Many retailers that have their roots in the saturated markets of Western Europe are at a crucial phase in their existence: they will have to look for new sources of expansion in order to avoid the fierce competition in their home markets with an ageing population, where disposable incomes are under pressure from the continuing economic crisis.
Home sweet home: for retailers too
A recent study by Roland Berger Strategy Consultants and EFMI Business School, into the developments and perspectives in the United Kingdom, France, Belgium, Germany and the Netherlands, suggests four strategies for growth. The first two are mainly focused on the optimisation of existing business models that have already proven their worth, while the other two strategies point more towards development and innovation.
Whether a retailer operates internationally or not, a precondition for a structurally sound business is a strong position in the home market. That is why researchers of Roland Berger and EFMI suggest a decent maintenance of operations in the home market as the first strategy.
This means shop formats need to be thoroughly reviewed and, if necessary, reorganised. Saying goodbye to outdated formats, such as the hypermarkets that have become far too large, will require a radical choice. Other options are giving more attention to private labels, as they add margin, creative marketing as it offers distinction from others and a better knowledge of the wishes and preferences of individual customers.
A lot depends on organic growth
Alexander Belderok, partner at Roland Berger in Amsterdam and head of the Consumer Goods & Retail team, acknowledges that mainly large retailers will be able to work with this first growth strategy: “Retailers need sufficient market share and volume to be able to implement a private label strategy that enables them to offer more distinction and improve their margins.”
As large retail take-overs are often no longer a possibility, because competition authorities will generally put a stop to them, a lot depends on the possibilities to grow organically. “There are a lot of markets where there are no other parties to take over that can contribute to improving profits per square meter of floor surface”, states Belderok.
Arduous international expansion
A second option is expansion across the borders, with tried and tested retail concepts. Pioneers such as Carrefour, Ahold and Aldi made this strategy very popular in the 1980’s and the 1990’s, but it is still a viable option for growth anno 2012.
Meanwhile lessons have been learned from retail concepts crossing borders, says Belderok: “Many retailers have had trouble organising their international expansion. Benefits coming with a larger scale appear difficult to maintain: for example, it is not easy to have one purchasing organisation for the entire company. It is extremely difficult on a European scale, let alone on a global scale.”
According to Belderok, international expansion is a lot like beginning all anew: “When you start in a new market, your own retail knowledge is your only benefit”, he says. “Apart from that, you have learn to work with local parties and you have to be able to adjust your format to the local wishes. That is not easy: Aldi is not as successful in the Netherlands as it is in Germany. This is why Albert Heijn is staying close to its Dutch stores during its international rollout: to benefit as much as possible from the existing format and scale.”
Internet and innovation important for growth
The third growth strategy revolves around a retailer's ability to convince consumers to show a new buying behaviour. This is not a new strategy: the introduction of self-service after the Second World War and the success of Aldi, which exported the internationally unknown phenomenon of hard discounts in the 1970’s, are earlier examples.
A new wave of this strategy has been developed in France, where Auchan and Leclerc are very successful at creating a market for online supermarkets. Auchan even wants to export this concept to China, while Tesco has been performing tests with their ‘click & collect’ service for some time in the United Kingdom and closer to home, Albert Heijn has been opening its first pick-up points as well.
E-commerce and m-tail offer numerous possibilities for this third growth strategy, but also for implementing the fourth strategy: creating innovative retail concepts. Successful recent examples are the virtual supermarket which Tesco’s South-Korean daughter Home Plus first showed on a subway station in Seoul and Belgian Delhaize that brought the concept to Europe.
Who will win: bricks or clicks?
The third and fourth growth strategies have innovation as a common denominator. The question remains who is in the best position for growth: newcomers such as pure online players, or the existing physical retailers if they are creative and good enough to reinvent themselves and to start up a multi-channel operation?
“That battle has not yet been decided”, says Belderok. “Albert Heijn is better placed to develop pick-up points than a purely online retailer, because AH has experience with bricks. They know physical retail as no other and they know how to acquire necessary permits and locations.”
“Who has the best position in that area in between offline and online, remains to be seen. Personally I believe that multi-channel retailing has the best chances: consumers want to be able to choose between home delivery, pick-up points and going to the shop themselves to buy their familiar products”, he concludes.
The complete rapport can be downloaded for free at the website of Roland Berger.