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An analysis of the international expansion of global retailers: my work focused on Carrefour.
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Theinternationalexpansionofglobalretailers:successesandfailures
By:
Yu‐Chen(Jane)Chen,WilliamPerez,
GeorgeSmith‐Sweeper,MatthewStreich
InternationalMarketing
HandedintoProfessorFahriUnsal
12/07/2010
1
Introduction
Thispaperwilladdressglobalexpansionstrategiesoffourofthetopten
globalretailchains:Wal‐Mart,Carrefour,TescoandAldi.Theglobalretailindustry
hadatotalrevenueof$4,349.4billionin2009.Evidently,globalretailisahuge
marketwithmanypowerfulcontenders.Beginningwiththelargestretailerinthe
world,Wal‐MartwasbornintheUnitedStatesandhasreached15countrieson4
continents.FollowingWal‐MartistheFrenchCarrefourfocusingitspositionon
hypermarketsratherthandiscountstoressuchasWal‐Mart.TheBritish
supermarketjuggernaut,Tesco,chosetoexpandthroughallofEuropeandmostof
Asia.Finally,oneofthemoreuniquesupermarketleadersisGerman‐basedAldi.
ThisWorldWarIIproducthasfocuseditsattentiononWesternEuropeandthe
UnitedStates.Itiscrucialtounderstandthesuccessesandfailuresoftheselarge
retailchains,asitisindicativeofessentialpatternsandstrategiesinforeign
expansion.Byanalyzingthesecases,itbecomesusefulknowledgenexttimethese
globalretailersarelookingtoexpand.Therearealwaysroomtoimproveaswellas
aspectstolearnabouthowtointegrateabusinessintoabrandnewculture.The
followingcontentswillcoverthesuccessesandfailuresofthefourgiantsintheir
foreignbusinessdevelopmentsaswellasanalyzingtheirrespectivestrategies.
WalMart
Wal‐MartStoresInc.firstcameintoexistencein1962inRogers,Arkansas
whenabusiness‐mindedmannamedSamWaltonandhiswifeHelendecidedthat
theywantedtoopenadiscountstore.SamandHelenputup95percentofthe
capitalrequiredtoopenthisstore.
In1972SamWaltontookthecompanypublicinordertogenerateenough
cashtofightoffrivalssuchasKmart.Duringthisdecade,thetotalnumberofstores
Wal‐Martoperatedincreasedexponentiallyfrom15to276.In1983Wal‐Mart
openeditsfirstSam’sClubwholesaleshoppingcenter,andin1989thecompany
openeditsfirstSupercenter.
In1991Wal‐martchosetoentertheinternationalgroceryarenaandopena
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Sam’sClubinMexicoCity.Wal‐Martoperatesmorethen4,000storesinatotalof15
countriesaroundtheworld(Walmartstores,2010).Thecompanyalsoemploys
morethen700,000peopleacrosstheglobe,andasof2010wasthehighestgrossing
publiclytradedcompanybyrevenues(Forbes,2010).Around75percentofthe
storesthecompanyoperatesareunderdifferentnamesthenthecorporate
standard.Thecompanycontinuestoexpandandbesuccessful,andasrecentlyas
November29th2010,Wal‐Martwillpurchase51%ofaSouthAfricansupermarket
chaincalledMassmart(Walmartstores,2010).
Wal‐Mart’sentranceintotheinternationalmarketin1991withtheirsingle
Sam’sClubstoreinMexicohasblossomedintoa1,578‐storeempireinthecountry
(Walmartstores,2010).Amidthisempireisavastlydiversifiedstoreoffering
includingrestaurants,bodegas,supercenters,discountchains,andbanks.Wal‐Mart
isnowthemostpowerfulretailerintheMexico,andcontrolsmoremarketshare
thenallofthecountry’sretailerscombined.Wal‐Mart’sentranceintotheLatin
AmericancountrywasintheformofajointventurewithaMexicancompanycalled
GroupaCifra.ThetwocompaniesteameduptointroduceaSam’sclubintothe
region(Dante2008).
Wal‐Martchosetouseajointventureinordertoreducetheamountofrisk
whenenteringanewcountry,andtogainamoreintimateknowledgeofthewaythe
Mexicanconsumershopped.AtthetimeofthejointventureCifraownedavarietyof
storesinlocationsthatwereattractivetoWal‐Mart.AsaresultofWal‐Mart’sdesire
toexpand,itrapidlyboughtlargerstakesofCifrauntilitwascompletelycontrolled
byWal‐Martin2000(Dante,2008).Throughoutthe1990’sWal‐Martcontinuedto
acquiresmallerMexicancorporationsandstoresinordertoincreaseitspresencein
Mexico.SpecificallyWal‐Marttargetsstoresinprimeretailinglocationssuchas
DeTodo,locatedintheheartofMexicoCity.Considering44%ofMexico’spopulation
liveswithintheconfinesofthecountriestop25metropolitanareas,thisstrategy
wouldallowWal‐Marttoreachthelargestnumberofpeople(Dante,2008).
Otherthenacquisitionsandmergers,Wal‐Mart’sexpansionfocusedon
offeringconsumersitemsatthelowestcostpossible,whichisalsopartofthe
company’scultureandslogan.Wal‐MartachievedthisstrategyinMexicobytaking
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advantageofthedevaluedPesointhe1990’s,andusingthistosourcecheaplabor
andgoodsfromthecountry.In2001Sam’sclubbegansellingSonyWegatelevision
setsfor$600dollarsthathadbeenmanufacturedinMexico.Thislineoftelevisions
accountsforonethirdofallelectronicssoldatSam’sclubsthroughoutthecountry.
Thetelevisionsetshadpreviouslybeensoldfor$1,600dollarsapiecewhenthey
weremanufacturedinJapaninthepreviousyear(Luhnow,2001).
Wal‐Marthasalsocreatedanextremelycomplexinformationsystemthat
keepstrackofcostsateverystageinthecompaniessupplychain.Thesystemis
called“Retaillink”andismonitoredbya1000‐maninformationteam(Geriffi,
2009).ThisallowsWal‐Marttoplaceitsstoreswithinadaysdriveofmost
distributioncenter,knowwhichofitssuppliersiscostingthemthemostmoney,and
makemovestoeitherreplacethatsupplierorrenegotiateprices.
AlthoughWal‐Mart’strackrecordwithstoreopeningsaroundtheworldhas
beenincrediblysuccessful,therehavebeenafewfailedexpansionsthecorporation
keepsoutofthepubliceye.Thecompany’smostpubliclyknownfailurewastheir
attemptedexpansionintoKoreain1998.
ThegeneralWal‐Martstrategyforexpansionabroadfocusesonitsstrengths
ofhavingthelowestpriceandhighestvolume,ahighlycoordinatedandefficient
distributionnetwork,andexcellentbuyingpower/strongrelationshipswithits
suppliers.WhilethesestrengthsmaybeeasilysustainedwhileintheUS,Wal‐Mart
wasn’tabletosuccessfullytranslateanyoftheseintotheKoreanmarketplace.
Wal‐Mart’stroublesbeganassoonasitenteredSouthKoreain1998.The
companychosetoenterduringatimewhenthemarketwasbecomingsaturated
withnewentrants,andlandinprimeretaillocationswasscarce.Thecompany
believedthatitssizeandmarketpowerintheUSwouldtranslatetoKorea,andasa
resultWal‐martdidnotanticipateanylocalrivals.CorporationssuchasSamsung
andLGhadbeenestablishedinSouthKoreaforyears,andhadplacedretailoutlets
inthemostfavorablecommerciallocationswithhighconsumertrafficthroughout
thecountry(Kim,2008).Becauseoftheentrenchmentoftheselocalgiants,Wal‐
Martwasonlyabletoopensixteenstoresandonlyplaceonenearanurbancenter
(Seoul).
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OriginallyWal‐Martdidnotviewthelocationofitsstoresasamajorissue
becauseithadbeenusingaglobalstrategythatprimarilyreliedonbelievedthatthe
Koreanconsumerwouldbewillingtodriveareasonabledistancetopurchasevalue
priceditems.InrealitytheKoreanconsumerpreferstomakemultipleshorttripsto
retailersclosetotheirpermanentresidences.TheKoreanconsumeralsodiffers
fromtheaverageAmericanconsumerinthattheydonotbuyinbulkandprefer
smallerunitsofeachitem(Kim,2008).
Wal‐Mart’snextblunderwasfailingtocreateasenseofvalueforitsproducts
intheKoreanmarket.Wal‐Mart’smainstrategyEDLP(everydaylowprice)hasbeen
successfulintheUSbecauseAmericanconsumershavebeenabletomakea
connectionbetweenWal‐Mart’slowpricesandvalue.Americanconsumershave
cometoacceptthelowlevelsofcustomerservice,andattentiontodetailin
exchangeforlowprices.HoweverinKorearetailerscreatevaluebyofferingservices
tailoredtoeachcustomer,qualityproducts,andpromotions.Koreanpromotionsare
oftencustomerloyaltyprogramssuchasofferingasumofmoneytoacustomerwho
purchasesaspecifiedamountfromthatstore($100forpurchasing$400worthof
merchandise).ThegeneralconsensusinKoreawasthatWal‐Martwasa“cheap
marketplace”,andthatitsstoresweretooimpersonal(Geriffi,2009).Thisopinion
ofWal‐Martseriouslyhurtthecompany’schancesofsuccessbecauseithadnot
anticipatedhavingtodifferentiateitselfinanyotherwaythenhavingthelowest
pricesintheregion.
Wal‐Marthasalwayshadalargeamountofpoweroveritssuppliersinthe
USbecauseofthesheeramountofproductvolumethecompanygoesthoughduring
itsoperations.ThiscreatespressureonsupplierstocontinueofferingWal‐Martthe
lowestpricesinfearthattocorporationwilldobusinesswithsomeoneelse.Wal‐
Martfullyantcipatedthatthispositionofpowerwouldtranslateasitmovedinto
theKoreanmarket,buttheywereinforarudeawakening.
TheKoreansuppliersbasewereextremelynationalistic,inefficient,and
adversetosharingtheirpricinginformationwithalargeforeigncompanysuchas
Wal‐Mart.Wal‐Mart’sEDLPstrategyreliedontheabilitytouseitssizetodictate
prices,buttherewerealreadyanumberoflargediscountretailersintheregionthat
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haddeeprelationshipswiththesamesuppliers.Suppliersintheregionoftendealt
withmultipledistributors,whichaddedcoststoeachstepoftheitemprocurement
process(Geriffi,2009).Thecombinationofthesefactorscreatedanenvironment
thatwasveryhostiletoWal‐Mart’slowcostoperations.
AsaresultofWal‐Mart’sstrengthsbeingrenderedcompletelyineffectivein
theKoreanmarket,thecompanywasforcestoshutdownoperationsinthecountry
in2006andsellingitssixteenstorestoadiscountchaincalledShineageCo.The
companydidn’tleaveKoreaemptyhandedhowever,andmade$883milliononthe
sale(Sang‐Hun,2006).
ThedifferencesbetweenWal‐Mart’sentranceintoSouthKorea,andMexico
revealrisksofjumpingintoanyforeignmarketunprepared.Wal‐Martfailedin
SouthKoreaprimarilybecauseitdidnotseekoutajointventurewithanyofthe
establisheddiscountretailersintheareaanditenteredthemarkettoolateto
securethemoreheavilytraffickedlocationsinthecountry.Ifthecompanyhad
selectedajointventureasitsmodeofentry,itwouldhavegainedknowledgefrom
thelocalcompaniesaboutconsumer’stastes,andmayhaveevenbeenallowedto
developstoresinmoreprofitableareas.
Carrefour
UnliketheAmericanretailgiant,thesecondlargestglobalretailerCarrefour
wasfoundedinAnnecy,Francein1959.FrenchentrepreneursMarcelFournierand
DenisDefforeybecamethepioneerofthehypermarket—asupermarketwithalarge
amountofspacewhileofferingavarietyofproducts(ie.Clothes).Carrefourhas
developedintoahighlysuccessfulcompetitorintheglobalretailindustryby
dominatingthefieldofhypermarkets.Asthesecondmostprominentglobalretailer
withalmost1,395hypermarketsacrossthreecontinentsand2,949supermarkets,
CarrefourissteadilygrowinginternationallywithafocusofexpansionontheAsian
region(Carrefour2009).Carrefour’scurrentfocusisonthegrowingmarketsof
ChinaandBrazil.Recently,CarrefourhasopenednewstoresinBulgaria,Chinaas
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wellasadaptingtonewculturalneedsinBrazilandArgentinabyopening“Mini‐
Hypermarkets”(Carrefour2009).Despiteitscurrentinternationalsuccess,
Carrefourhasfacedmanychallengesininternationalexpansioninareassuchasthe
USandChile.
CarrefourenteredtheAmericanmarketin1984asajointventurewith
CostcoandOfficeDepot(Yih‐Chearanget.al.2006).Theyopenedthefirststorein
1988inPhiladelphia,Pennsylvania.Thenin1991theyproceededtoopenastorein
NewJersey.However,by1993CarrefourclosedalltheirstoresintheUSduetoa
numberoffactors.ThehighnumberofforeigncompetitorsintheUSmarketanda
lackofalocalsupplierwasCarrefour’smajordownfallintheUSmarket(Yih‐
Chearanget.al.2006).Thelargeamountofforeigncompetitorscreatedasignificant
issuewithCarrefoursinceitcouldn’tachievethe“low‐margin”advantagethatother,
alreadyestablished,competitorscouldachieve.ThisisalsotheresultofCarrefour’s
lackofalocalsupplier.ThisisagreatdetrimentasitpreventsCarrefourfrom
gettingapreferableprice,thusforcingthehypermarkettoincreasethepricingto
coveritsowncosts(Holtreman2000).Asadiscountretailer,Wal‐Marthadastrong
holdovertheUSmarketandwasoneofthekeyreasonsbehindCarrefour’sfailure
intheUS.Wal‐Mart’scutthroatpricingwasmuchtoodifficulttocompetewith(Yih‐
Chearanget.al.2006).Inadditiontothisimpossiblecompetition,Carrefourwas
guiltyofalackofadvertisingandlaborunionlawsuits,whichallledtotheendof
CarrefourinAmerica.
ThesecondcaseoffailureisCarrefour’sexpansionintoChilein1998.
Carrefourwasasmallplayerfrom1998till2003.TheentryofCarrefourintoChile
wasfilledwithnumerousproblems.Forone,Carrefourhadtroubleadaptingtothe
localculture,ascustomersweremoresatisfiedwithCarrefour’scompetitors.Asone
consumerstated,
“IcangotoLIDER[acompetitorinChile]andspendhours,andIusuallygo
forafewthingsandfinishwithafullcart.Itisfuntoshopthere.Youjust
can'tleavewithoutbuyingthings.Eventheparkingisspectacular,notlike
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Carrefour,rough,hidden,difficulttoaccess.Idon'twanttogotoCarrefour”
(Bianchi2006).
Carrefourdidnotmodifyitsretailformat,aswellasenteringthemarketwiththe
GreenfieldstrategyreallyruinedCarrefour’schancesatunderstandingand
appealingtotheChileanmarket.Bynotunderstandingthelocalformatofretail,
Carrefourlostmanyoftheirconsumersbasedjustonshoppingexperiencetolocal
competitorssuchasLider(Bianchi2006).Thisproblemcouldhavebeensolvedif
Carrefourhadalocalpartnerasitenteredthemarkettoresolvetheseretailformat
issues.However,asCarrefourtooktheGreenfieldStrategy(whereitenterswithout
alocalpartner)therewasnoonetheretoassistCarrefourintryingtolearnthe
culture.
Additionally,thechoiceofmanagementwasratherpoorasCarrefourchosea
FrenchmanagerforaChileanstorewhodidnotunderstandtheculture.Thisis
demonstratedthroughaquotebyaformerretailmanagerinCarrefourChile,
“AlthoughCarrefourwasaveryinternationalfirm,theymakethemistakeof
choosingaFrenchpersonasamanagerforChile.Thismanwasreadyto
retireandalthoughhehadmuchexperience,withmanyyearsinthe
company,itdidn'tworkinChile.Hewasnotabletoconnectwiththemarket,
orreadtheimportantvariablesthataffectthisbusinessinordertomakeit
profitable.Theydidn'tgettherightinformationfromthemarketplace.He
didn'tunderstandtheChileanconsumers”(Bianchi2006).
Lastly,Carrefour’slackofastrongstrategicgrowthplanproveditselftobecostlyas
itfailstogainalargeamountofthemarketshareinChileovertime.Byenteringthe
markettoolate,usingorganicgrowthinsteadofacquisitiongrowth,Carrefourmade
costlymistakes.ThedelayedentrycausedtheidealvenuesforCarrefour’s
hypermarketstobeextremelyexpensiveorunavailable,thuslosingtothe
competitorsalready(Bianchi2006).WhenCarrefourunderestimatedtheirlocal
competitorstheyassumedthattherewasnoneedforacquisitionasCarrefourwill
dominatethemarketshareanyway.Howevertheyweremistaken,asthe
8
competitorswereactuallymuchmorerehearsedinthelocalculture,thusableto
gainasubstantialmarketshare.Therefore,Carrefour’sstrategyoforganicgrowth
reallydelayeditsexpansionconsideringthatitonlyachieved2.67%ofthemarket
shareoveraperiodof5years(Bianchi2006).
AlthoughCarrefourhasencounteredalargeamountoffailuresthroughout
theirpathtointernationalexpansion,itendeduptakingtheselessonstoAsiaasit
expandedintoTaiwanin1989.BeforetheopeningofChina’smarket,Carrefour
penetratedtheAsianmarketbyenteringTaiwanasoneofthefirstglobalretail
chainstobreakintotheAsianmarket.ThisexpansionintoTaiwanisoftensaidtobe
aprimeexampleofintegratingthebrandwiththecultureasCarrefourhas
benefittedfromagreatamountsuccessinTaiwan(Child2006).Comingfroma
Europeanculture,CarrefourwasevidentlyastrangertotheAsianculture.There
wereseveralareaswherethecompanyaltereditselftofitwiththelocalculture.For
example,Carrefourwantedtoopena10,000‐square‐meterstoreontheground
floor,withabigparkinglotinfront.However,becauseoftheshoppinghabitsand
spacelimitations,aswellaslegalrestrictions,Carrefouradaptedtofitthestoreinto
the3,500‐square‐meterbasementwith250motorcycleparkingspots(Child2006).
UnliketheCarrefourinChile,CarrefourTaiwanadaptedtoitscustomers
needsanditslocalculture.Thisdifferencecouldlargelybeattributedtotheuseofa
localpartner.InChile,CarrefourconductedtheGreenfieldstrategy,whereasin
TaiwanCarrefourfoundalocalpartnerinUni‐PresidentGroup–oneofthelargest
localcorporations(Child2006).Thismadealargedifferenceintheexecutionof
multipledealsinTaiwanasitwassuchadifferentculturefromEuropewhichwas
whatCarrefourwasuseto.ThelocalpartnerinTaiwanwasabletostopCarrefour
frommakingmistakes,explainthelegalcustomsforcontractualagreementsand
businessdealsaswellasjustunderstandingthemarketsoCarrefourcouldadvance
faster(Child2006).
Inadditiontohavingalocalpartner,Carrefouralsoconductedalarge
amountofmarketresearchtounderstandthedifferentculturalcustomswhenit
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comestoshoppingandtaste.WhenCarrefourbeganinTaiwan,theylookedatthe
exampleoffish.WhereasfishintheU.S.arefilletedandpacked,fishinFranceare
laidoutoniceasawholedeadfish.However,aftergoingtothefreshmarketsin
Taiwan,Carrefourdecidedtousefreshfishinitsseafoodsectionasthatisthe
customwaytodeterminefreshnessinTaiwan(Child2006).
WhenitcametimeforCarrefourtoexpandintoChina,theyhadan
advantage.DuetothesimilarculturethatChinaandTaiwanshare,Carrefourwas
abletobringalotoftheirlessonslearnedfromTaiwanintoChina.Various
Taiwaneseexecutiveswereappointedresponsibleforthisexpansionasthey
understoodthecultureandspokethelanguage,sotheywereabletotrulygaina
localperspectiveonChinafasterthanotherforeignglobalretailers(Holtreman
2000).WhenenteringChinahowever,Carrefourdeployedadifferentstrategyfor
localpartners.Becauseofthedensityandculturesofthedifferentmajorcitiesin
China,CarrefouroptedtohavedifferentpartnersinBeijing,Shanghai,and
Guangzhou(Child2006).
AlthoughtherewereagreatamountoflocalcompetitioninChinawhoended
upduplicatingthesetupofCarrefourandtheirassortmentofproducts,Carrefour
endeduplearningagreatamountfromtheselocalcompetitors(Child2006).For
example,oneofthelocalcompetitorscopiedtheideaofhavinga“bakery”inthe
supermarket,whichCarrefourintroduced.Butthecompetitortookitupanotchand
insteadofjusthavingwesterntypesofbreadinthebakery;theyhadChinese
dessertsandothercommonChinesebreadssototailorittothelocalenvironment.
Afterlearningthis,Carrefourdidthesamethingandsawagraveincreaseinbakery
sales—allbecauseitwasabletotailortothelocaltaste(Child2006).Asthe
presidentofCarrefourChina,Jean‐LucChéreaustatesinaninterview,“Ifyoucome
toChinawithverypreconceivedideasafterhavingbeensuccessfulinEuropeorthe
US,you[will]makemistakeaftermistake”(Child2006).Therearemultiple
examplesastohowCarrefouradaptedtothelocalculturethroughavarietyofways,
includingworkingwithlocalsuppliers—whichtheyfailedtodointheUS.Although
Carrefourhada18‐monthhiatusbecauseoflegalissues,theywerestillbeableto
10
climbbackupandstillbeoneofthelargestglobalretailersinChina(Child2006).
ThisfeatisverymuchduetoCarrefour’sreadinesstoventureintothemarket
throughlearninginTaiwan,andbeingabletoadapttothelocalculturesand
traditionsaswellasrespectthem.Thisunderstandinggoesalongwayandreally
gaveCarrefouranadvantageoverotherglobalretailchains.
Carrefourhasundergonemultiplesuccessesandfailuresthroughoutitstime
asaglobalretailchain.Itscurrentpositionistroublesomeasitislaggingbehind
Wal‐Martintheinternationalrealm.Recentlytheyhaveretreatedfromseveral
SoutheastAsianMarkets—44storesinThailand,23inMalaysia,and3inSingapore
(Exit2010).TherehavealsobeenreportsofanabruptretreatfromRussiaafterit
justopeneditsfirststore.Carrefourhasstatedthattheyarefocusingmostoftheir
energyinmarketswheretheyarealreadyleaders(ie.TaiwanandChina),whichis
whytheypulledoutofSoutheastAsia.Additionally,Carrefourisnowwaitingtoget
afootholdinIndonesiaaswellasinIndia(Exit2010).
Intheir2009annualreportCarrefourpresentedanewinternational
strategy:“Tobecomethepreferredretailer”(Carrefour2009).Thisnewstrategy
bringsnewdiversitytothechainofCarrefourstoresaroundtheworld.Tobe
includedintheCarrefourbrandare:CarrefourMarket,City,ExpressandContact.
Thesearealltailoredtothenecessitiesofthecommunityitislocatedin.For
example,CarrefourCityislocatedinbustlingcitiesinChinaasitisclosetothe
consumeraswellasaone‐stop‐shopforfoodandentertainment(Carrefour2009).
UltimatelyCarrefourisaimingtobecometheIKEAofgroceriesbycreatingitsown
brandidentity(Pasariello2010).Thisisinhopesofrestoringqualityandensuringa
lowerpricecutonitsmerchandisesotohavethatlow‐marginadvantageonits
competitors(Carrefour2009).Overall,Carrefourhashaditssuccessesbutthey’ve
hadonetoomanyfailuresasCarrefourretreatsfromareaswheretherearemany
opportunitiestoexplore(suchasThailand).Itiscrucialthattheyemploythesame
philosophytheyhadintheirexpansiontoChinawiththeirotherglobalstrategiesin
ordertotrulyunderstandthemarket.
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Tesco
Thefourthlargestglobalretailer,TescowascreatedbyJackCohenin1919in
EastLondon.Thefirststoreopenedupin1919whenJackCohenopenedbegan
sellingsurplusgroceriesfromasmallstallinthewellstreetmarket.ThefirstTesco
brandappearedin1924.ThecompanywaslaterputintotheLondonStock
Exchangein1947.Throughoutthefiftiesandthroughouttheeighties,Tescohas
boughtover120supermarketsinmanydifferentcountries.Throughoutthistime
theybecametheleaderintheUnitedKingdom,HungaryandSlovakia.Recentlythey
haveexpandedinJapanin2003,Chinain2004,andmostrecently,theUnitedStates
in2007.
TescobegantheirexpansionintotheUnitedStatesin2007.Theyrecently
lookedintobuyingoutafewcompaniessothattheycouldcomeinandestablish
themselvesasthatparticularcompany.WhenTescodecidedtoexpandtotheUnited
Statestheylookedathowthepublicwouldnoticethebigcompany.WhenTesco
askedifthepublicwouldappreciateanotherbigcompanylikeTescointheUnited
States,manyofthemdidn’tpreferit.Tesconoticedthisthroughoutalloftheir
surveys.“Tescorealizedthattheyhavetochangethewaythattheyaregoingto
enterintotheUnitedStates.TheyhadtochangetheirstrategieswhenTescotriesto
enteranewcountry.”(Palmer2005)Theycallthemthesixpillarsofinternational
strategies.ThesesixpillarsareFlexibility,actingglobally,Keepingfocus,Multi‐
Formatting,developingcapabilityandbuildingbrands.
WhenitcometotheinternationalstrategyofTescoSupermarketsthey
believeinthesixpillarsofinternationalstrategy.“ThefirstpillarofTesco’s
internationalstrategyisflexibility.FlexibilitytoTescomeansthattheyhavethe
abilityandthewilltoreacheachmarketasuniquelyandadoptstherelative
approachtothemarkets.”(Palmer2005)Whenthisstrategyisimposedintothe
UnitedStates,Tescolookedatwheretheycouldachievethemostsuccessandhow
theyentertheUnitedStates.Thesurveythattheydistributedshowedthemthat
theyhavetochangeafewthingsinhowtheyweretoentertheUnitedStates.They
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didthiswithalotofnewideas.Insteadascominginasahugesupermarket
companylikeWal‐MartandTarget,TescocameintotheU.S.withanewcompany
namecalledfreshandeasy.NowhereinthestoresthatTescohasestablished,you
seetheTesconameorbrand.TheywantedtostayawayfromtheTescoimage
becausetheybelievedthatpeoplewilllookatthestoresnegatively.Thisiswhere
theirflexibilityhascomeintoplayandhelpedthem.TheirnextpillarisforTescois
actinglocalandhowthispillarhashelpedoutTescowhentheyexpandintotheU.S.
ActingLocalisoneofTesco’smostimportantpillarswhentheyareentering
anewcountry,especiallytheUnitedStates.“ToTesco,beingactivelocallyisa
representationofTesco’svalues.Theybelievethatactinglocallyismeetingthe
needsoflocalcustomers,cultures,localsupplychains,andlocalregulations,aswell
askeepingtheirstafflocal.”(Palmer2005)Theywanttohelpandsupportthe
communitytheyareentering.Theywanttoalsosupporttheircommunityby
offeringjobsinthecommunity.“Theyarealsoconcernedwiththehealthoftheir
communitiesaswell.ThenameFreshandEasydoesn’tcomefromTesco’snew
brandname.It’sbecausetheywanttheircommunitytoeatandlivehealthyaswell.
FreshandEasywantstocreatehealthyliveintheircommunity.”(Jardine2006)
TheyalsowanttofightchildobesityintheUnitedStates.FreshandEasyoffersthe
freshestinproducts.Theyarealsolimitingtheircarbonfootprint.Theysellorganic
foodsothefoodcomesstraightformthefarmandontotheshelvesofFreshand
Easy.Theywanttopromotehealthyeatingandahealthylifestyle.Theyalsowantto
provideagoodwagefortheirworkers.Thisisaproblemwhentheycametothe
UnitedStates.Theysawthatthegroceryworkerswagewasn’talivablewagetohelp
andsupportafamily.Theybelievethatthecurrentgrocerswageisn’tarealwage.
ThishelpsoutwithTesco’sinternationalstrategyofkeepingfocusontheirlocaland
internationalgoals.
KeepingfocusisoneofTescos’mainpillarsoftheirinternationalstrategies.
Keepingfocusforthemisrecognizingthattobecometheleadinglocalbrandinthe
UnitedStatesisalong‐termgoalandittakeseffortandtime.Theyneedtorealize
thattheyaren’tcomingintotheUnitedStatesasTescothelargesupermarketbutas
13
anewcompanycalledFreshandEasy.“Theyhavetorealizethattheyaregoingto
gothroughsomebumpsintheroadjustlikeanyothernewcompanyenteringthe
UnitedStates.Theyneedtounderstandthatthisnewcompanyisnotgoingto
succeedastheyquicklyasiftheywereTesco.TheyneedtobuildbrandloyaltyandI
seethatthewaythattheyaretreatingtheycommunityandtheirworkerstheywill
buildthatbrandloyalty.“(Jardine2006)Yes,itwillbealongprocessbutthatis
whytheykeptitlocallyintheUnitedStates.“Theyhaveexpandedonlytothewest
coast.StateslikeNevada,Arizona,andCaliforniaaregoingtoseethesenewFresh
andEasystorespopupintheircommunities.”(TheEconomist2007)Withthissaid,
theyneedtofindthatflexibilitytotryandattractnewmarkets.Themulti‐
formattingpillarclearlydescribeswhatTescowantstodo.
ToTesco,multi‐formattingmeansthatthereisnosingleformatthatcan
reachthewholemarket.Theybelieveinthewholespectrumfromconvenienceto
hypermarketsareessential.WhenTescowantedtoentertheUnitedStatesthey
realizedthattheycouldn’tenterasTescothehugesupermarketgiant.Theydidn’t
wanttheimagethattheywerecominginasaWal‐Martcompetitorbutas
somethingthatisnotofferedintheU.S.Theywantedtoappealtothosewhowanted
somethingfreshbutnotasbig.TheirstoresquarefeetissmallerthanWal‐marts
andmuchsmallerthanTargets’.“Theywantedtofindoutwhatproductsworksin
differentareasofexpansion.Theyneedtomeettheneedsoftheregionifnot,then
theywouldfailasabusiness.”(TheEconomist2007)Buildingthesehypermarkets
createanewtypeofexperiencefornewconsumerswhohaveneverbeentoaTesco
overseasoraFreshandEasyintheUnitedStates.Thishelpsdevelopskillsand
helpsdevelopstrategieswhenenteringanewmarketandarea.Thispillariscalled
DevelopingCapability.
BydevelopingcapabilityTescowantstodevelopskillintheirworkers,
processes,andsystems,theyalsowanttosharethisskillbetweenmarkets.Tesco
wantstobuildtheiremployeesandteachthemthewaysoftheirbusiness.They
wanttoeducatethemonhowthebusinessworksandtheydothisbyteachingtheir
employeeshowtoorderproductsandcheckinventory.Theyalsowanttopromote
14
theirownemployeetoreachhigherpositions.Theytaketheiremployeesandevery
monththeychangetheirpositionssothateveryonelearnshowtoruntheFreshand
Easyhypermarkets.Thisbuildsemployeemoralandhelpstheemployersmake
promotiondecisions.Thismakesexpansionpossiblebecausetheemployeesnow
knowhowtorunthebusiness.Thiscreatesanewsetofpossibilitiesbecausenow
expansionispossibleandtheycannowsharedifferentideasandskillsbetweenthe
newmarkets.Now,thatTescoisgrowingthisnewFreshandEasybrandtheirlast
andfinalpillaristobuildthebrandanditsbrandawareness.
ThelastandfinalpillarofTescos’internationalstrategyisbuildingthebrand
ofFreshandEasy.ToTesco,BuildingtheBrandiswhenthegroupfeelsthatbrands
enablethebuildingimportantandlastingrelationshipwiththeircustomers.When
buildingthisnewbrand,Tescohastoappealtotheircommunity.Theyareoffering
jobstotheselow‐incomeneighborhoods.“Theyarealsohavinghealthyalternatives
tofastfood.Thisishowtheyarefightingthefightagainstobesity.Theyarealso
promotingasenseofhighmoralvalues.WhenanewcompanylikeFreshandEasy
comesintoanewcountryliketheUnitedStateswiththeirhighsetofmorals,beliefs
andvalues,thatiswhatcreatesbrandloyaltyandbrandimage.”(Anonymous2007)
Thisrelationshipwiththeircustomersandemployerscreatesagoodimagefora
newbrandlikeFreshandEasy.Thishasaninfluenceonotherpeoplebecausenow
peoplebegintalkingaboutFreshandEasy’svaluesandmorals.Thiscreatesa
properimageandnowitcaninfluencetheareasthatFreshandEasyarein.
Tescoalsohadthreethemesthattheywantedtoattainwhentheybroughtinthe
FreshandEasybrand.Theyhadthreekeythemes:Affordability,freshness,and
convenience.“Tescohopestoaccomplishastrongpriceadvantagebyemployinga
part‐timeworkforce,centralizingsupplychainoperationsandstockinghalfofits
productswithown‐labelbranditems.”(Palmer2005)Thefreshnessand“easiness”
oftheshoppingexperiencewillbeachievedthroughthesaleofwholefoodsand
preparedmeals,aswellasthroughtherapidrolloutstrategythataimstoopen
storesineveryneighborhood.Tescos’FreshandEasyNeighborhoodMarketbrand
15
reinforcesTesco’smarketingmessagewhilealsohelpingtoemphasizethelocal,and
downplaytheglobalnatureofitsoperation.
Aldi
Lastly,theninthlargestglobalretailer,theAldiGroupwasfoundedin1946
byTheoandKarlAlbrechtontheheelsofWorldWarII.Theprivatelyheldfirmis
Germany’sleadinggrocerystorechain,andisatopcompetitorininternational
marketsallovertheglobe.Inthe1960’sthecompanysplitintotwosections,Aldi
Nord(north)andAldiSurd(south).TheAldibrandnameitselfwasestablishedin
1913,becomingfamousoverthelastcenturyforitsfamedsuccessesingoing
againstalmosteverystandardofsupermarketing.Currently,Aldiemploysover
20,000individualsworldwide,hasover7,200storelocationsin15countries,and
hasannualsalesofwellover37billionEuros.
Aldi’smaingoalistokeepcostslow.Bykeepingcostslow,Aldicanoffer
productsatbare‐minimumprices.Whilethemajorityofsupermarketchainsseekto
expandstorespaceandoffermoreproducts,Aldiisnotconcernedwithdoingso.
Eachstorelimitsisselectiontoaround500items.Asaresult,Aldiisabletosave
largesumsofmoneyinmanyways.Aldi’scompetitorsintheindustrytypically
operatestorelocationsrangingfrom50,000‐125,000squarefeet.These
competitorsofferanywherefromtwo‐fivetimesasmanyitemsasAldi.In
comparison,Aldi’sstoresaremuchsmaller,rangingfrom8,000‐15,000squarefeet
(Wood,Barry2006).Inaddition,Aldiisnotconcernedwithconstructingan
impressivefaçadeorfancystoreinterior.Often,thecompanycutscostsby
purchasingsecond‐ratefacilitiesanddoeslittletoattractcustomersfroman
appearancestandpoint(Parker,Gulliford1996).
Fromanoperationsperspective,Aldiisintentonkeepinglaborand
operatingcostsharshlylow.Aldi’sdecisionnottosellfreshmeatsavesthe
companymoneythatwouldhavebeenusedonrefrigerationcosts(Parker,Gulliford
1996).Unlikemostgrocerystorechains,Aldidoesnotusebarcodescannerstokeep
trackofinventoryandproductprices.Insteadastockpersonsimplysetsoutboxes
16
andcasesofgoods,opensthem,placesthemontheshelves,andpostsapricesign
nearby.Cashiersareexpectedtomemorizepricelists.Shoppersarechargedfour
centsperbag,andarerequiredtobagtheirowngroceries.Shoppingcartscanbe
“rented”for25cents,aresumthatisredeemeduponthereturnoftheshopping
cart.BecauseAldidoesnothavetopayindividualstostockitems,keeptrackof
inventory,baggroceries,orcollectshoppingcartsintheparkinglot,laborcostsstay
low.Thisunflappablecommitmenttolaborreductionholdslaborcostsatan
estimatedfourpercentofsales,comparedtotwelvepercentformostother
supermarkets(Wood,Barry2006).Whilethesepracticesmaybestrikingtosome,
Aldi’snormallytight‐lippedexecutivessaidina1994brochure,“Whenyoubuya
canofpeasatAldi,you'repayingalmostentirelyforthecanofpeas.Aldidoesn't
needtotackononemorepennytopayforanyarmyofstackersorpiped‐inmusicor
fancydisplayorcheckcashingorgimmicksandgames.Soyourfooddollarpaysfor
whatit'ssupposedtopayfor...food."(Wortmann2004)
Originallyfoundedin1913,thebrandnamerefineditsstrategyandbuiltup
significantreservestakingadvantageofthedepletedgrocerymarketpostWorld
WarII.IntheexhaustedGermanmarket,Aldi’saimswere(andstillare)focusedon
havingstablemarginsratherthanfocusingonpricecutsandstorenetwork
expansion.Thisstrategyhasgiventhefoodretailergreatermeanstoinvestand
expandintootherinternationalventures,namelyinemergingmarkets.Bythelate
1980’s,theAldiGroupoperatedcloseto50separatecompanies,whichranover
2,000storesinWestGermanyalone(Wortmann2004).Atthistime,thechain
rankedasGermany’shighestfoodretailer,commandingabout13percentofthe
market.Estimatedsaleswerearound$9.3‐10.99billion.Bytheturnofthecentury,
AldihadtransformedtheGermangrocerymarket,asaround90percentofthe
populationshopsatAldiregularly.ItssuccesshasledGermanytothelowest
grocerypricesinallofEurope.TheselowpricesareadirectresultofAldi’sreduced
advertisingexpenses,basicstorelayout,limitedproductselection,andoperational
efficiency.Aldi’stwostructures,AldiNordandSurd,recordednetprofitmarginsof
17
around2.4percentand4.5percentrespectivelyin2006fortheirGerman
operations(Wortmann2004).
Aldi’soverallinternationalexpansionstrategyhasbeenfocusedonfour
majorplatforms.Thefirst,lowcostsandlowprices,isconsistentwithAldi’s
strategysinceitsrestructuringin1946.Withitslow‐priceschemes,Aldihas
destabilizedforeignmarketsbyundercuttinglocalpriceswhilestillbeingableto
manageaprofit.Second,Aldihascapitalizedonfailingeconomiesandglobal
depression.Bycomingintomarketsandofferinglowerprices,Aldihashad
consumersquestioningwhetherornottheyarespendingtoomuchmoneyonfood
(Parker,Gulliford1996).Inconditionswhereconsumersaremonitoringexpenses,
Aldiisaperfectalternativetoother,morehighpricedsupermarkets.Onasimilar
note,Aldiispursuingpoorerpartsofthepopulation.Beforeenteringaforeign
market,Aldiresearcheslocationsformeansoftransportationandoverallwealthof
thecommunity.Often,Aldiwillopenstoresinlow‐incomeareas,whereindividuals
canreachthegrocerystorebyfootorpublictransportation(Wood,Barry2006).
Finally,Aldiistargetingyounghousewivesandoldpensioners.Thesegroupsare
morelikelytoshopfrequently,andopttosavemoneybyshoppingatAldi.Aldi
commandsalargemarketshareforyounghousewiveswithhouseholdsoffiveor
moreindividuals,whichisconsideredtobethepremierdemographicforfood
retailers(Ruth1994).
Aldi’sinternationalexpansionbeganin1967withAldiSurd’spurchaseofthe
HoferchaininAustria.Currently,Aldiislocatedin15countriesworldwide.Aldi
SurdhaslocationsinAustralia,GreatBritain,Ireland,Slovenia,Switzerlandandthe
U.S.AldiNordoperatesinBelgium,Denmark,France,Luxembourg,Netherlands,
PortugalandSpain(Ruth1994).ThecompanymadeabigimpactinBelgium,
whereanalystsestimatedthechainhad260storesandUS$1billionsalesby1992.
Aldialsocontrolledapproximatelyfivepercentofthegrocerybusinessinthe
Netherlandsintheearly1990s.Inaddition,Aldisetupabout130outletsinAustria
andanother110inDenmark.However,itsmaingoalswerebirthedinthe1970’s
18
and1980’s,whenAldisetitssightsonthreemajorinternationalmarkets:theUnited
States,GreatBritain,andFrance(Hansen,Kliger2004).
Targetinglower‐income,ruralareasoftheMidwest,Aldi’sfirstAmerican
outletswerelaunchedintheregionintheearly1980s.Thecompany’sUnitedStates
headquarterswasopenedinwarehouseinBatavia,Illinois.Beforetheendofthe
1980’s,Aldihadnearly150storesinIllinois,Indiana,Iowa,Kansas,Missouri,and
Wisconsin.DistributionhubswereinstalledinKansas,Iowa,andMissouri,and
warehousesinIndianaandOhiowerecompletedbytheendofthedecade.During
thisperiod,U.S.salesestimatesrangedfrom$515millionto$780million.Inthe
early1990s,thecompanylookedintoexpansiontotheEastCoast,withthe
constructionofahugewarehouseinAllentown,Pennsylvania.Analystsestimated
thatAldi'sAmericanoperationsincreasedfromabout200storesin1990tonearly
400in1993.Duringthisperiodofexpansion,grocerysalesinthecountrywere
over$1billion.AccordingtoJonHauptmanofWillardBishopConsultingLtd.in
Barrington,Illinois,Aldi’scustomersexperiencedanaverageof24percentsavings
intheearly1990s.HauptmannotedthanAldiavoidedtraditionalcostsfrommedia
promotionsbecause,"…lowpricesattractpeoplebecauseitcreatesalotof
excitementandheavyword‐of‐mouthadvertising…"Thiswordofmouth
advertisingcausedAlditobelargelysuccessfulinarecessionperiodofthelate
1980sandearly1990s.AsHauptmanexplained,“nomatterwhathappenstoour
[U.S.]economy,thereisgoingtobe20percentormoreofthepopulationthatis
goingtofindAldiprettyattractivefromapricestandpoint."IntheUnitedStates,
Aldiwasabletocontinueitssuccessusingthesamestrategiesthathadleditto
controlthemarketinGermany(Parker,Gulliford1996).
UnlikeitsexpansionintotheUnitedStates,Aldihadtodeviatefromits
productstrategyinordertomakeaprofitintheUnitedKingdom.In1990,Aldi
cametotheconclusionthatthediscountmarketinGreatBritainwasvery“brand
sensitive”.Asaresult,Aldibeganstockingpredominantlynationalbrandsoverits
usualown‐labelbrands.Inaddition,Aldi’sventureintotheBritishmarketwas
slowedbyitscompetitionwith“softdiscount”giant,KwikSave.Inorderto
19
establishitselffurtherinthemarket,Aldimadeanunprecedentedagreementto
partnerwithBritain'sGatewayFoodmarketsLtd(Hansen,Kliger2004).
ThefirmexperiencedmixesofsuccessandfailureintheBritishmarket.Ina
nationalsurveybyresearchconsultantsVerdictinManchester,England,itwas
foundthatshopperswhoareloyaltoestablishedchainsintheareaareturningto
Aldiforbargains.75%ofallpeoplewhohadtriedAldiintendedtodoatleasthalf
theirshoppingthereinthefuture(Hansen,Kliger2004).ConsistentwithAldi’s
internationalexpansionstrategy,thecompanyexperienceditshighestmarketshare
withpoorercommunitiesandlargefamilies.However,itwasfoundthatthese
customersspentmuchlessonaverageatAldithanatothersupermarkets.The
typicalAldicustomerinGreatBritainwasfoundtovisitthestoreanaverageof
threetimesineightweeks,spendingabout$22.86US.Incomparison,customers
visitingothersuperstoresaveragedbetweenfourandsixtripsineightweeks,
spendinganestimated$36USpervisit(Ruth1994).Inaddition,manyBritish
consumerswereturnedawaybythestoresoverallappearanceandatmosphere.
AccordingtostudentsinthesurveycommentingontheatmosphereatAldi,“There
isn’tone…itcouldn’tbeworse.”AndonAldi’sown‐labelproducts,“Youarenot
guaranteedthatquality”(Hansen,Kliger2004).Tacticsthathadworked
SimilartoissuestoGreatBritain,Aldiencounteredstiffcompetitionin
Franceinthelate1980sandearly1990s.Aldionlyhadanestimated37storesin
thecountryby1992.ConsumersinFrancedidnotrespondparticularlywellto
Aldi’spricestrategiesandstorepresentation.Expansionwasmainlyhamperedby
pricewarswithrivalsLeclercandIntermarche(Hansen,Kliger2004).
Conclusion
Theglobalretailindustryisacompetitivemarket.Thefourcompanies
addressed,Wal‐Mart,Carrefour,Tesco,andAldi,haveachievedtheircompetitive
globalstatusthroughsuccessfulforeignexpansions.Thesestrategiesinclude
keepingcostslow,achievinghighvolume,workingwithlocalpartners,and
operatingviasustainablepractices.Wal‐MartsuccessfullyenteredtheSouth
20
Americanmarketusingtheir‘EveryDayLowPrice’strategy.Theirgreatestfailure
wasexpandingtoKoreaandmisunderstandingtheconsumer’stastes.Carrefour
foundsuccessbyapplyingaformulainChinathatwasalreadyperfectedinasimilar
culture,Taiwan.However,itsinternationalexpansionbeganrocky,asCarrefour
failedtounderstandthesignificanceoflocalpartners.TheBritishgiant,Tesco,was
abletoentertheUnitedStateswithoutmuchcompetitionormarketfailure.Onthe
otherhand,Tescowasunabletotransferitsbrandnametoforeignmarkets,needing
tore‐branditselfas‘FreshandEasyNeighborhoodMarket’.Aldiusedadepleted
Germaneconomypost‐WorldWarIIasaspring‐boardtocapitalizeontheEuropean
recession,viapriceundercutting.However,Aldi’sown‐labelpolicywasnotwell
acceptedinFranceandGreatBritain,causingthecompanytoexperiencelocal
backlash.Alloftheseinstancesareseparateexamplesofsuccessesandfailuresof
largeretailchainexpansion.Ultimately,itcanbeconcludedthatthereisnoset
formulaforexpansion,butitiscrucialtounderstandthedemographic.Withoutthis
understanding,nomattertheformulae,itisinevitablethattheculturewillreject
anyretailerthatdoesnotfittheirneeds.
21
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