Why we love Emerging Markets!
One of the most exciting occurrences in the worldwide retail industry is the conversion of traditional formats to modern chains. Food formats of all types, consumer electronics shops, drugstores, etc. – all exist in one way or another in every market of the world. But in the so called “undeveloped“ markets, they are in the hands of thousands of independent businesses with little sophistication, but normally prior to the switch, quite high levels of profitability.
When faced with their modern invaders, most of these small independents first lose customers, followed very quickly by profitability and then they disappear from the market altogether. However, it is not always foreign modern formats that make this change happen. Russia for example still has ca. 50% of its food retail industry in the hands of small “mom and pop” stores, in Italy the number is even higher, with these stores representing the largest segment of the food retail sector. But it is locally born national chains, which are normally the most successful converters of the old style of retailing to the modern chain store alternative.
The explanation of why is simple – management of these businesses understand the consumer and their wishes much better than foreigners. Ask an American to rate a Spanish wine, a Swiss cheese or an Italian pizza and they will of course be coloured by their own upbringing and not necessarily get the choice right outside their own homeland. If this sounds so simplistic, then tell me a better explanation why it is that only a very few food retailers travel over borders well?
On top of misfiring with the consumer offer, there is the problem of understanding labour culture also. Paul Foley remembers training 50 Greek managers in the UK during 2006-2007: “They were so shocked by the differences to working practices, that at least 50% of time in the the first six months was occupied in explanations never needed if you would have attempted the same task with natives! It was not a question of right or wrong, the labour market just operated differently culturally!“.
Then there is shopping culture, born from trading legislation, dietary norms and local tradition. If a foreign company comes with other ideas, the consumer is slow to change habits, if a local chain meets their expectations and offers the benefits that a chain business has over an independent.
Esselunga in Italy, Mercadona in Spain or Magnit in Russia understand their market so much better than Carrefour or Auchan do in these countries outside France. Now Carrefour or Auchan are not poor operators or unsuccessful outside France, but they can’t quite meet the performance levels of local grown well run companies.
FRC specialises in helping local companies grow to national significance. We bring world-class business processes and advice to growing companies in emerging markets, but have the experience in these emerging markets to understand the consumers expectations first! We love all the pink areas of the world map!