Seminar Paper, 2011, 10 Pages
Brief Synopsis of the Issue
Carrefour as the leading retailer in Europe should enter the market in the United Kingdom. The analysis of the country shows that the conditions are good enough to succeed in the market. Although, the competition is already high, the opportunities for Carrefour are even higher. The company knows how to enter even difficult markets with the help of different market strategies. Besides, the global sourcing network and the long expertise in internationalization and innovation processes give the company the best conditions for a good and sustainable entry.
- Acquire an existing online grocery retailer and connect it to the global sourcing system of Carrefour
- Acquire a British discount company to prepare the market entry for the Carrefour discounter brand DIA
- Find an European retailer for a strategic alliance to attack Tesco and Wal-Mart in the hypermarket segment
Carrefour is the world’s second largest retailer and the largest retailer in Europe. It was founded in 1959 in France and operates four grocery store formats: hypermarkets, supermarkets, cash & carry and convenience stores. It has more than 9500 stores operated by the company or franchises. Carrefour’s hard discount brand DIA became more independent in 2011 but is still part of the Carrefour group. Carrefour is present in 32 countries with more than 470.000 employees. Its three major markets are Europe, Latin America and Asia.(Carrefour, 2010) It annual sales in 2010 amounted to € 101 billion and in the third quarter of 2011 it had sales of € 22 billion. Its ambition is being the preferred retailer, wherever it operates. Carrefour believes in building trust to customers for building customer loyalty. The company’s strategic objective is to achieve organic, sustained, and profitablegrowth that should be reached by the group’s client-orientation, transformation as well as innovation as its key-growth drivers.(Carrefour, 2010)
It is difficult to enter the market in the United Kingdom (UK) and the primary goal of becoming the preferred retailer is maybe not reachable in mid-term. But Carrefour can attack one of its most aggressive competitors in emerging markets, Tesco, in its domestic market. And with the right strategy, Carrefour can become an important player in the UK retailing market.(Carrefour, 2009)
The competitive advantage of nations model from Michael Porter will show factors which can support the decision making process. Analyzing the current market opportunities in grocery retailing is essential for the future strategy and step by step approach and so, current data and trends will be shown. In addition, there will be an analysis about Carrefour’s current situation as well. At the end, the best entry strategies will be found by discussing different methods of entry. A step-by-step approach will help to implement the chosen strategies.
Analysis of Market Opportunities in United Kingdom
Michael Porter invented a “Diamond” to analyze a country’s national competitive advantage (see Figure 1). There are four main elements in a country which form the environment in which the local firms compete. All these elements are related to each other. The diamond can promote or hinder the creation of competitive advantages.(Hill, 2011)
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Figure 1: Porter’s Diamond. Adapted from (Hill, 2011)
The analysis of factor conditions shows that the labour market in the UK is highly flexible, especially in comparison to other European markets. The mobility of the workers and the flexibility of the salary are over the European average. The number of good skilled workers is high. The differences between Greater London and the rest of the UK are partly high.(Porter and Ketels, 2003) Because of a large private sector and low regulations, the infrastructure is in a weak condition. The railway systems as well as the highways have to be improved. Nevertheless, the related and supported industries in retailing are working under very good conditions. The supply chain management is one of the most efficient in the world.(IGD, 2009) The domestic agriculture is also high standard and is supported by a high demand for local goods in the retail market. Because of its history, the country has also a high demand for international grocery.(Euromonitor, 2011)
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Figure 2: Elements of the Diamond. Adapted from (Hill, 2011)
Low trade barriers and regulation by the government are supporting the market entry of companies. As a result, the purchasing power of the people in the UK is one of the highest in the world.(Euromonitor, 2011) The company friendly politic and the high purchasing power are leading towards a high competition in almost every market. The buyers are looking for good quality products in connection with low prices or promotions.(Euromonitor, 2011)
Tesco is the leading company in grocery retailing in the UK. The market share was about 25% in 2010. Its biggest competitor is ASDA with a market share of 13%.(Euromonitor, 2011) This company belongs to Wal-Mart, the largest retailer in the world, which is another global competitor for Carrefour.(Eurofood, 1999)
Overall, the grocery retailing market in the UK is saturated and is expected to grow 1% annually. The market volume is about £138.1 billion. The big four grocery retailers are British, except ASDA. International retailers have to focus on private labels, which is very important in the UK. In addition, consumers are highly interested in products they already know.(Euromonitor, 2011)
With 46% of all sales, hypermarkets are the main channel in grocery retailing. The channel has developed out of the supermarkets, selling wide ranges of food and non-food products. With a growth of 3% currently, hypermarkets are number three of the fastest growing channels.(Euromonitor, 2011) The second largest channel is the supermarkets with a share of 21% in value sales. There is a development of increasing the size of the stores with the help of non-food products which will lead to a merger of the hypermarket and supermarket segment.(Euromonitor, 2011) The channel of discounters is the fastest growing segment. Because of the long recovery from financial and economic crisis, more consumers are price-aware. Although, the channel has the highest growth rate, the total market share is low with just 4%. So, the discount segment is not jet important as in other Western European markets.(Euromonitor, 2011)
The companies can be characterized as large enterprises where high level managers focussing on profit versus small family based companies. The total quality approach can be seen in almost every industry and company.(Porter and Ketels, 2003)
The two external factors government and chances can influence the elements of the diamond. It was already mentioned that the low government restriction already pushed the purchasing power and the competition inside the retailing industry. But there also influences which can have a negative impact such as the long recovery from the financial and economic crises.(Euromonitor, 2011) Chances in the future can be the Olympic Games in 2012. The large sport event can provide high investments in the country and infrastructure.(Blake, 2005)
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