Elsewhere: The secret of World Dealers

For Some store chain it is possible to grow to international level. On obtaining such status, they often become retailers, developers, distributors, logistics specialists, and sometimes manufacturers of their own goods all in one. The formula for success is that they are excellent adaptors.

At them it turns out to create irrespective of a structure of trade mark to which consumers on different continents get used, to construct a network of shops in other states, including own development projects, to become brands that are recognized all over the world. They confidently walk the land, developing their format of premises on every island and continent (IKEA, Auchan, Metro, Obi, Wal-Mart, Marktkauf, Tesco).

Sometimes global retailers build shops under their own trademarks and brands. They also often conclude franchising contracts with national companies. Another way is to buy up brands, trademarks and the real estate of local operators.

They go...

Russian retailer chains can only dream about such scales. Now they are also growing, swallowing up similar retailers in local markets. With such rates of development they can be likened to international giants. But of the four most powerful trading operators in Russia, X5 Retail Group (X5), Sedmoi Kontinent, Dixi and Magnet, only X5 has appeared before world investors in London.

The first transnational retailers appeared in Russia in the 1990s. During these years the general financial and political situation in the country did not represent a reliable platform for foreign investors. At the time they were also too absorbed by the development of markets in Eastern Europe. The trends of development of the Russian retail market in many respects are similar to trends in other developing countries: China, India, and Mexico. Retail in these countries also began with small format trade.

Now the time has come where world giants very much want to develop in Russia. And many are already here. In the country, French hypermarket chain Auchan operates, and France’s Carrefour is looking for land plots. There is also Germany’s Real and Metro Cash & Carry. The Do-It-Yourself (DIY) format is represented in Moscow by France’s Leroy Merlin, and Germany’s Obi and Marktkauf. Castorama (the largest chain of stores that sells building and finishing materials for the home in Europe) has opened shops in St. Petersburg and Samara. Finland’s Kesko has already bought a share in St. Petersburg’s Stroimaster chain of stores and is also going to open several more superstores in Russia. For several years the Dutch chain of grocery shops Spar, has operated in the country as has Turkish-Bulgarian company Migros (the owner of Ramenka, the managing company of the Ramstor chain of stores).

It is both normal and surprising at the same time that each of these global dealers was once also a national operator in the country some even beginning as a small family business. Each of them now remains a part of the culture and mentality of the country. But at the same time they somehow manage to understand the needs of clients on the most different continents.

The principle of a chameleon

There is such a concept as a “worldly person.” In the language of psychologists it is a person that easily adapts to conditions in any country. The laws of the wholesale-retail chain market are very similar to human mutual relations, in the social rules of accepted behavior in any society. Among trading companies there are some that can be called “worldly operators.”

Business trainers teach managers of companies to understand the competitor and the partner, it is necessary to get under its skin, to look at the world through its eyes, such a technique is called “walking in someone else’s moccasins.” Successful transnational giants are able to put on these “moccasins” extremely well and walk in them. Now the IKEA brand is known in all countries. This company, which began in 1943 in a small village in the south of Sweden as a small private business that sold nylon stocking, has succeeded in conquering the perception of natives in every Continent. IKEA offers clients furniture and household goods. Does the approach of the company towards the consumer differ so that in each country it produces and sells furniture especially adapted for local customs? For example, in Europe in IKEA shops are larger size tableware a set sold and is it necessary to make small services for Japan? Or is the issue not in the features of a product, but in the individual approach to the consumer or, on the contrary, in the ability to guess the essence of the clients’ needs?

One of the main principles of IKEA’s philosophy, the company says about itself, is the sale of best-selling, actual goods at low prices. From this began Ingvar Kamprad founded the company about 70 years ago. Up until 1955 the company sold furniture from different suppliers within the country. In 1973 the company opened a shop outside Sweden in Switzerland, which provided it with subsequent success in neighboring Germany. And so began a world procession of the retailer-manufacturer. Today the company has shops in 39 countries, it has captured space from the European continent to Eastern and Asian countries. In Russia IKEA has eight operating stores: three in Moscow, two in St. Petersburg, and one in Kazan, Yekaterinburg and Nizhny Novgorod.

Carrefour Group is no less famous. It demonstrates several different approaches to national markets, which are based on the cultural features and mentality of this or that country. The company is youngish: it was established in France in 1994 and has become the second largest owner of a chain of grocery stores, supermarkets and hypermarkets in the world (after America’s Wal-Mart). According to data on December 31, 2006, Carrefour had 12,547 stores.

It became the first European operator to open a hypermarket in China in 1995. Now it has 37 hypermarkets, eight supermarkets and 225 discounters there. In 2005, Carrefour’s commercial turnover in China totaled more than $2 billion, according to the company’s data. Managers of the company say in interviews with foreign publications that it is useless coming to China’s market with a strict and customary business-model, and that experience from Europe and the US is not suitable for China. For example, hypermarkets here should be constructed on a small area - about 3,000 sq.m. Unlike in France where they measure 10,000 sq.m and more. The thing, of course, is not only in the format of shops, but also in the marketing approaches in promoting the production and trademark, which also may differ in different countries.

Carrefour gives its favorite example about the sale of fish. In each country there are ways to do this. In San Francisco it is on sale more often in packets in the form of a fillet. In France seafood lays on counters in frozen condition. In China, depending on the location of the shop, fresh and frozen fish is widespread. The knowledge of these subtleties allows trading companies to increase their sale turnover.

In Russia the arrival of this French giant has been long awaited. Carrefour first intended to buy a local operator like X5 then looked for land plots in the south of the country. Recently the Moscow office of Cushman Wakefield / Stiles Riabokobylko reported that Carrefour has already precisely determined premises for shops. Representatives of the company are interested in both land plots for construction, and ready premises.

A little cunning

Fast-food operators, for example McDonald’s, are good examples for observing the assimilation of production by international trademarks. This company likes to dilute its set of products with products focused on the national kitchens of different countries.

Kings of detergent powders have also advanced far. Peter Gyunter, president of the Russian branch of Germany’s Henkel, manufacturer and seller of building mixes and synthetic washing-up liquids, says that moving from country to country, marketing tactics always changes. For example, in Southern Europe where consumers have got used to washing in cool water, a not strong powder with bleach is offered to them. And in Northern Europe it is quite the opposite, strong means for washing in hot water without bleach are offered. The packaging of goods in different parts of Europe are also not similar. In the north people love compact products, and in the south they prefer bigger products. Henkel even changed the structure of its trump product Persil Powder, in Germany, France and Holland, being guided each time by the tastes and mentality of local housewives.

Some researchers think that in Russia, clients also would like to see know-how in shops. Managers of Perm chain of supermarkets Semya are convinced that on a background of an increasing number shops and formats in Russia buyers are ready for some special advantage in each retail chain. According to Anton Poryadin, head of strategy and organization at A.T. Kearney, from consumer changes such as a faster pace of life, demand for quality service at low prices is observed. In his opinion, it is time for new trade come.

The rate for staff

According to Marcus Luken, HR director of retail chain IKEA, “Our company above all invests in production and employees.” For an international company following a smart marketing strategy the definitive factor in conquering the national market is people, its employees. Without them there will be no new witty marketing courses, which will attract new consumers. An ordinary IKEA employee in 1955 when carrying a table turned off its legs and thus invented the famous flat pack from IKEA.

Luken thinks that national traditions should not be to be underestimated. In the assimilation of a company in this or that country cultural features influence its business. New employees whom the branch hires for work from local residents help the international operator to understand these nuances. And as for workers, research shows that for them, their cultural values are second after personal values. Therefore a wise international company is arranged according to the way of life and style of work of each country, combining it, of course, with the corporate standards.

Operational experience of Carrefour in China is demonstrative. Before entering the Chinese market the operator brought in 25 perspective Chinese people who had practice in the Carrefour branch in Taiwan. In 2000 Carrefour based there an educational center with the purpose of preparing highly skilled experts for supervising posts in the company. The company finances the training of employee, and cares about their future. Employees, in turn, sign a long-term contract for five years. If they want to leave the company they can, but in canceling the contract they should pay the sum spent by the company on their training. The company compensates employees that work for five years and more, with bonuses equivalent to two, three, and even five times their salaries. As a result in branches of Carrefour the top-managers do not change very often. At present, 50 of 73 Carrefour hypermarkets in China are managed by Chinese managers.

Alone in a strange city

The entrance of transnational giants on local markets is guaranteed not only by their financial turnover, marketing policy, various know-how and talented employees, but also such resources as skills in making agreements with local market players - potential competitors. This subject is especially relevant for Russia where in addition to all "administrative resources" it is necessary to get on with the regional authorities. Therefore entering the regions of Russia through the purchase of local companies - their real estate and trade marks - and also by means of franchising contracts and concluding various kinds of alliances with local businessmen, seems like a wise decision.

According to open sources, in June 2007, Spar Moscow Holdings, opened by company Spar in Russia, acquired 100 per cent of the Verona chain (a chain of 21 grocery supermarkets in the Yaroslavl and Ivanovo regions, worked under a franchise with X5). The deal was worth $10 million. In September 2007, Marta holding (Grossmart supermarkets, Billa supermarkets, trading-industrial holding of polymeric materials, etc.) put 100 per cent of its Grossmart chain up for sale. One of the applicants for the purchase was an old partner of the holding – Germany’s REWE Group. Such a deal, by the estimations of analysts, is worth about $200 million, considering the number of Grossmart stores (almost 140). The annual sales volume of REWE Group is 37.4 billion euros and it makes the company second in Germany after Metro. REWE Group owns a travel business, German media assets and airlines, small wholesales centers, retail hypermarkets and supermarkets, department stores, and shops that sell household goods and electronics. Three years ago Marta and REWE Group created joint company Billa Russia which became the owner of the chain of supermarkets.

The most active and resourceful world retailers find variants for work in Russia. The ways of entering a market by foreign business specialists can be the most varied. For example, at the end of the 1990s known figures of the real estate market Michelle Paskalis (MLP) and Vladimir Zemtsov (the developer of the Greenwood business park) convinced the governor of the Moscow region Boris Gromov to reserve 21 land plots along the MKAD for large shopping centers for the Gubernskoye Koltso project. Having secured guarantees from the regional administration, the businessmen presented this project to an international company of French origin - Auchan. The retailer-developer for a long time contemplated Russia, but the final argument for the project was the support of the local authorities in the project, and Auchan came.

The same factor of local authority support has played a role in the history of IKEA in Perm, but everything happened the other way round. The retailer was unable to get a specific area to start building on for about three years.

According to the official version, the head of the local administration was not satisfied with the offer of the company. The governor of the Perm region, Oleg Chirkunov, was guided also by such reasons as the aspiration of the authorities to sell the goods of Perm manufacturers through IKEA in other regions of Russia, and even such reasons as a transport problem around a mega mall if it will be constructed. But in the end after long negotiations between IKEA management and the authorities of Perm a space measuring about 30 hectares in the suburbs was allocated for Mega.

German company Karcher, a manufacturer of home appliances, washing and harvesting equipment, whose world annual turnover is 1.2 billion euros, managed to get its production on Russian shelves, including in M.Video stores, only after it held a football match among the largest national trading chains. That way it found friends in local business circles.

The factor of success

Having analyzed the strategy of many international giants, it is possible to allocate some aspects that promote their success in many countries: the ability to come to this or that market during its active growth, alliances with local players and authority representatives, own real estate in the mastered country and development projects of shops and shopping centers.

As Oleg Voitsekhovsky, the operating director of the Russian council of shopping centers, notes, the most active international retailers in Russia are those that act simultaneously in a role of the developer. It is much more profitable to build walls for your own business under the company’s standards, than to be content with premises of other owners or to buy something demanding reconstruction. Furthermore, additional profit can be gained from leasing the premises of trading complexes. Incidentally, companies that prefer to build shops and not buy them, are companies that develop by the principle of a family business.

Fate also smiles on international family retailers. Among them are Auchan, Wal-Mart (owners of retail chains), the world's largest seller and manufacturer of luxury goods Moet Hennessy Louis Vuitton, and Ehrmann (a manufacturer and seller of dairy products). As Michelle Paskalis considers, a family business for international retail is a huge plus. It is when a company does not have "strange" shareholders in the structure and its assets are not placed on stock exchanges. All this means that decisions are made unanimously and as a result the most effective form of management of the business is produced.

To be a transnational operator you must possess a number of advantages. To control up to 60-90 per cent of volumes of retail trade in each national market. To reduce the costs due to the scale of activity (a shop with an area of 1,500 sq.m has almost the same overhead charges as a shop with an area of 500 sq.m. but a turnover 2-3 times bigger). To receive serious discounts from suppliers and in connection to this establish low prices for goods, receiving sufficient profit on further development. And lastly, to bathe in the beams of the world glory.