Global Expansion: WalMart in Spain

International Trade and Commerce

Agenda

• Current business model

Status Quo • Lessons from the past

• The environment: PESTEL

The Spanish • The company: SWOT
retail market • The market: Porter’s 5
Forces

Entering the • Mode of entry

• The adapted business
Spanish model
market • Strategy

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 Status Quo

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Current Business Model

Decisions Consequences

Policies Assets Governance Flexible Rigid

Low wage,
Information Autonomous Low costs, low A fast and
non-union
systems store operation prices efficient system
workers

Customer Bulk purchase, Supplier

Specialty and
priority, power over relationships,
regular formats
friendliness suppliers brand equity

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 Successes and Failures
 The virtuous cycle of Wal-Mart’s success stories
 Lack of adaptability and foresight in new markets?
Attractiveness Contingent
to Customer success
Large may
Sales
and Brand not
Value
materialize

Customer Service
Local Culture +
Supplier
Low Cost
Relationships
International Available
Expansion Infrastructure

Laws of the Land Information

Exchange
+ +
Good Logistics Compliant Labour
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Case in Point: Failure in Germany
 Labour issues

 Non-strategic acquisitions (Wertkauf & Interspar)

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Case in Point: Failure in Germany
 Global expansion driven by country’s market size
alone
 Little attention to required business model
adaptations
 No real market penetration:
 Lack of strong buyer / supplier relationships
 Huge competition in a “price-sensitive market”
 No cultural adaptation:
 English the official language
 Oblivious of shopping habits, work habits
 Problems with German authorities (pricing, wages
etc.)
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 Efficient centralized distribution system but hard to
 Spanish retail market

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 PESTEL analysis
Political
• Government wants to deepen relationships
with USA
• Moderate political risk
• VAT recently hiked (18% to 21%)
• 5% lower income tax than neighbours
Social
• Price sensitive market
• Easy terms, post-sales services important
• Food & beverage: 2nd highest family
expense
• Fastest population growth during 2005-10
• Closely controlled family based companies
• Spanish language: different languages
Ecological
• Important in the country : the energy
consumption decreased by 5.2% in 2012
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Economic
• Economic crisis
• High unemployment rate (24.6%)
• Entrenched market, few global players
• Expected downturn till at least 2013
• Retail spending down 11% y-o-y in Q3-12
Technological
• The adoption of Electronic Point of Sale
(EPoS), Electronic Funds Transfer Systems
(EFTPoS) and electronic scanners have
greatly improved the efficiency of
distribution and stocking activities, with
needs being communicated almost in real
time to the supplier
Legal
• Hypermarket size > 4000 m2
• Competition and anti-trust laws strict
• Selling below cost forbidden
• Minimum salary: 748 €
Strengths Weaknesses
• Automated distribution system • Customer concern due to low prices
• Low prices • Low wages
• Wide range of products • Large inventories
• Growth/ Global Expansion

SWOT

Opportunities
• Growth, global expansion (+ Mercadona’s own
expansion plans)
• Drive down costs by combining own
technological expertise and local partner’s
knowledge
• Government wants to deepen relationship to USA
Threats
• Currency risks for profit expatriation
• Political and Economic risks amid EuroZone
crisis
• Antitrust regulations against big-tickets joint
ventures
• Unemployment rate 24.6% (2012)
• Declining economy due to crisis 2011
• Bureaucracy

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Porter’s 5 Forces (Spanish retail industry)
ENTRANTS
(1) Governmental
framework,
decentralization
(2) Entry barriers: retail
regulations
(3) EU Service Directive

SUPPLIERS INDUSTRY
(1) Walmart may dictate RIVALRY
BUYERS
(2) Mercadona‘s strong (1) Medium-sized
(1) Unemployment
relationship to suppliers supermarkets
(2) Tourism
(3) Favoring (2) Mercadona
(3) Variation
infrastructure of (3) Wide range of
suppliers near cities supermarkets

SUBSTITUTES
(1) Large distribution
chains
(2) Wholesalers
(3) Middle-sized
supermarkets

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 Entering Spain

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Mode of Entry
 Organic growth obstacles:
 Need local expertise, established supply chain and
cultural knowledge
 Land regulations make new development expensive and
time-taking
 Barely enough surplus demand to support another big
player
 Motivations for Joint Venture:
 Acquisition may be too expensive, may create hostilities
 Spanish IPOs improbable due to increasingly illiquid
markets
 Twin benefits: combine own technological advances and
supply chain expertise with local knowledge and
relationships
8 Avoid short term market risks,
International Trademedium term Eurozone
and Commerce
risks and gain on long term partner expertise and brand
Mercadona
 Turnover: EUR15,267mn, No of stores: 1,311 (in Spain)
 9th most reputable company in the world in 2009 by the
Reputation Institute as listed in Forbes Magazine
 Expansion plans into Italy, France, Belgium, Portugal;
Wal-Mart’s gateway to continental Europe
 Orientation towards Mercadona’s secret to success
 high productivity
 flexible working conditions
 employee training
A rare mix,
 performance-linked bonuses
even among
 permanent, full-time working contracts its Spanish
 above average wages, no mass layoffs peers
 employees‘ dedication
 watching costs, passing savings to customers

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Recommendations
 Leading European retail format = discounters (low priced
stores with limited assortment but good quality for certain
target groups) [Pfohl and Roth, 2008]
 Market stagnant: aim to grab competitors’ market share
 Capitalize on the downturn sentiment
 Participate in social causes for community benefit and visibility
 Crisis => lower ability to pay => prices a critical factor => EDLP
rules
 Population density rising, improved accessibility more
important than new establishments
 Target new formats (eg. neighbourhood stores) at untapped
areas
 Place supermarkets in areas more accessible to tourists
 Experiment with Marcedona‘s employment practices in other
EU markets
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The ‘adapted’ Business Model

Attractiveness to
Customer Large Sales +
Higher
productivity and
expansion
better service opportunities

Marcedona’s local
cultural knowledge
Marcedona
Marcedona’s
’s Low Cost and Low
Supplier
employme Prices
Relationships
nt practices

WalMart’s innovative supply Better bargaining

and distribution technologies and good quality

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Features of the Model
Aligned Self-Reinforcing Robust

• Highest cost savings • Once positive • Imitation would

realized across synergies from the require huge
geographies joint venture, the resources and
• Continuous growth trajectory established presence
expansion of the would be steeper in the entrenched
everyday low price than possible for market
system either retailer alone • The combination of
• As also shown by the inimitable
feedback loop consequence of Wal-
Mart and
Marcedona’s
business model
should be strong
against competitors
• Substitution by small
retailers is a
negligible threat in
Spanish market

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Case in Point: Tackling the labour issue
Intangible benefits
Job security

Low compensation

High Productivity Happy Employees

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Thank You for your Attention

Elodie Lichtenberger
Harshit Krishna
Lara Aschenbrenner
Louise Roche
Marie Nauméa