Only a few years ago, the retail sector appeared to defy the assumption that markets were becoming increasingly global, rather than local, entities. The buying habits of shoppers in different countries, analysts argued, were mostly too dissimilar for retailers to extend proven formats from one country to another.
Recently, of course, the picture has changed. Wal-Mart’s ambitions in Europe have attracted considerable comment and consternation, while chains such as Carrefour, Ahold and Metro continue to pursue aggressive globalisation strategies.
The tide, it seems, has turned. Faced with the need to maintain growth beyond the confines of home markets they already dominate, successful national retailers will expand their concepts across the Continent, resulting in increasing homogenisation.
While it is true that retailers which have developed a convincing offer on their home soil will enjoy increasing opportunities to extend that format internationally, there is no guarantee success can be exported.
Take the case of Migros. Dominant in Switzerland and famous for its almost blanket own-label strategy, Migros, known domestically as the “Big Orange”, has consistently encountered difficulties in extending its proposition into other – even neighbouring – markets.
In 1995, the company was obliged to admit its expansion into Austria, where it had entered a joint venture with the Konsum and Familia supermarket chains, was a failure. In mitigation, the debts of these two chains, partly hidden from Migros during negotiations, played a significant role in their eventual bankruptcy.
In pursuing the opportunity “at all costs”, certain members of Migros’ management were criticised for rendering themselves almost willingly blind to the inadequacies of the deal so long as it “added some international shine” to their CV. Over and above this, however, Migros was strongly criticised for introducing own-label brands that were completely unfamiliar and unacceptable to Austrian shoppers.
More recently, Migros has had to close one of its three outlets in France due to insufficient demand. “We seldom get it wrong,” local management told the French magazine Le Temps, “but here we were surprisingly short of the mark.”
Although its two other stores can continue to count on Swiss patronage, 47 per cent of which shop abroad to take advantage of price differentials, the Sevrier store is now to be sold – and Migros’ international plans put on hold.
In the retail sector, a unique competitive advantage at home does not necessarily translate in to an advantage elsewhere.
In addition to the transfer of efficient business processes and formats and soundly-based investment decisions, companies must be prepared to invest in communicating their offer as part of a compelling brand proposition relevant to the target market.
John Shannon is president of Grey International.