March 10, 2008
Breaking Into New Markets Not As Easy As It May Sound
By Bernice Hurst, Managing Director, Fine Food Network
We may live in a global village, importing and exporting products willy-nilly, but setting up shop in far-flung countries has mixed results.
Retailers spreading their wings to offer “choice” find it is not always a straightforward process. Knowing how far to go, and
how quickly, how to introduce themselves and win over the natives are all challenges
that require time and effort.
Yet surviving in new markets is likely to become
a necessity over the coming decades in order to grow. And sometimes it works.
The Guardian reported in February “bumper takings at Britain’s Asda
supermarkets helped the world’s biggest retailing group, Wal-Mart, beat US
economic blues with a 5.8 percent rise in underlying annual profits to $12.8bn
(£6.6bn).” Wal-Mart has 4,000 stores in the U.S. and 2,900 in other countries.
But some of its ventures, notably in Germany and South Korea, have been considerably
less than successful.
Tesco, meanwhile, has opened 50 American Fresh & Easy
outlets in less than six months – albeit having to deny observations from analysts
that consumer response has not been as enthusiastic as predicted. Like Wal-Mart,
much of Tesco’s business is spread throughout the world with varying degrees
of success. In recent months it has been fighting its employees in Poland over
claims of long hours and low wages.
French-based Carrefour and LeClerc, too,
have expanded and retracted. And the list goes on. All of these companies and
others, struggle in countries other than those where they got started. Dean
Best, acting editor at just-food.com recently
wrote, “Going global is often seen as a panacea to problems at home.”
Frank
Dell, president of Dellmart & Co. and a RetailWire BrainTrust
panelist, sees the situation almost the other way around, noting that one reason,
at least, for the fact that several retailers have already “failed big time” stems
from a belief in their own PR. Successful companies, he believes, “don’t necessarily
spend enough time understanding their own culture and why they are successful
or understanding the culture of a new country. Furthermore, some have not yet
maxed out their own markets.”
Likewise, Ryan Mathews, founder and CEO of Black Monk Consulting and also a BrainTrust panelist, said “retailing may be becoming global in scope, but successful retailing is always local in execution. And, before an execution can be successful, the retailer must have a profound working understanding of the culture of the market (or country) they are moving into. Do your homework upfront – learn markets on the markets’ terms and you’ll be alright. Charge in blindly because you’re a success in your home country and the results are bound to be less than satisfactory.”
Discussion questions: Why do many retailers struggle expanding to other countries? What is the best way for retailers to introduce themselves to a new market and establish themselves with the locals?
BrainTrust
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Discussion Questions
Poll
My exposure to American retailers going abroad is that similar to what has been said earlier, there seems to be an arrogance that the rest of the world is focused on everything American, and only our retailers know what is best for the customer. Having just returned from Germany and London, I was floored by the diversity in their stores.
Going both ways across the Atlantic, do businesses moving across continents really spend the time to understand the culture they desire to move into before they jump, or purely look at the size of the market? Is TESCO here because they saw something severely lacking in US food stores? Or has their ego driven them to open stores on the West Coast? Are these US shoppers most in need? The same can be asked about all the retailers considering China and India.
All retailing is local. Every one of these big chains began as a local store, steeped in local customs. Too often bigness begets arrogance. What has worked in one country, or even part of a country, might not work in another.
Most successful expansion has occurred when one retailer has purchased another and left its local customs intact. Trader Joe’s could not be more different in culture than its parent company. Kroger has been successful, in part, by letting its acquisitions retain their local names and flavor.
As China and India open to foreign retailers, it’s going to be interesting to see if the big chains have learned from past experience.
We plan by American standards, excite ourselves with greedy financial expectations, and then we face reality when local cultural preferences determine the sale or no-sale.
I have worked with retailers that have expanded internationally from the US, and in that particular type of situation (coming from the US into other markets), I see two things happen all the time. One, inflexibility in the business model. A retailer wanting to expand thinks that they already have everything they need in a value proposition to a customer: the merchandise, the prices, and sometimes even the brand. And so they are less likely to be flexible in implementing the business model.
I’ve heard VCs say on multiple occasions that they don’t look for the perfect business model in what they fund, they look for a solid idea and are betting that their funding will see the business through to discovering the right business model to be successful. This idea should apply to retailers entering new countries. Yes, what you did before was highly successful in a different place, but don’t assume that it’s going to work here. Be flexible about that.
The second thing I’ve seen is an assumption about infrastructure–and I’m not just talking about roads. Technology infrastructure, supply chain infrastructure (which yes, includes roads), and even PAYMENT infrastructure are all things that US companies take for granted–and will catch a retailer up short when they are expanding outside this country.
Global expansion is give and take. The one thing any retailer looking to expand should be sure of is that what they had in mind when they opened their first international store won’t be what it looks like when they reach maturity in any given country.
Arrogant attitudes seem to be a common denominator. Tesco’s failure in the US stemmed from bringing an unproven concept and almost demanding that US citizens approve it. I can just picture a pouting Mr. Bean trying to explain to Tesco’s senior management their problem.
Wal-Mart has failed as well, thinking that some cultures would simply love their concept because they are Wal-Mart. Aldi with their German culture is just the opposite and has really been a big hit. They did it Trojan Horse style by buying an American company first.
Even in the USA, going from one state to the next can be difficult. I live in Wisconsin and retailers from Illinois have an extremely difficult time. Anyone and anything from south of the Cheddar Curtain is unfairly discriminated against.
Ryan is right, again. It’s all about execution. Retailers go abroad, start up or acquire operations and then fail to do what they say they want to do.
Too often, they say they are going to offer something that the local shoppers already want in a new format or offer something new in an old format. When the store opens, they are offering something new that the shopper may or may not want in a format that may or may not be familiar. As a result, store staff have to try to teach the shoppers what to shop for and how to shop, which is almost always asking too much of entry level retailers.
I can still remember a college professor telling the story of an American company trying to sell their refrigerator in Korea. They couldn’t make a sale to save their soul. Finally, in exasperation, they left their pillar of arrogance long enough to ask: why? One official walked to the back of the appliance, picked up the cord, and explained the plug wouldn’t work in their country. Years later, I think there are still lessons to learn in that story. As Atticus Finch wisely said, “You never know another man until you walk in his shoes.” Same with retail.
Retailing is not a mathematical formula that can be repeated with the same results each time. The local market is the variable that can change the results in unforeseen ways. Even within the same country these variables can exist. Even more so in other regions with the factors of income, culture and language.
Big retailers have to understand that each new opening has to be thought of as an experiment. They have to ask lots of questions and spend time amongst the locals.
But for many retailers, that would mean leaving the cozy confines of their head offices only to realize there are people in the world who were able to get along just fine without them.
I know Willy but have never met Nilly, despite their frequent tandem appearances and supposed co-residency in a village called Global. Willy and Nilly must be prescient, however, predicting that retailers must offer shoppers “choice” while also expanding into new markets in order to grow. What a plan! Who’d a thunk it? Genius comes in a variety of packages.
While unfamiliar with the phrase, “bumper takings,” I do know that Tesco is presenting a brave, expensive, yet ultimately failing face here in the Colonies. Our NorCal newspapers (in the hope of additional advertising revenues) have dutifully chronicled Tesco’s expansion intentions into our neighborhoods following their unsuccessful “launch” in SoCal. Remember Eatzi’s in Dallas? Some will, underscoring this lesson, and some won’t, again underscoring this lesson.
In response to the question posed by RetailWire’s editors, please consider this expansion advice: Buy a major stake in an existing business in the targeted, distant community and learn from them. Floating in on the butterfly wings of a brilliant new way of doing bidness usually fails to inspire or engender traffic. It’s the law of the souk. Souk & Awe (er, Shock & Awe) only works for a short period of time, while embedding with the natives creates long-term coziness.
Retailing is warfare, so it’s appropriate to use warlike terms to describe it. Having taught this concept while professoring in the late 80s, I was struck by the attention paid by my wide-eyed (and sometimes shut-eyed) students to this section of their syllabus. They got it. Napoleon and Hitler didn’t get it, but my students did. They understood that logistical supply lines were important to both armies and retailers. By last report, Tesco has not yet arranged a supplier for the seventeen real estate footprints they’ve optioned here in NorCal. Dumb and dumber.
Well-run retailers don’t measure “growth” by “sales.” “Growth” should be measured by return on investment. Investment should stop when the return is suboptimal.
Wal-Mart’s ROI percentage won’t grow in the USA because almost all possible new locations will either cannibalize existing Wal-Mart stores or they’ll only generate sales at above-average cost. Thinking about going multinational? Find a place and a strategy that meets a superior ROI objective. Look at Wal-Mart de Mexico. Those stores have a higher ROI than USA Wal-Mart stores.
I would not say that breaking into new market is not easy, especially for experienced Food retailer such as Carrefour and Wal-Mart. I’ve been working for Carrefour and Casino in Taiwan, Thailand, Poland and Tunisia.
A success story is always based on few rules:
– Find a good local partner if it’s possible, to approach the market with a local point of view (the joint venture of Central Thailand and Casino France in Thailand for example).
– The strategy of the company should be clearly introduced to every employee and management must focus on price, quality, service, and development.
– Expatriates should be in charge of training (recruitment of local people is a key issue).
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My exposure to American retailers going abroad is that similar to what has been said earlier, there seems to be an arrogance that the rest of the world is focused on everything American, and only our retailers know what is best for the customer. Having just returned from Germany and London, I was floored by the diversity in their stores.
Going both ways across the Atlantic, do businesses moving across continents really spend the time to understand the culture they desire to move into before they jump, or purely look at the size of the market? Is TESCO here because they saw something severely lacking in US food stores? Or has their ego driven them to open stores on the West Coast? Are these US shoppers most in need? The same can be asked about all the retailers considering China and India.
All retailing is local. Every one of these big chains began as a local store, steeped in local customs. Too often bigness begets arrogance. What has worked in one country, or even part of a country, might not work in another.
Most successful expansion has occurred when one retailer has purchased another and left its local customs intact. Trader Joe’s could not be more different in culture than its parent company. Kroger has been successful, in part, by letting its acquisitions retain their local names and flavor.
As China and India open to foreign retailers, it’s going to be interesting to see if the big chains have learned from past experience.
We plan by American standards, excite ourselves with greedy financial expectations, and then we face reality when local cultural preferences determine the sale or no-sale.
I have worked with retailers that have expanded internationally from the US, and in that particular type of situation (coming from the US into other markets), I see two things happen all the time. One, inflexibility in the business model. A retailer wanting to expand thinks that they already have everything they need in a value proposition to a customer: the merchandise, the prices, and sometimes even the brand. And so they are less likely to be flexible in implementing the business model.
I’ve heard VCs say on multiple occasions that they don’t look for the perfect business model in what they fund, they look for a solid idea and are betting that their funding will see the business through to discovering the right business model to be successful. This idea should apply to retailers entering new countries. Yes, what you did before was highly successful in a different place, but don’t assume that it’s going to work here. Be flexible about that.
The second thing I’ve seen is an assumption about infrastructure–and I’m not just talking about roads. Technology infrastructure, supply chain infrastructure (which yes, includes roads), and even PAYMENT infrastructure are all things that US companies take for granted–and will catch a retailer up short when they are expanding outside this country.
Global expansion is give and take. The one thing any retailer looking to expand should be sure of is that what they had in mind when they opened their first international store won’t be what it looks like when they reach maturity in any given country.
Arrogant attitudes seem to be a common denominator. Tesco’s failure in the US stemmed from bringing an unproven concept and almost demanding that US citizens approve it. I can just picture a pouting Mr. Bean trying to explain to Tesco’s senior management their problem.
Wal-Mart has failed as well, thinking that some cultures would simply love their concept because they are Wal-Mart. Aldi with their German culture is just the opposite and has really been a big hit. They did it Trojan Horse style by buying an American company first.
Even in the USA, going from one state to the next can be difficult. I live in Wisconsin and retailers from Illinois have an extremely difficult time. Anyone and anything from south of the Cheddar Curtain is unfairly discriminated against.
Ryan is right, again. It’s all about execution. Retailers go abroad, start up or acquire operations and then fail to do what they say they want to do.
Too often, they say they are going to offer something that the local shoppers already want in a new format or offer something new in an old format. When the store opens, they are offering something new that the shopper may or may not want in a format that may or may not be familiar. As a result, store staff have to try to teach the shoppers what to shop for and how to shop, which is almost always asking too much of entry level retailers.
I can still remember a college professor telling the story of an American company trying to sell their refrigerator in Korea. They couldn’t make a sale to save their soul. Finally, in exasperation, they left their pillar of arrogance long enough to ask: why? One official walked to the back of the appliance, picked up the cord, and explained the plug wouldn’t work in their country. Years later, I think there are still lessons to learn in that story. As Atticus Finch wisely said, “You never know another man until you walk in his shoes.” Same with retail.
Retailing is not a mathematical formula that can be repeated with the same results each time. The local market is the variable that can change the results in unforeseen ways. Even within the same country these variables can exist. Even more so in other regions with the factors of income, culture and language.
Big retailers have to understand that each new opening has to be thought of as an experiment. They have to ask lots of questions and spend time amongst the locals.
But for many retailers, that would mean leaving the cozy confines of their head offices only to realize there are people in the world who were able to get along just fine without them.
I know Willy but have never met Nilly, despite their frequent tandem appearances and supposed co-residency in a village called Global. Willy and Nilly must be prescient, however, predicting that retailers must offer shoppers “choice” while also expanding into new markets in order to grow. What a plan! Who’d a thunk it? Genius comes in a variety of packages.
While unfamiliar with the phrase, “bumper takings,” I do know that Tesco is presenting a brave, expensive, yet ultimately failing face here in the Colonies. Our NorCal newspapers (in the hope of additional advertising revenues) have dutifully chronicled Tesco’s expansion intentions into our neighborhoods following their unsuccessful “launch” in SoCal. Remember Eatzi’s in Dallas? Some will, underscoring this lesson, and some won’t, again underscoring this lesson.
In response to the question posed by RetailWire’s editors, please consider this expansion advice: Buy a major stake in an existing business in the targeted, distant community and learn from them. Floating in on the butterfly wings of a brilliant new way of doing bidness usually fails to inspire or engender traffic. It’s the law of the souk. Souk & Awe (er, Shock & Awe) only works for a short period of time, while embedding with the natives creates long-term coziness.
Retailing is warfare, so it’s appropriate to use warlike terms to describe it. Having taught this concept while professoring in the late 80s, I was struck by the attention paid by my wide-eyed (and sometimes shut-eyed) students to this section of their syllabus. They got it. Napoleon and Hitler didn’t get it, but my students did. They understood that logistical supply lines were important to both armies and retailers. By last report, Tesco has not yet arranged a supplier for the seventeen real estate footprints they’ve optioned here in NorCal. Dumb and dumber.
Well-run retailers don’t measure “growth” by “sales.” “Growth” should be measured by return on investment. Investment should stop when the return is suboptimal.
Wal-Mart’s ROI percentage won’t grow in the USA because almost all possible new locations will either cannibalize existing Wal-Mart stores or they’ll only generate sales at above-average cost. Thinking about going multinational? Find a place and a strategy that meets a superior ROI objective. Look at Wal-Mart de Mexico. Those stores have a higher ROI than USA Wal-Mart stores.
I would not say that breaking into new market is not easy, especially for experienced Food retailer such as Carrefour and Wal-Mart. I’ve been working for Carrefour and Casino in Taiwan, Thailand, Poland and Tunisia.
A success story is always based on few rules:
– Find a good local partner if it’s possible, to approach the market with a local point of view (the joint venture of Central Thailand and Casino France in Thailand for example).
– The strategy of the company should be clearly introduced to every employee and management must focus on price, quality, service, and development.
– Expatriates should be in charge of training (recruitment of local people is a key issue).