Evaluate the strategies used by international retailers, whilst expanding their business into Germany.

Marketing Project: The Research Proposal

Table of Contents

1) Industry Background and current Market Trends ……………………………………….. 2

2) Research Problem and Aim …………………………………………………………………………… 3

3) Objectives ………………………………………………………………………………………………………. 4

4) Scope of the Study ………………………………………………………………………………………… 5

5) Usefulness of the Topic …………………………………………………………………………………. 5

6) Literature Review Topic Areas ……………………………………………………………………… 5 a) Cross-cultural buying behaviour ……………………………………………………………………. 5 b) International Retailing …………………………………………………………………………………… 6 c) Standardisation vs. Adaptation ……………………………………………………………………… 6

7) Suggested Methodology ……………………………………………………………………………….. 7 a) Secondary Data ……………………………………………………………………………………………. 7 b) Primary Data ………………………………………………………………………………………………… 7 c) Sampling ………………………………………………………………………………………………………. 8

8) Timeline ………………………………………………………………………………………………………….. 9

9) Indicative Bibliography ………………………………………………………………………………… 10

1) Industry Background and current Market Trends

The food retail market in Germany, with a value of $277.2 billion, accounts for 14.9% of the European food retail market value. After seeing a decline in 2012 of 0.1%, in 2013 it experienced a growth of 1%. The market is expected to grow with further 7.4% until 2018 and reach a market value of $297.7 billion. In comparison to this are the France and UK markets, which are forecasted to grow towards values of $252.3billion and $203.3 billion respectively (Marketline, 2014). German consumers expenditure on food products has also clearly increased in the period of 2001-2011 by 13.4% to a total of 155.8€ billion. The food and beverages sector also accounts for 38.3% of the total private demand of consumers in

Germany (Metro Retail Compendium, 2013). The German food retail market is saturated and high in price competition amongst the retailers. Included in the food retail market are the

sales of food products along with beverages.

Consumers increasingly demand for organic food products, which experience a growth of

10% per year. Another segment that is increasingly requested by German consumers is international good, which is relatable to the current trends in the whole of Europe (Marketline, 2014).

Germany counts predominantly as a developed country and a majority of consumer from a country of that nature put significant importance on products with a certain standard of quality rather than the focus on low-priced products (Euromonitor, 2014).

Supermarkets and hypermarket are the biggest players in the German food retail industry with a share of 59.4% (Marketline, 2014). Independent and Specialist Retailers follow with

33.7%. Convenience stores have the lowest share with 5.2% (Marketline, 2014). Hypermarkets are not a very common format of retailing in Germany, due to the fact that a majority of consumers find these too complex and prefer the straight-forward layout of supermarkets. This also reflects in the statistics in terms of sales by channels. Over the period of 2008-2013 hypermarkets experienced a slight decline of 0.7%, whereas in comparison to that supermarkets saw an increase of 10.1% (Euromonitor, 2014). Another outstanding increase in the value of sales was experienced by discounters with 8.1%. German consumers increasingly show higher loyalty to the most successful retail format, discounters, as these improved their standards over the last years (Euromonitor, 2014).

Discounters are typically characterised by offering very low prices, with low cost margins and a high degree of self-service (Cox, R & Brittain P., 2004, p. 35). Discounters in Germany lately also introduced higher quality products, such as brand-based and fresh foods, which gain more attention by consumers that put great emphasis on regional products, with higher

trust in those. International products are also offered, mainly specialised for younger generations, due to higher interest and experimental attitudes amongst the age group (Euromonitor, 2014).

In terms of food retailers brand shares, Edeka (under Edeka Zentrale AG & CO KG) gained

15.6% and is therefore the brand with the highest share in Germany. Lidl and Aldi (under Lidl

Dienstleistung GmbH & Co KG and Aldi Süd) follow with 8.6% and 7.7% share respectively in 2013 (Euromonitor, 2014). Competition is very high in the German food retail market, due to the high price wars and choice criteria of consumers. This results in generally equal shares in the food retail industry, which complicates and raises the entry barriers into the mature and saturated market.

International retailers generally adapt to the German retail market in order to succeed, or even approach the market in a different manner, such as Royal Ahold from the Netherlands, which might attract customers with its uniqueness (Euromonitor, 2014). However, international retailers, specifically in the grocery retail market struggle to enter the market and proceed with standardised strategies. This was the case for the American discounter department store, Walmart, which approached Germany in 1997 and was forced to exit the market in 2006 with an estimated loss of $1 billion (Financial Express, 2006).

The purpose of this study is leading from that, to understand the failure of international retailers and to answer the question of why they found it difficult to succeed in the German market.

2) Research Problem and Aim

The purpose of this research Project is to analyse the German retail market and determine the reasons that make it difficult for many international retailers to succeed in this market, described on the case of Walmart.

International Retailing has been very popular amongst retailers in the last decades, specifically also in food retailing, where the total revenue of global food and staples reached

$6,56 billion in 2010 (Food and Staples Retail Industry Profile: Global, 2011).

Generally known is that a firm’s global competitiveness is mainly reliant on one aspect, which is a strategic global marketing plan (Hollensen, S., 2013, p. 6).

Walmart is the biggest retailer in the world with a share of 3.3% in 2013 (Euromonitor, 2014 [2]). The company saw a great future in the German food retailing market and entered in

1997 by using acquisition. It took over 21 stores of the German Wertkauf chain and in 1998 acquired further 74 hyperstores from Interspar. Walmart’s idea was to operate with its American ethics in Germany, with turned out to be a mistake and forced Walmart to leave the country in 2006 with a loss of approximately $1 billion (dw, 2006). The 85 stores were taken over by the German retail company Metro, in order to open more of its Real hyperstores.

Walmart clearly did not consider the cross-cultural buying behaviour, when entering the German food retail market. Considering different cultures across different countries is of major importance as cultures play a major role in people’s attitudes and behaviour, as stated by Gelfand et al. (2007) cited in Patel, T. (2013). Consumers in Germany did not like the American approach of the retailer and its low price strategy, as this strategy was carried out by almost all the German food retailers. Walmart chose to use standardisation, rather than adaptation in order to succeed in Germany; however, this made Walmart less competitive and not successful in the German market.

Therefore, the aim of this study is to understand the German consumers buying behaviour and evaluate the strategies used by international retailers, such as Walmart, which failed in Germany. Understanding the mistakes will enable to develop recommendable strategies to successfully enter the German market.

3) Objectives

This study is set out to achieve four specific objectives:

Objective 1: To provide an overview of the German retail market in terms of size, value, competition and characteristics.

Objective 2: To analyse the buying behaviour of the German consumers in order to determine whether there are cultural characteristics that differentiate and influence their purchase behaviour.

Objective 3: To evaluate the strategies used by international retailers, whilst expanding their business into Germany. Also understand and analyse the mistakes that occurred, shown specifically on the example of Walmart.

Objective 4: To generate recommendations for actions aimed at retailers that contemplate expansion into the German market in the future.

4) Scope of the Study

The study is reviewing the German retail market, particularly focusing on the food retail industry. It will analyse consumer buying behaviour in Germany, in order to understand the choice criteria and purchase behaviour of the German consumers. The international marketing aspect will play a major role in this research project, as international retailers need to develop a sophisticated marketing strategy in order to be successful in expanding

globally. Cultural aspects play a major role in an individual’s attitudes and behaviour and specifically finding out, which cultural aspects have an impact on individuals, is one of the areas this research project is going to focus on.

Furthermore, the focus will briefly also be put on a fashion retailer that failed to succeed in Germany – Gap. A comparison between the retailers will be given in order to understand the differences and similarities in the strategies of approaching the German market.

5) Usefulness of the Topic

Being a German citizen, I always have a keen curiosity to understand the extent to which German consumers differ culturally in terms of purchasing behaviour compared to other consumers in developed markets. In addition, I am interested in discovering possible cultural dimension that are underlying these differences.

Furthermore, this research project could benefit international retail firms that are considering entering the German market. It could propose some tactical and managerial implications and provide strategies in order to reduce difficulties, whilst moving into the German market, providing products and services in favour of German consumers buying behaviour.

6) Literature Review Topic Areas

In the progress of this research project, several marketing theories, such as the cross- cultural behaviour and international marketing theories were found that support the main arguments of this study.

a) Cross-culturalbuying behaviour

‘The world is full of confrontations between people who think, feel and act differently’

(Hofstede, 2010)

This quote describes the main question of this study in a simplified way, which is to understand if cultural differences, based on the fact that this research is focusing on Germany, have an impact on consumers buying behaviour.

According to Hofstede (1994) as cited in Patel (2013), there are four dimensions in terms of how nations differ in cultural aspects. These are:

High versus low power distance
Masculinity versus femininity
Individualism versus collectivism
Uncertainty avoidance versus risk taking

These four aspects play a major role in understanding the German consumers’ cultural motives towards their purchasing behaviour.

b) InternationalRetailing

According to Michael Porter (1980) as cited in Huggins and Izushi (2011) competitive rules and advantages are highly reliant on the industries structure. The main aspects for this are:

Threat of new entrants
Rivalry amongst existing competitors
Threat of substitute products
Bargaining power of buyers
Bargaining power of suppliers

For this research project the rivalry amongst existing competitors is of high importance, as one of the reasons for Walmart’s failure was the high competition in the mature food retailing market in Germany.

c) Standardisation vs. Adaptation

‘A fundamental decision that managers have to make regarding their global marketing strategy is the degree to which they should standardize or adapt their global marketing mix.’ (Hollensen, 2013)

Whilst globalising, a company has to wisely choose if it is going to target the new countries with a standardised or adapted approach. In Walmart’s case a standardised approach was chosen which lead to a rejection in the German food retail industry. The theory stated by Hollensen can lead to identifying strategies in order to approach different countries. This will underline and support the findings of this research project.

7) Suggested Methodology

The data collection for this report will include secondary data as well as primary data collection in order to meet the stated objectives. The approach will be causal (conclusive research) and explain why the failure of Walmart happened, and what motives are linked to consumers purchasing behaviour in Germany.

a) SecondaryDat

Secondary Data will be gathered in order to evaluate the German food retail market in terms of value, growth etc.. Furthermore, this source will be used in order to identify and analyse the problems experienced by Walmart in trying to approach Germany.

During the research, conducted so far, the database of the LSBU library was used in addition to academic sources from the free web, such as newspaper articles and journals.

Mainly, journal articles, academic literature and e-books have facilitated and supported the key arguments in this research and will also be used in further stages of the study.

The Business resources for Marketing, such as Euromonitor, Marketline and Mintel have been of key use for this study and will base further arguments and findings in the progress of the research.

b) PrimaryData

In order to analyse the buying behaviour of German consumers, primary research will be conducted.

study will collect primary data in form of quantitative research. A total of 100 questionnaires will be given out to German consumers. Quantitative Research has many advantages; one of them is the ability to get beneath the surface of a survey individual.

‘While not as detailed as in-depth interviews or focus groups, it is common to ask questions about motives, circumstances, sequences of events, or mental deliberations, none of which are available in observation studies’ (Burns and Bush, 2014, p.173).

This is of major importance for the study, as we would like to understand the German consumers’ choice criteria in how they purchase their grocery and which the most important motives are that influence their buying behaviour.

The consumers will be enabled to answer both, open-ended and closed-ended questions

Furthermore, from the results of the surveys, different consumer profiles can be developed, in order to understand diverse types of consumers in Germany.

c) Sampling

The sample population that will be used includes consumers in Germany from the age of 16. A key aspect while screening the surveys is, if they are the mainly or partly purchasing body in the household in order to understand their buying behaviour.

The target population for the questionnaires will be approached on the streets and asked a screening question in order to understand, if they belong to the target population, which my focus is on.

This leads to the fact that non-probability sampling will be used in order to find the targeted population, specifically judgement sampling. The research will be conducted in different areas of Germany, in order to collect perceptions and buying behaviour motives from

individuals of different statuses.

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8) Timeline

Nov

Dec

Jan

Feb

Mar

April

May

Proposal

Amend Proposal

Introduction

Literature Review

Methodology

Data Collection: Field Work

Research Findings and Analysis

Recommendations

Conclusion

Draft

Final Version

Binding

Submission

9 | P a g e

9) Indicative Bibliography

Cox, Roger;Brittain, Paul. 2004., Retailing. [online]. Financial Times/ Prentice Hall. Available from: http://www.myilibrary.com?ID=60092 [Accessed on 15th November

2014].

Euromonitor (2014) Grocery Retailers in Germany. [Online]. Available from: Euromonitor http://0-www.portal.euromonitor.com.lispac.lsbu.ac.uk/portal/magazine/homemain [Accessed on 14th November 2014]

Marketline (2014) Germany – Food Retail [Online]. Available from: Marketline http://0- advantage.marketline.com.lispac.lsbu.ac.uk/ [Accessed on 14th November 2014]

Metro Retail Group (2013) Metro Retail Compendium. [Online]. Available from: Metro Retail Group, Bad Oeynhausen http://www.metro- cc.com/internet/site/mcc/node/308042/Len/index.html [Accessed on 14th November

2014].

The Financial Express (2006) Wal-Mart exits Germany with $1bn loss. [Online]. Available from: http://archive.financialexpress.com/news/walmart-exits-germany-with-1bn-

loss/172670 [Accessed 15th November 2014].

Food & Staples Retail Industry Profile: Global (2011), Food & Staples Retail Industry Profile: Global, pp. 1-39, Available from: Business Source Complete [Accessed on 15th November 2014].

Hollensen, Svend. 2013., Global Marketing. [online]. Pearson. Available from:

http://www.myilibrary.com?ID=515961 [Accessed on 16th November 2014].

Euromonitor (2014) [2] Walmart’s Healthy Food Subsidy Could Revolutionise the Food Industry…but not Anytime Soon [Online]. Available from: Euromonitor http://0- www.portal.euromonitor.com.lispac.lsbu.ac.uk/portal/magazine/homemain [Accessed on

14th November 2014]

DW (2006), World biggest retailer Wal Mart closes up shop in Germany [Online]. Available from: http://www.dw.de/worlds-biggest-retailer-wal-mart-closes-up-shop-in-

germany/a–2112746 [Accessed on 15th November 2014].

Patel, Taran. 2013., Cross-Cultural Management: A Transactional Approach : A Transactional Approach. [online]. Routledge. Available from: http://www.myilibrary.com?ID=553015 [Accessed on 16th November 2014].

Hofstede, G. (2010), Cultures and Organizations : Software for the Mind, Third Edition. [online]. McGraw-Hill. Available from: http://www.myilibrary.com?ID=296125 [Accessed on 16th November 2014].

Huggins, Robert;Izushi, Hiro. 2011., Competition, Competitive Advantage, and Clusters: The Ideas of Michael Porter. [online]. Oxford Scholarship Online. Available from:

http://www.myilibrary.com?ID=359478 [Accessed on 15th November 2014].

Burns, Alvin C;Bush, Ronald F.. 2013., Marketing Research, International Edition. [online]. Pearson. Available from: http://www.myilibrary.com?ID=523720 [Accessed on

15th November 2014].

Evaluate the strategies used by international retailers, whilst expanding their business into Germany.

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