Home Thinking Aloud Why Major Retailers Are Largely Local

Why Major Retailers Are Largely Local


NTUC FairPrice holds its ground through innovative concepts like FairPrice Express (courtesy of FairPrice)

In a world of global brands by FMCG players like Nike, Coca-Cola, Apple and P&G, it appears almost counter-intuitive that huge retailers like Walmart (the world’s largest company), Carrefour and Tesco are still largely local. Here in Singapore, for example, NTUC Fairprice and Cold Storage are still dominant supermarket players which managed to hold their ground despite the threat of the huge conglomerate Carrefour.

According to the article “Retail Doesn’t Cross Borders” in Harvard Business Review by Marcel Corstjens and Rajiv Lal, grocery retailers do not scale as well internationally due to the following factors:

1. Retailers face many barriers to entry in foreign markets. These include strong local incumbents that occupy premium real estate, entrenched competition and lack fo good sites.

2. Grocery retailing is a high-fixed cost, low-margin business taht acrrue only over time. For example, Walmart only broke even in the huge China market after 15 years of investment.

3. Foreign entrants often have to take on incumbents that are “country killers” that operate exclusively in the home turf. These local players better understand local consumer needs and tastes.

Most retail markets are dominated by local players in light blue (courtesy of HBR.org)

Against such a backdrop, how can retailers bring their businesses across borders in a successful manner? Here, the authors suggest various rules (paraphrased by me):

First, get a strong grip on your home market.

The stronger your positioning at home, the better your changes of sustaining overseas investments. To grow your home market, here’s what retailers can consider:

1. Grow existing formats to proliferate even in mature markets.

2. Expand into new formats that can help to serve different customer segments with different kinds of retail experience. An example is Wal-Mart’s establishment of its Bodega Aurrera and Mini Bodegas chains to cater to a latin market in Mexico.

3. Leverage the brand, using the equity that the brand enjoys with consumers – values, beliefs and perceptions – and find ways to develop new products and services that are consistent with those qualities.

Second, always bring something new to the market.

By injecting an element of novelty, retailers can help to fill a gap in the foreign market.

Third, differentiation may be more important than synergies in a retail chain.

While back-office efficiencies like IT, finance, central purchasing and logistics can be enjoyed in foreign expansions, retailers need to ensure that they buy what they can sell rather than to sell what they have bought.

Finally, the timing is critical in entering a market.

Too soon and you may face shoppers who aren’t ready for new concepts (eg hypermarkets) or the lack of reliable suppliers. Too late, and you may miss the most attractive opportunities available. A key here is to identify the right format of your retail outlet to suit local trends.

For more information, check out the article on HBR.org here.