Bringing the discount food store to emerging markets

Discount food store FRC

The challenge

The phenomenal success of BIM in Turkey (one of FRC’s favourite clients) has led to a number of enquiries in other emerging markets to copy BIM’s business model. Many commentators suggest the BIM success is based on the German discounters of Aldi or Lidl. It isn’t!

Managing a profitable discount food business in places where “Value is King” is much harder than in saturated and mature markets where Aldi and Lidl reside.

It is often overlooked that most of BIM’s Turkish competitors make no money at all, despite the fact they have scale, history and competent management!

FRC was asked to create a business model to manage the challenges of creating a successful discount food store chain in an emerging market.

The strategy

The key issue is to create a product assortment where the pricing and margin can cover the costs that are necessary to run the business! This sounds obvious but it is very difficult in an environment where retail price is the key factor influencing the customer’s choice!

The investment per store is low for this retail concept compared to other food retail formats but the number of stores required is high and a dedicated supply and logistics chain is also required.

The method

Huge effort was expended by the FRC team to research the market to create an assortment which had enough own private label brands that delivered margin and points of difference to the competitors. A simulation tool was used to create likely scenarios and predict at what scale the business would be profitable.

The result

The business launched successfully in 2015 and once a certain scale of revenue has been reached, the outlook for a well run business where operational costs can be sub 10% of revenue is very positive, stock turn will be as many as 25 times per year and working capital is financed from a “BUY, SELL, PAY” formula!

 

For more information contact Paul Foley on +43 1 205 1160 1253 or mail on pf@foleyretailconsulting.com.