Globalisation Strategies of Retailers: what can we expect in the

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					Globalisation Strategies of Retailers: what can we expect in the

The emergence and growth of global retailing is reported by food
industry trade journals around the world with enthusiasm and
anticipation of continued stellar performance by the major players,
such as Wal*Mart, Carrefour, and Tesco. Yet, the fragility of
companies bent on exponential sales expansion has been illustrated
by Royal Ahold’s retrenchment in most of the emerging markets it
entered over the past ten years. Similarly, “flag planting” (establishing
a cursory and very modest store presence) in a new country market,
invariably, has been shown to be an expensive indulgence by senior
supermarket management and doomed to failure. Increasingly, global
retailers are focussing on building local scale in high potential
markets, rather than developing as wide an international coverage as

Success in global retailing is not pre-ordained – the relationships that
consumers and shoppers have with their food, cooking, meal
occasions, and eating differ substantially from one country to the
next. For example, in the European region, food and culinary culture
in Italy is quite different from that in the UK. Successful retailing in
any country is contingent upon having a profound understanding of
the wants of domestic shoppers. Taking a retail concept that works
well in the middle of the USA and dropping it down in, say, India is a
recipe for disaster! For some, this is good news, i.e. the retail world
will not comprise a succession of Wal*Mart supercenters across the

    national/regional markets for food still differ;
    this limits buying scale opportunities for major players;
    planning and labour union rules and regulations differ from
     market to market;
    defensive mergers reduce acquisition targets;
    strong competitors – both international supermarket chains
     (e.g. Tesco, Carrefour) and national chains (e.g. Lianhua and
     Shanghai Hualian in China);
    Wal*Mart slow to adapt to non-American environment (e.g.
     Argentina, Germany);
    Internet technology gives competitors opportunities to
     implement “fast catch up” IT initiatives.

  Yet, the rationale for expanding beyond national boundaries is
sound and reflects “push” and “pull factors such as:


      market saturation and slow growth at home;
      hyper-competitive domestic market (e.g. Germany);
      stringent planning regulations constraining expansion at home;
      shareholders, financial markets insist on expansion;
      keeping up with “big boys” (e.g. Wal*Mart, Tesco).


    low retail concentration in emerging markets;
    large population with expanding household incomes;
    pre-empt rivals;
    lower cost environment and opportunity to leverage retail “know
     how” and purchasing;
    geographical diversification to reduce risk.

The IGD organisation in the UK places China at the very top of the
league table for market attraction to global supermarkets, along with
Russia and India. This reflects the still emerging nature of the modern
food supply chain, plus factors such as: its huge market size,
accelerating consumer spend per capita, long-term growth prospects.

Plenty of retailers have already responded to this perceived potential
– twenty or so are (or are planning to be) in China. Not all of these
will remain. Poland provides an analogy in microcosm. Twenty plus
European retailers have set up in Poland, a country of 40 million
people, as it enters the enlarged European Union. Within 5 years, 15
of these will likely have failed and exited and/or sold stores to the
successful few. The implication for would-be suppliers to major
retailers is clear – look at their respective strengths and weaknesses
and pick a winner!

The spectre of Wal*Mart arriving in a new market continues to
concern retailers around the world. Many retailers are developing
strategies focussed on defending their territories against the
Wal*Mart threat. Loblaw’s in Canada are a case in point with a pre-
emptive program to: e.g. expand its range of non-food items, increase
private label products, reduce food prices across the board. Wal*Mart
is a ferocious competitor which is feared by other retailers, loved by
its customers, and feared and loved by prospective suppliers!
However, the largest global food purchaser it is not. Quietly, and with
radically different formats, the hard discount German retailers Aldi
and Lidl, are inexorably expanding their networks across the globe –
with a limited product range, and relatively unknown brands and/or
private label products. These companies find ready markets in both
mature Northern European countries (where they continue to expand
their market share in all countries apart from Ireland), and in countries
where household incomes are constrained and the overall spend on
groceries is a significant proportion of total family income.

Across the globe, national and regional retailers are expanding their
fresh food offer to defend, even attack, the incursions of the global
retailers. Traditional wholesale markets must change categorically if
they are to have a long-term future. It is instructive to look to the Paris
Rungis wholesale market – for fruit and vegetables, meat, dairy and
bakery products - which has redefined itself as a “one stop market”
for safe, quality food. The survival and prospering of modern
wholesale markets have both economic and social importance in
emerging markets. Smaller-scale producers who will never have the
size to link with large supermarket supply chains need access to a
modern wholesale market network that can keep them in touch with
entrepreneurial, forward-looking “mom and pop” retailers and food
service businesses that will continue to compete even in a
supermarket-dominated world.

In the food industry around the world, the future is about brand
warfare between: retailer and manufacturer; retailer and retailer; and
retailer and other routes to the consumer. In both mature and
emerging markets, grocery food retailing and food service sectors
compete for the consumer’s food dollar. As consumers run out of time
and demand for convenience foods increase, then, the traditional
food shopping outing converges with the eating away from home
occasion. As we move away from buying food ingredients towards
purchasing meal “solutions”, then the consumer can choose between
eating out and “eating out in”!

Professor David Hughes
April, 2004

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