Authors: Lauerma, Mikko (2007).Download file: 'Scenario development: The case of the Russo-Baltic food retail market' Master's Thesis, Helsinki University of Technology, Espoo, Finland.

The Abstract

Firms interact on two dimensions, with their direct competitors and with their suppliers and customers. Especially in industries where supply chains have an important role, firms are very dependent on their suppliers one side and their customers on the other. A firm’s power within the value network influences he amount of value it is able to appropriate from it.

The shifts in power among the firms can therefore impact their profitability. Such shifts are evident in the food retail market, where the product manufacturers have traditionally controlled most of the differentiating factors, such as the product brand. The control of these factors is now increasingly transferred to the food retailers as they for instance introduce private label products. The aim of this thesis is to analyze the impact of changes occurring within one tier of the value network on the other tiers. This is done by analyzing the changes occurring among the food retail firms in the Baltic and Russian markets. Based on the trends identified, scenarios on the future development of the industry are developed and their impacts on the value network analyzed. The research aims to answer the following questions: (1) Through what mechanisms the different tiers of the food retail value network interact? (2) What methods for increasing one’s power can be observed within the value network? (3) What are the current key trends among the food retailers and how can they change in the future? (4) How will these potential future changes influence the other tiers within the value network?

To form a basis for the empirical part of study, a literature review of the scenario literature is conducted. The history of scenario planning is outlined and a synthesis of the suggested scenario development processes is presented. This is then used to answer the research questions.

Information on the current industry trends is gathered through the review of various descriptive industry and macroeconomical statistics, newspaper and journal articles and interviews of industry experts. These are then grouped together and prioritized to identify a limited number of driving forces. The interactions between the driving forces are also analyzed.

The main driving forces identified in the markets studied are the increases in consumer food spending, the internationalization of the retail firms and the changes in the market offerings both in the products offering and the channels through which they are sold. Analyzing the different combinations of the forces yields four internally consistent scenarios, each of which is analyzed in detail. The open-market scenarios typically hurt the manufacturers with lower-end brands, while high-end brands did better in the scenarios with rapid economic growth. In the case of closed markets, the situation for the local suppliers is improved.

Keywords: Cartonboard, food retail, Baltic, Russia, scenario, value network