Fundamental national differences pose challenges to Grocery globalisation

Posted by AFN Staff Writers on 24th October 2012

According to a recent report issued by Euromonitor  (www.euromonitor.com) about the internationalisation of retailing,  there are numerous  logistical challenges for global grocery retailing.

These challenges mainly relate to national and regional differences. These differences help explain why far fewer grocery retailers have chosen to pursue growth in foreign markets, compared with retailers for apparel or for other fast-moving goods.

“Internationalisation of grocery retail requires the understanding of the fundamental differences in consumers’ eating habits, brand preferences and even store layouts. Put simply, a fixed retail model in grocery cannot work.

“One of the most recognisable retail brands, 7-Eleven, alters its offerings in line with what consumers prefer with “Super Big Gulp” soft drinks sold in the US and dumplings sold in China,” the report said.

 

Fresh food habits differ by country

 

Euromonitor reported that consumers’ fresh food intake had historically depended on availability of food crops. This created a strong preference for certain foods types over time. Over 40% of fresh food consumed in China is vegetables compared to 28% in Poland and just 25% in the US. By contrast, meat is far more important in US diets and starchy roots such as potatoes are crucial to the Polish consumer.

 

Inorganic Growth Proves to be the better approach for Grocery

 

Unlike other retail channels that can afford to grow organically in new markets, there are a number of factors that make growth through acquisition the preferred option for grocery retailers entering new markets, the Euromonitor report said.

“Lower margins generated by grocery retail mean these stores require large volume sales which in turn require high footfall. While this can be achieved organically, it is far less risky for a grocery retailer to build upon an existing site and its customer base.

“Establishing new relations with suppliers can also be lengthy and lead to errors on both sides for a new grocery chain. Acquisition of an existing chain complete with its prior supplier arrangements is likely to be a far wiser move.

“The organic route, however, can still be a profitable venture for grocery retailers, particularly those introducing a new store format into a market in which it does not exist. The phenomenal growth of hypermarkets in China is, after all, due to organic expansion by foreign retailers such as Auchan and Wal-Mart. Similarly, the niche store format that discounters operate in means they may not be able to acquire an existing chain resulting in organic expansion being the only option.”

 

Case Study: Tesco Fails to Sell “Fresh & Easy” to American Consumers

 

Euromonitor provides, as a case study, Tesco’s “Fresh & Easy” retail brand to illustrate the difficulties for a UK brand crossing the Atlantic: Selling fresh foods to the image-conscious consumers of California sounded like a recipe for retail success. However, after five years of rapid expansion, Tesco’s Fresh & Easy stores have yet to break even, let alone revolutionise the US grocery market:

“Having expanded rapidly to 199 stores in 2011, Tesco has made a number of fundamental errors in judgement about the US market.

“Competition in the US grocery market is intense and Tesco appears to have underestimated this.

“Rivals such as Save-A-Lot, Albertsons and Ralphs responded instantly to Fresh & Easy’s entry by revamping their private label ranges, emphasising fresh food and widening ranges of ready meals.

Fresh & Easy’s property portfolio is also unsuitable. If the convenience-supermarket concept is to work, it needs to be accessible. Many of the Fresh & Easy stores are, however, not located in prime sites, making the longer drive to the store inconvenient,” says the Euromonitor report.

Euromonitor identified other market entry problems had included the fact that Fresh & Easy private label brands are not familiar enough to replace regular products and that placing imminent sell-by dates on ready meals indicated to US consumers that products are close to expiration, rather than the UK consumer’s interpretation that this meant high quality and fresh.