supermarktcheck, 2015). Many of these early movers are still successful on the Dutch market; Albert Heijn, for example, has been a strong market leader in the Dutch food retail channel since the 1970s.

Nowadays the independent supermarket franchiser has a major role in the Dutch supermarket channel: approximately half of the supermarkets are run by independent business owners who together represent around one-third of the supermarket revenue (Distrifood Dynamics, 2014). A few of these business owners still operate under their own name but most of them are part – either as franchiser or as independent business owner – of one of the following formulas: Albert Heijn, Jumbo, C1000, PLUS, EMTÉ, Coop, Spar, Attent or MCD. For the franchise giver who operates the formula there are several advantages of using franchisers: less investment is needed as the franchiser co-invests; a better coverage of marketing costs, as these are spread over multiple parties; a denser logistical network of shops in the country; and a larger purchasing volume, which lowers purchasing costs.

The above-mentioned advantages are sorely needed as the supermarket industry is highly competitive (Newsome et al., 2013). The industry is characterised by the fact that it is dominated by a small number of powerful companies which capture the majority of sales. As the market grows, these companies need to expand their fixed investments which limits the number of other supermarket companies that can profitably enter the market. However, despite this entry barrier and the concentrated market, competition between the remaining companies stays fierce, which according to Ellickson (2013) reflects the inherently rivalrous nature of the supermarket industry. This competition is mainly quality based, in the sense of offering increasingly more products of a higher quality and striving for better distribution mechanisms, thussupermarket performance pushing the few entrants to low quality store segment (Ellickson, 2013; Matsa, 2011); and on costs (Ring et al., 2002; Evans, 2005). Interestingly enough there does not seem to be much attention for the quality of the internal organisation of the supermarket itself, i.e. quality of managers and employees; internal processes such as communication, evaluation and rewarding; and performance management reporting. An overview of academic research into quality improvement of supermarkets reinforces this observation as most research focusses on the operational side of supermarkets. Thus there seems to be a gap in both the current literature and the quality improvement attention of supermarket owners which needs to be addressed, to uncover new, additional sources of improvement.

These news sources can potentially help supermarket companies to increase its competitive capability, and in addition open new lines of academic research in the supermarket industry.

In this paper we introduce the high-performance organisation (HPO) framework, a validated technique for evaluating the strength of the internal organisation of companies and proposing quality improvements (de Waal, 2012a, b). This framework has been applied during the past years in many sectors but not yet in the supermarket industry. The aim of our research is to apply the HPO Framework at supermarkets, specifically franchise-owned ones, to evaluate whether the framework: accurately reflects the supermarket performance of franchiseowned supermarkets, in the sense that the characteristics of better performing supermarkets match the characteristics of the HPO Framework more fully than those of less-well performing supermarkets; and is applicable in the supermarket sector, in the sense that applying it will yield practical suggestions for improvement which are experienced by supermarket franchisers to be useful in order to strengthen their supermarket and improve its performance. In this respect, supermarket performance is measured in turnover and margin per square metre of shop floor.

The remainder of this paper is structured as follows. In the next section, a literature overview is given of the current research into the quality and supermarket performance. This is followed by a description of the HPO Framework. Subsequently, the research approach and the research results are discussed, followed by the analysis of these results and recommendations which can be made based on the analysis. The paper ends with a conclusion, the limitations of the study, and possibilities for further research.

High-performance research in supermarkets

Academic research into the quality, performance and improvement of supermarkets mainly focusses on the operational side of the supermarkets, i.e. processes, products, assortment, layout and the supermarket supply chain. An important research stream is on the service quality of supermarkets. For instance, Schneider et al. (2005) suggested that leaders who emphasised the importance of service quality would be likely to do the things necessary to create a climate for service, such as recognising and appreciating high-quality service, removing obstacles to service delivery and setting clear standards for service. They found that service climate indeed positively influenced the so-called customer-focussed organisational citizenship behaviour (defined as behaviour supporting organisational functioning beyond the call of duty), which in turn influenced customer satisfaction positively, which resulted in higher sales. Vella et al. (2009) looked at the impact of specific internal service factors (defined as the organisational competences and procedures that enable and influence employee attitudes as well as behaviours towards the delivery of service quality and effective customer-employee interactions) had on the quality of service as provided by supermarket employees to customers. They found that employees’ service orientation attitude (defined as showing the behaviour that creates and delivers service excellence), service role flexibility (defined as the range of service work options and number of employees that are available regarding the operation and control of customer service employee service interactions in response to changes in demand), and nonstandardized scripted behaviour (defined as not using standardized scripted behavioural policies and practices to control and manage what employees say or do) predicted service quality the best. Min (2010) measured the service performances of supermarket franchises and found that the service attribute that influenced the supermarket customers’ impression of service quality the most was product quality, followed by cleanliness of the store, competitive prices, product variety and fast checkouts. Min also found a direct correlation between the service performance of the supermarket and its “word-of-mouth” reputation. Hansen et al. (2011) researched what influences consumers’ satisfaction with supermarkets and discovered that, when shopping at discount stores and upscale stores, consumers who attached high weight to quality and price were likely to be more satisfied than consumers who attached only medium weight to both parameters; while for traditional supermarkets offering medium quality at medium prices satisfaction occurred equally for both groups of consumers. Kitapci et al. (2013) asked supermarket customers which factors positively affected their satisfaction, and found that empathy, tangibility, responsiveness and assurance as given by supermarket personnel were of main importance. In addition, they found that customer satisfaction was positively related to customer loyalty. As to be expected there is also a stream of research into the efficiency, productivity and profitability of supermarkets. For example, Sergio Ceretta and Scherer (2003) investigated which factors mainly increased the efficiency (defined as how well an organisational unit utilises its resources in generating its products) of supermarkets, and found that technological modernisation and “Efficient Consumer Response” (defined as the constant search for greater efficiency in all steps in the chain of production and distribution including producers, retailers and consumers) main factors for improvement were. Sellers-Rubio and Mas-Ruiz (2006) and Pestana Barros and Sellers-Rubio (2008) looked at the cost efficiency of Spanish supermarket chains and found high levels of cost inefficiency, mainly caused by supermarket owners not paying enough structured attention to managing their cost structures to improve their supermarket performance. Hernant et al. (2007) looked at profitability in terms of the Du Pont model and found that this is mainly determined by local competitive…

Read this paper by André de Waal and Erjen van Nierop Laurens Sloot (published in Emerald Insight) in PDF