Nations are like grocery stores - EN
febrero 07, 2025
Can two grocery stores illustrate the success or failure of nations? In this unpublished text, Jorge, one of my characters, tries to do so. Do you think he succeeds?
—I always like to focus this theory of the success of nations on simpler examples. I call it the case of the grocery stores.
Jorge hit some commands and posted a chart.
—We have two grocery stores that started operations at the same time and in the same area of Madrid. Both owners inherited the store from a family member. They have similar facilities and are surrounded by a public with the same mix of socioeconomic levels in Spain. The difference is that one, whom we will call Number One, is a university graduate who worked in the human resources department of a multinational. The other, whom we will call Number Two, is a high school graduate who worked in an appliance workshop.
»When starting operations, Number One asks for a loan to fix up the premises and make them more attractive and modern. To match his lifestyle. Also because he knows that he will have to pay all the fixed costs of the business during the remodeling period, including the salary he assigned himself, similar to what he earned at the multinational he came from. He wants to maintain his standard of living. He also converts an area into a daycare center for the children of the business's workers, and hires a graduate educator to run it. He replaces the manager with a college-educated administrator to oversee operations, allowing him to focus on distributor negotiations. Based on the store's sales history, he sets some goals for the first year and offers incentives to the employees if they exceed them. His wife does not join the team because she works as an advisor at a foundation, and his son because he is only a child who will enter university next year. He must take care of his studies.
»Number Two, recognizing his limitations, decides to maintain the existing physical and operational structure. He does not hire anyone new. On the contrary, he fires the cashier. That job, along with others, can be done by his wife. He also fires the boy in charge of cleaning the store and arranging the shelves, because his son can do it when he leaves school. He is already becoming a man and will enter university next year. He must begin to assume responsibilities. He retains the manager, those in charge of serving the public in the meat and sea food area and the one who serves in the delicatessen area. Number Two concludes that they already know their job and their customers. The only thing he must supervise is that the operation and waste management are adequate. In other words, to prevent theft.
»Because Number One's store is under renovation, it can't open at the same time as Number Two's. Some of his clientele moves to Number Two's premises. Without expecting it, Number Two starts selling more units of items. In addition, he becomes more profitable than his benefactor relative (may he rest in peace) because they are saving the salaries of the two employees they fired and because he and his wife take over the administrative tasks after closing (working overtime). They also replace the seafood worker, who has been stealing by hiding portions in the trash and selling them to his neighbors.
»"When Number One's store reopens, he recovers some of the customers who have switched to Number Two's. He doesn't recover all of them, because he has a loan to pay; new costs that weren't in the business before; higher salaries for the two hired professionals; and the fishmonger, who steals part of the merchandise and no one notices, has to increase the price of his products. Although this doesn't affect the upper and upper-middle class consumers, who don't mind paying more to go to a closer, and now much nicer place (it even steals some of the buyers from those segments to Number Two), he loses a portion of his lower and lower-middle-class customers, who represent the largest sales volume.
»At the end of the year, Number One is very happy: he exceeded his turnover targets, he has improved the kind of customers who come to the store and he has reduced the number of people who buy low amounts, which was making operation and service more difficult. He pays his employees their production bonus and gives collective vacations. He also takes vacations .and, as usual, vacations in the Caribbean. He has calculated that it is the best time for everyone to go: most of his clients are also going on summer vacation. Besides, they always have a great time in Saint Martin, and the kid, his son, has to be rewarded because he graduated with honors.
»Number One fails to realize is that the sales of units and the number of clients have decreased significantly; that the increased revenue was due to price increases and the sale of a greater range of expensive and luxury products, which are those consumed by its buyers. Nor that, to achieve this, it has had to increase the number of suppliers, which slightly increased administrative costs (reducing profitability) and decreased the volume of purchases from each supplier, weakening his negotiating power.
»Number Two is also happy: he has earned much more money than his relative (God bless him) because he has a more profitable and effective operation; because he had significantly increased his sales volume (attracting customers from Number One´s grocery store)) and because, with the increase in sales, he secured better prices from suppliers (increasing his bargaining power). He has also been able to lower prices and, even so, increase the profit margin. He does not go on vacation because he knows that the other grocery store is going to close and part of his clientele, which he has lost, will necessarily buy from his business. Although two of his employees are going on vacation, he is calm: his son will take one of the positions and the other can be covered by him and the manager, to whom he plans to give a small bonus.
A smile was already appearing on everyone's face, as they understood where the example was going.
—At the beginning of the second year, Number One buys a car so his son can go to college. He is going to study art. He takes out a loan through the grocery store to finance the car. The accountant recommended it to him because it allows him to deduct the interest payments and report lower profits at year-end.
»Number Two is also going to buy a car. Not to send his son to business school (Madrid has excellent public transport), but to offer home delivery, He convinced himself that he would have to remodel his premises and spend a lot of money to get the upper- and upper-middle-class clientele to come back. He came up with the idea of delivering the products to the homes of those types of buyers, at the same price that Number One has them in his shop (and that's if we don't take into account the gas an time costs that he saves his customers, because then they would be cheaper). He knows that most of these products are expensive, with a large margin. And, on those that he doesn't have, he can require a minimum purchase. He can afford it. If customers won't come to him, he will go to them. To support the service, his son made a website that only cost him a few euros. Customers can go around the aisles of a very elegant shop with their shopping cart. This also benefits suppliers, who can advertise promotions, contests, and special offers on the site. Additionally, his son also came up with the idea of selling advertising space, where suppliers, and even some of his clients, can display their image campaigns or television commercials. With this, the site and its maintenance will be free. Possibly, It might even generate revenue. However, he prefers to use the space for in-kind exchanges, such as discounts or merchandise..
»By the middle of the year, Number One doesn't know what to do. Sales have fallen and his costs are very high. Even his employees don't buy from him anymore, because he can't finance them. They end up buying at Number Two's grocery store . The only solution he can find is to raise prices a little more. He can't afford to offer home delivery at Number Two's prices or make significant changes to offer new services. His wife is doing very well at her job, and can't leave it, and his son is dedicated to his studies.
»And as life goes, a crisis comes. Although some upper-class clients remain loyal, he loses many upper-middle-class clients, who sacrifice luxuries first. Now he is up against the wall. He has to ask for a new loan to get through the situation and pay fixed costs. But the bank makes it difficult for him, because his business numbers don't look good and he still has two loans that he hasn't finished paying off.
»Number Two is not even feeling the crisis. The volume of purchases, which decreased a little among lower-class people (but not much because they don't buy luxury goods), has been recovered by new upper-middle-class buyers who were previously Number One's clients. In addition, he has no debts. The loan he took out to pay for the delivery van pays for itself, with a small percentage of the income generated by that operation. In fact, the bank is offering him a new loan, at a very low rate, to buy another one. He doesn't know whether to use it for that or to buy some special offers that the suppliers are making because of the crisis. He has to do the numbers with his wife. Numbers will tell him what to do.
»At the end of that year, Number One managed to get the loan and save the business, but he had to put up some personal assets as collateral. Although the crisis is no longer so severe, he has not recovered many middle-class customers who stopped buying from him.
»Number Two, on the other hand, has a new delivery truck, but not because he tooked out the loan offered by the bank. He sold the one he had and took advantage of an exchange, for advertising on his website, with Mr. Andrés's dealership, a client. The new truck is a little bigger and more comfortable, and it adapts to the new pollution regulations that will surely be approved. He thought it over carefully and, although the financing of the loan had excellent features, they would have to hire a new driver and delivery person that they do not need. And that left him thinking about what to do to keep that going and not need many employees to increase sales. With that in mind, they renegotiate the loan as a mortgage, which has even better conditions, and buy the land that is next to the grocery store. There they build a parking lot and place a shopping delivery center, like the ones at fast food stores, which do not require large investments. Customers can now shop from wherever they want and pay for it on the website, at the same prices as in the store (without increases for delivery charges or minimum purchase requirement) and pick it up whenever they want. And the best part is the financial game that his wife come up with: to buy the property with a personal mortgage and not from the supply store. Then to create a real estate company, whose main capital will be that land, so the new company can rent it to the grocery store. The idea, when the numbers of the new company allow it, is to also buy the property where the grocery store is, to free it from that burden. They have realized that the supply store business is buying and selling merchandise, not owning property or managing real estate. For the supply store, those are costs. Buried money that cannot be used to buy inventory or new equipment. The new company will make a business out of that.
»At the end of the third year, Number One can't take it anymore. He had to sell his car and the one he bought for his son to pay off his debts. He is also determined to sell the business for whatever they will give him, before he loses even his apartment, on which he also has a personal loan. He is listening to offers.
»Since Number Two's new company can now afford it (the real estate company), his wife, who is in charge of its operation, comes up with a new idea: that company will apply for a loan to buy the property where their grocery store is located. With part of that money, the grocery store will be able to buy the property and the operation of Number One's. That one is at an excellent price, is very well located and has an infrastructure that is even better than theirs. In that new location they will be able to develop a customer service that her husband has been thinking about: a daycare center so that adults can enjoy their shopping in peace, and establish the positioning that they have been thinking about achieving for a while: “Grocery for the family.” In addition, it will allow their employees to take their children when they have no one to leave them with. Although they are not a charitable society, they know how complicated and worrying it can be for parents not to have anywhere to leave their children. They have experienced it. They love being able to help their employees. That way they are a little happier and work more comfortably. That, in addition, is also noticeable in the business environment and in their sales.
»They end up buying the Number One´s grocery store, who think that the crisis has put an end to its business. On the land next to his first grocery store, where they have the parking lot and the delivery site for purchases made through the website, Number Two develop a production center and unify the butchery, fishmonger, and delicatessen areas of the two grocery stores. They sell the equipment from both and take advantage of excellent financing plans offered by the bank to buy new equipment with greater capacity and quality. With the improvement of the operation and increase in sales, the credit will pay for itself. And they still have the liquidity from the sale of their old equipment. With that money, they decide to improve their first location, to unify its appearance with the one that belong to Number One, and to reduce the customer service areas of the fishmonger, butchery, and delicatessen in both stores. They only leave one employee per category, who serves at a small counter and pleases the customers who have time (those who want their cuts prepared in front of their eyes). The free space left behind is full with self-consumption refrigerators that display the packages processed in their production center. The customer only have to approach the refrigerator and take the product with the weight or preparation they want. From a previous study they carried out, they know which are the most requested by type of product. This greatly improves the circulation of the public in the store and reduces the time of purchase, so there are no crowds that require increasing the size of the store or the parking lots. At most, an additional cash register, to also speed up the payment. Although buyers can also make the payment through the website. Word has already spread about their prices and services and buyers come from other areas of Madrid. Things are going very well. And their employees are happy: the manager of their first grocery store now manages the shop where Number One´s grocery store was, with the salary that the previous manager of that business had, a person with a university degree. The employees of the delicatessen and the fishmonger now manage the production center and earn better salaries. The butcher preferred to stay serving the public in the grocery store, which is now smaller, for the same salary he had. There is everything in the Lord's vineyard.
»This is a simple comparison, without going into macroeconomics, political systems or sexual scandals. They are two equal inheritances, which is the investment. Both have a project. Although Number One had a better chance of success at the beginning, due to his academic training and learning in the multinational, it was Number Two who did. If you understood correctly, because most of the money invested by Number One was destined for social spending: salary equal to what he had in a multinational; hiring a manager, to have free time or less workload; daycare for the children of his employees; salary of a graduate teacher to take care of the daycare; vacations, and in Saint Martin; car for the cherub; bonuses to employees, for fulfilling a job for which he already pays them a salary. And I am not going to include the fact that his wife or son did not participate, because they are not directly costs that are paid by the grocery store. While, on the other hand, there was dedication to learn (basic education); cost reduction; increase in workloads; commitment and dedication of all the inhabitants; loans and investments only to generate more money or to solidify the position of the business. And in the end, and only as a consequence of the above, social benefits arrived.
»Number One wanted to have profits; Number Two wanted to produce them. Number One is Venezuela; Number Two is China and Japan before and after world war II.
Note: There is a previous text, also unpublished, where Jorge sets out his theory of the success of nations. I will publish it at another time, when I have verified some data.
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