Booming China retail market evolving

Booming China retail market evolving

Booming China retail market evolving 

Foreign and local companies try different strategies to keep growing

China’s retail market is growing exponentially. Accounting for roughly 14 percent of the economy, how retailing progresses is gravely important to the entire economy, and to China’s growth prospects. It is equally important to China’s trading partners.

No economy can reach fully-developed status, including a robust consumption-based economy, without a fully-developed, modern retail and distribution system. The innovation and productivity of the retailing sector affect the manufacturing, agriculture and services sectors more powerfully than does any other industry, save perhaps banking.

Four important trends have dominated Chinese retailing over the past dozen years. The first is a massive and highly successful influx of sophisticated foreign retailers creating extreme competition. By 2005, more than 35 of the world’s top 50 were in China. Some, such as Ikea, are moving cautiously. But most are racing. Carrefour forecasts 25 new hypermarkets annually and Tesco 10 a year for the foreseeable future. Wal-Mart’s billion-dollar investment in Trust-Mart (35 percent stake) and purchase into Yihaodian – one of China’s leading e-commerce websites – demonstrates its intentions.

Management consultant A.T. Kearney predicts double-digit retail growth for the foreseeable future. Domestic players still dominate. Gome Electrical, for instance, China’s leader in household appliances expanded stores by 20 percent, increasingly in smaller cities. Major international retailers are also expanding rapidly, aiming at smaller cities. Metro Group has plans for 100 total outlets by 2015. With 900 million Chinese yet to move into the ranks of the middle class, China will be a magnet for global retail giants for years to come.

The second trend is the substantial competition-induced efficiency gains. Successful technology applications to reduce costs and improve performance are critical where competition leaves paper-thin margins. Some are simple: new lighting, heating and ventilation technologies to reduce energy costs. Others are more fundamental: regional distribution hubs, computer-based stocking, and cold chains critical to modern food retailing. Food and product safety regulations, and middle-class preferences, require more modern distribution technology. It also makes higher-end Chinese goods more attractive in US and Europe when they more closely meet the destination standards.

Recent studies find that international retailers in China focus primarily on brand image. Chinese firms focus more intently on information and communication technology capability. More than just online sales, this means focusing on computer-based business process efficiencies.Research at the MIT Sloan School of Management finds that every dollar of real estate, plant or ordinary equipment a company owns in the US, on average returns one more dollar of market value. Better computer-enabled business or organizational practices, however, add about $10, a total of $2 trillion in the US. ICT-based business process improvement is serious business.

As firms push to reach the large cities of the western interior – what some call the last great industrial adventure – highly efficient logistics structures and processes are critical. These form the backbone of inventory management. World-class management practices in the large retail sector will have profound value-added effects for China; and inevitable productivity spillover into other sectors.

Increasingly sophisticated local retailers make China a tough market for foreign companies. China Resource Vanguard in Shenzhen and Yonghui in Fujian province, for instance, use local knowledge and savvy management teams to grow rapidly despite the entry of Wal-Mart and Carrefour. Wahaha and Tingyi have grabbed market space from Coca-Cola and Pepsi. Detergent producers Nice Group and Guangzhou Liby Enterprise Group have captured about 35 percent of the detergent market, and Haier, the No 4 refrigerator producer in the world, is dominating its market.

The fruits of this competition include aggressive pricing and customer service, more unconditional refunds, nicer shopping environments, more attention to quality and locality preferences of consumers, and product/service flexibility that have improved the overall consumer experience.

The third is the rise of a coherent regulatory structure. Over the last several years, important regulations on the retail sector have been issued, including new labor laws, strict food safety and quality standards, and environmental protection rules. Since the Sanlu milk powder scandal in 2008, central and local governments have begun to pay much more attention to food safety and quality control.

In response, firms have expanded quality control efforts over their own products and those in their supply chains. Retailers increasingly require suppliers to pass formal certification of food safety and quality improvement systems (such as QS and ISO 9001). Standardized international marketing strategies on quality, value and service have helped Chinese retailers build a stronger brand image. Consumers, who often pay extra for foreign brands to get the quality and safety assurance, can increasingly find that comfort with Chinese brands. These brands will become more attractive to foreign markets as well.

Partly as result of new labor laws and a stronger regulatory environment, wage increases of up to 40 percent, more stringent compliance requirements (particularly in the areas of food security and sustainable development), and higher taxes have led to significantly higher costs. These costs are part of a modern, world-class retail sector.

The fourth is the shift to online retailing, or e-commerce. China is expected to have 700 million Internet users by 2015 – as many as in the US, India, Japan, Russia, and Indonesia combined. Last year, Chinese consumers spent 1.9 billion hours online. Seniors and rural residents are new to the Internet but are rapidly becoming active cyber-citizens.

What are they doing? Increasingly it’s shopping. Shopping is the fourth-most-popular online activity in China, and the fastest growing – 36 percent of Chinese Internet users shop, and this is expected to soon reach 50 percent. The Boston Consulting Group reports that China has 193 million online shoppers – more than the US, and five times that of the UK. By 2015, China’s e-commerce sales should match the US, and could capture 8 percent of total Chinese retail sales.

Simply put, companies cannot have a major presence in China without being online, not just to sell, but also to engage with customers where they spend so much of their time. If they are not buying, they are researching. A quarter of consumers research online before purchasing. Another 29 percent research and buy online.

Taobao’s C2C site, for example, offers more than 500 million products by more than 5 million merchants, with 50,000 sales per minute. Unlike eBay, most products sold online in China are new. Major retailers are moving online, such as Wal-Mart via Yihaodian, Gome through

Chinese companies appear to be more aggressive than their foreign rivals in embracing Internet channels. As foreign firms focus on brand loyalty, surveys suggest Chinese firms see ICT as the primary tool to win consumers, especially the important 20-40 year olds. More than 40 percent of foreign competitors had no plans to focus on online sales while 93 percent of Chinese firms already are, or soon plan to be, online.


Shops lose 88% of customers due to poor service

Despite an overwhelming preference for in-store shopping, consumers are being turned off to high street retail by low customer service levels, new research released today reveals.

In a survey conducted by customer intelligence company Market Force, electrical retailers had the lowest customer service satisfaction score of any service industry with just 2.24 per cent of shoppers left happy.

Shops lose 88% of customers due to poor service

Clothing retailers scored only 2.69 per cent, supermarkets polled 6.10 per cent, local convenience stores received 6.48 per cent backing from consumers, while department stores got the highest score of any retail business type with 9.72 per cent left satisfied.

Of those surveyed 41 per cent said that their biggest frustration with store staff is a lack of interest in their needs and wants, and despite more than three quarter of people preferring bricks and mortar shopping to online as a many as 88 per cent will leave a shop if service is poor.

Tim Ogle, CEO at Market Force Europe, commented: “Good customer service doesn’t have to be expensive. Small, inexpensive changes can have an oversize impact on whether someone buys in your shop and how much they spend.

“For example, our research shows eight out of ten shoppers want to be taken to a product when asking about its location. It’s these little gems of insight that turn a question into a sale.”

Retailers are increasingly realising that in order to make their bricks and mortar offer as compelling as their online platforms they have to improve the experience of visiting their stores.

This morning the UK’s largest retailer Tesco announced a huge recruitment drive, which in part is in reaction to a perceived drop in the supermarket chain’s service levels in recent years.

Several simple service techniques could be employed by businesses to boost trading it seems, with Market Force also finding that 59 per cent of shoppers like products to be recommended to them by staff members.

Although shoppers like to have a personal service, they also seem open to new technologies which cut out staff interaction, with 63 per cent saying they like to use self-service machine and 49 per cent in favour of contactless payments.

In a warning to retailers keen to make more transactions automated however, the research shows that 37 per cent of consumers feel they should pay less when using self-service checkouts.

Compared to other industries retail appears to be struggling to please its consumers at present, with banks (10.8 per cent), restaurants/pubs (28.3 per cent), and hotels (31.5 per cent) all scoring higher customer satisfaction levels in the Market Force survey.

Ogle added: “These findings should be a wakeup call to retailers looking for cost effective ways to grow their business.”

The small-store owner is too important, nimble and innovative to be bumped off by big-box retailers in India.

Kirana RIP? Not Yet.

The arguments for and against FDI in retail are, at a generic level, valid on both sides. However, since the devil is usually in the detail, the facts about India’s small retailers and suppliers, the conditions stipulated for FDI, and recent experience with the effects of domestic modern retail need to be viewed together before the likely outcome pronounced. The big fight is about whether this new policy will kill small shops, massively destroy livelihoods and take away GenNext’s opportunities. Facts suggest otherwise. Consider the kirana, the one most feared to be at risk. About 5-6 million of the 8 million FMCG-stocking kiranas are in rural India, and are totally safe, as the new ones can only come into the top 53 cities.

R Sriram, founder of Crossword and retail expert, tables two insights. One, in many big cities, kiranas are already not participating in the growth offered by the newer settlements like Gurgaon or Powai, because without their advantage of historically-priced real estate, they are not viable. Two, increasingly, small shopkeepers’ children are getting better educated and want to exit ‘sitting in the shop’ as soon as possible, just as small farmers’ children are exiting farming. Sadly, the country’s retail density has been increasing in recent years, not driven by passion or profit, but because of lack of options — hopefully that will change. It is true that traditional income streams of small shops in the vicinity of a large supermarket plummet; but we have seen that they soon recast their business model, exploiting the inherent advantages they have that the supermarket cannot emulate: free, prompt and no-conditions home delivery, superior and customised customer relationship management, khaata- credit and willingness to stock small quantities of something used by only a few people in their catchment — a classic ‘long-tail’ strategy. Notice two more things: even in upper-class areas in large cities, despite large retail chains in the vicinity, the small vegetable vendor and kirana continue to find a place in the household’s shopping basket. The kirana also continuously morphs, and is already moving to a more specialised and selective portfolio. We will find them variously choosing to become more of a convenience store (7-Eleven-type), or fresh-food store, a home-delivery store, maybe even express-format franchisees of large retail, and so on.

Another reality check: how much consumption capacity do even the top 50 cities have? Seriously, how many more Ikea, Zara, Walmart, Tesco and Best Buy can a Surat, Kanpur or Indore absorb, in addition to more Big Bazaar, Megamart and Croma? Further, foreign specialty retailers targeting the rich consumer will create never-before custom, and not at the expense of existing shops. Two decades ago, we had the same hue and cry that Indian brands would be wiped out; but they got better and bigger than they would have had they been left unchallenged. Now for the suppliers. Large suppliers will lose the pricing power they had with small retailers and nobody on any side of the FDI debate is grieving for them. Small suppliers, even without FDI, are being mercilessly squeezed by middlemen. The hope is that large retail chains, unlike the broker middleman, have more incentive to pay more because they have customer loyalty and a brand to build; in exchange for steady, loyal, consistent quality supply, they will pay more, guarantee offtake, improve product and production efficiency. The FDI norm of at least 30% sourcing from small scale pushes this further. Walmart potentially could kill the small suppliers of anything by importing 70% from China cheaper; but loads of small traders are already doing the same, flooding our markets with Ganesh murtis, chappals, clothes, watches, etc.

The Achilles’ heel for a lot of skilled artisans, specialised producers, grass roots innovators, etc, is market orientation and marketing. Producer collectives have managed to organise themselves on the supply side using government assistance schemes, but they struggle to manage the demand side. That is the missing link that large retailers in vendor development mode can provide, just as the auto industry has done to ancillary suppliers. Both sides agree that customers will gain because large chain retailers can provide better for cheaper, given the discounts they get through buying large quantities and sourcing smartly. Customers will also get a wider range, more innovative products and more comfortable, truthful and informed shopping environment. Poor customers won’t get discriminated against, because the hypermarket is anonymous, transactional, classless and nonjudgemental. They may not get better service because the small Indian retailer is the champion of good service, from atta to electrical, the likes of which we haven’t yet seen any big retailer match, anywhere in the world. That’s another reason why he will always survive.

Before we fight further, consider this. This network of commercially-savvy supplychain linked small retailers is an invaluable asset: as one report said, they are not ‘unorganised’ by any stretch of imagination; we agree and have refrained from using this phrase in this article! It is unlikely that Indian jugaad will let this network disintegrate. Perhaps in rural India, where they would have been more hard hit had the big-box retailers been allowed, they would have been garnered by banks as new extension counters for financial inclusion. RAMA BIJAPURKAR INDEPENDENT MARKET STRATEGY CONSULTANT

India Paves Way for Wal-Mart, Tesco to Enter Market

India approved allowing overseas companies to own as much as 51 percent of retailers selling more than one brand, paving the way for global companies such as Wal- Mart Stores Inc. (WMT) and Tesco Plc to own stores.

Overseas companies must invest at least $100 million, half of which has to be spent on developing back-end infrastructure, Commerce Minister Anand Sharma said in a statement presented to parliament today. India’s cabinet yesterday eased retail ownership rules, including permitting 100 percent foreign holding in single brand stores.

India’s decision to allow overseas ownership in retail will create up to 10 million jobs and give farmers better prices, Sharma said. Wal-Mart,Carrefour SA (CA) and Tesco (TSCO) seek to step up their presence in the world’s second-most populous nation to tap a market estimated by Business Monitor International to double to $785 billion by 2015 from $396 billion this year.

“This is possibly the most exciting thing that has happened in retail in India,” said Hemant Kalbag, who heads the consumer and retail practice for Asia at A.T. Kearney in Mumbai. “This is probably the next big wave of change in organized retail in India.”

Overseas retailers will be required to purchase at least 30 percent of goods sold in the ventures from small industries, Sharma said. Stores will be permitted only in 53 cities with a population of 1 million or more, and the government will retain the first right to buy farm products, he said.

‘Important First Step’

The government’s move is “an important first step,” Wal- Mart Asia President Scott Price said in a statement. The retailer looks forward to “playing a key role” in India.

Asia’s third-biggest economy permitted foreign retailers to own wholesale stores in 1997. Policy makers have been debating ownership rules in retail for at least seven years.

Wal-Mart has set up 14 such stores through a joint venture with billionaire Sunil Bharti Mittal’s Bharti Enterprises to gain a foothold in India, while Metro AG operates six wholesale stores. Carrefour opened its first outlet in December.

“This legal evolution should contribute to modernize Indian food supply chain and to fight against food inflation for the benefit of Indian customers,” Carrefour said in an e-mailed statement. The Boulogne-Billancourt, France-based retailer will wait for final regulations, it said.

India’s decision may prompt expansion of existing joint ventures and trigger acquisitions, said Bryan Roberts, director of retail research at Kantar Retail in London. Still, the size of the opportunity may be “overstated,” he said.

“A lot of retailers have already expanded and found that there’s not enough middle-class shoppers around at the moment,” said Roberts.

‘Win for Consumers’

India’s retail industry will get $8 billion to $10 billion in fresh investments over the next five to 10 years, Kishore Biyani, managing director ofPantaloon Retail India Ltd. (PF), said in an e-mailed statement yesterday. Pantaloon, which operates more than 150 Big Bazaar supermarketsacross 90 cities and towns, also has apparel and consumer-electronics outlets.

“It is a big win for consumers as they will have more choices,” said Biyani. “It’s a win for small industries as they will have more retailers creating markets for their products” and farmers will benefit from better prices, he said.

Pantaloon climbed 16 percent, the biggest gain since May 2009, to 233.95 rupees at the close in Mumbai trading. Shoppers Stop Ltd. (SHOP)rose 6.2 percent, and Trent Ltd. (TRENT), Tesco’s India partner, advanced 8.6 percent, the most since August 2010.

The decision to permit foreign retailers came as Prime Minister Manmohan Singh’s parliamentary ally the Trinamool Congress opposed the proposal. The main federal opposition Bharatiya Janata Party was also against the move.

Political Opposition

“Small and medium retailers, which employ a large number of people, will be affected,” Arun Jaitley, a BJP leader, said in New Delhi yesterday. “We oppose it completely.”

Overseas investment in the retail industry may help slow the pace of price gains, Reserve Bank of India Governor Duvvuri Subbarao said in the northern city of Chandigarh today. “Its important not only for raising overall growth but also important for containing inflation,” said Subbarao.

India’s food inflation accelerated 9.01 percent in the week ended Nov. 12 from a year earlier, the commerce ministry said yesterday. The rate has stayed above 9 percent for 16 weeks.

‘Licking Their Lips’

Raj Jain, president of Wal-Mart India, said in April 2010 the company can help reduce prices by improving supply chain and infrastructure to cut waste. About 40 percent of fruit and vegetables in the country rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to government estimates.

Bharti-Walmart, the local venture, buys fresh produce directly from about 1,200 farmers in Punjab, in northern India, Jain said in May.

“Foreign retailers must be licking their lips at this opportunity,” said Narayanan Ramaswamy, executive director at KPMG India, which advises retail companies. “It has to be one of the biggest opportunities in the world right now.”

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at; Malavika Sharma in New Delhi

To contact the editor responsible for this story: Frank Longid at

China’s New Protectionism.

As competition grows, Chinese authorities clamp down on foreign businesses such as Wal-Mart and Carrefour

It’s been a rough year for foreign businesses in China. In April, Anglo-Dutch consumer goods giant Unilever was fined $308,000 for publicly announcing it was considering price hikes, allegedly sparking hoarding. In July fast-food giant KFC (YUM) was pilloried in the state media for its use of powdered soybean milk, instead of the fresh variety, in outlets in Shanghai and Guangzhou. Italian luxury brand Gucci was accused of abusing employees in a Shenzhen boutique in October. All the companies apologized for the incidents, and Gucci replaced two store managers.

The real drubbing, however, has been reserved for Wal-Mart Stores (WMT) and France’s Carrefour. In January the retailers were fined for misleading pricing in 19 stores and duly apologized. Both paid fines for selling expired products in the city of Changsha earlier this month. Then regulators in Chongqing accused Wal-Mart of selling regular pork mislabeled as organic. The world’s biggest retailer was forced to temporarily shutter 13 stores, paid a $573,000 fine, and saw 37 employees detained. Two of its top China executives resigned. Again, there was a public apology.

To a growing number of business observers, the recurring humbling of Western businesses is symptomatic of a new protectionism, often emanating from local officials, aimed squarely at foreign investors across China. They say it is spurred in part by a slowing economy and cutthroat competition, which is hurting Chinese brands and prompting officials to lash out at foreign rivals in industries where mainland players have lagged. “Supermarkets are one area where the foreigners have been blowing the Chinese out of the water,” says Paul French, co-founder and director at consultancy Access Asia. “The attitude is: Why go to the effort of getting your own guys to raise their game when you can tear down a foreign guy instead?”

Tang Chuan, director of law enforcement in the Chongqing Bureau of Inspection and Enforcement, disagrees. “We are not targeting Wal-Mart,” says Tang, noting that since 2006 the U.S. retailing giant has been cited for 21 cases of selling expired or substandard food, as well as false advertising in Chongqing. “We wish to warn other retailers and purify the industry. Anyone who breaks the law, no matter foreign or domestic, big or small, will be punished.” Both Wal-Mart and Carrefour declined to be interviewed. Other foreign retailers in China, including France’s Auchan Group, Britain’s Tesco, and Germany’s Metro Group, have not been punished in cases made public.

The new protectionism stems from a broader change in Chinese attitudes: Where once localities vied for the prestige and money a big foreign investor brought, today multinationals are taken for granted. In a 2011 survey by the American Chamber of Commerce in the People’s Republic of China, almost a quarter of American companies cited “increased Chinese protectionism” as their greatest risk. “It is going to get harder to get permits, and these foreign companies won’t be as welcomed coming into important neighborhoods,” says Shaun Rein, managing director of China Market Research Group. “That’s because their capital isn’t as needed as it once was.”

Before China entered the World Trade Organization in 2001, foreign retailers as well as banks and insurance companies were banned from doing business in most cities in China. Today, such obvious restrictions are no longer an option. That’s brought about a more subtle protectionism, where state-controlled Chinese media can be counted on to make a national incident out of what otherwise might be a small infraction. While accusing retailers of violating quality rules is one common tactic, another is to fine them for “price fraud,” or not clearly marking the price of products. That’s what Wal-Mart and Carrefour were charged with by China’s National Development and Reform Commission earlier this year. “Fraudulent conducts, such as fabricating original prices and misleading customers with confused marked prices, have seriously infringed customers’ interests,” the website for state-owned China Radio International reported. Another Access Asia co-founder and director, Matthew Crabbe, says domestic companies do similar things but authorities often look away: “They have been coming down really hard on the foreign retailers. The idea that there was ever an even playing field is increasingly not true.”

One reason retailing has become ground zero for the new protectionism is that China’s $70 billion-a-year market for large grocery stores is still up for grabs. The industry, expected to double in size by 2015, is far more fragmented and regional than that in Europe or the U.S. There are more than 30 operators of hypermarkets (large food and beverage outlets that dwarf traditional Chinese stores), but few have a national presence. Wal-Mart, with 353 stores, has an 11.2 percent share, second only to the 12 percent held by France’s Auchan. The biggest local player, China Resources Enterprise, has a 9.8 percent share.

Wal-Mart didn’t help itself by selling mislabeled pork. Crises over melamine-tainted milk, exploding watermelons, and hormone-injected meats have pushed food quality concerns into the national spotlight—and into the crosshairs of politicians eager to show they’re serious about safety. “By cracking down on a high-profile foreign retailer, their message is being sent throughout the country to consumers and supply chains,” says China Market Research’s Rein. “They realize they can get the same traction by detaining a few dozen Wal-Mart people as with a national crackdown.”

The bottom line: Foreign businesses such as Wal-Mart, which was forced to temporarily close 13 stores in Chongqing, increasingly draw scrutiny in China.


Successful Brand Marketing

With an increase in trust deficit world over, here is what brand managers need to weed out of their environments to retain their brands’ trust

MARKETING’s greatest invention is the brand. In effect unheard of 100 years ago, brands and branding now march triumphant. Everything and everybody — places and destinations, political parties and social movements, people (first celebrities and politicians, now, it appears, all of us) — are brands.

Yet, aside from a few usual suspects such as Apple, in the branding heartlands, all is not well. Y&R executives John Gerzema and Ed Lebar highlighted the problem in 2008, when they reviewed longitudinal evidence from Y&R’s Brand Asset Valuator research programme. In their book The Brand Bubble, they charted a ‘precipitous’ decline in brand trust since 1993, along with sharp falls in consumer perceptions of quality, brand awareness and ‘brand esteem’.

In 1993, for example, consumers trusted 52% of the brands researchers asked them about. Fifteen years later, the figure had fallen to 25%. Gerzema and Lebar pointed out that stock markets may have been pushing up the value of brand-owning companies, but brands themselves were being ‘hollowed out’.
Then came recession. Halfway through, Promise chief executive Charles Trevail observed that “according to every survey and index on trust in institutions and organisations from around the world, trust is in terminal decline”. Even when the recession was supposed to be lifting, Alterian chief executive David Eldridge commented on his company’s latest research: “Consumer trust is at an all-time low.”

So what’s the problem? How can brands and branding be so successful, yet so sickly at the same time? The answer may lie with the occupational diseases of brand management — diseases that are generated by the daily working lives of brand managers.

Brand management as ‘mask management’ is the most common of such diseases. Because brands are all about external communication, many brand managers find it hard to resist the temptation to paint ‘lipstick on the gorilla’ — telling customers what the brand manager knows they would like to hear, rather than keeping to the truth of what the organisation can, or actually intends to, deliver.

In reality, the most important part of the brand manager’s job is one of internalisation: bringing customer views and perceptions from outside the organisation inside, so that the organisation understands, responds and resonates to customers’ changing demands. Yet, activity-wise, the minute-by-minute focus of the day job is external communication. When changing the external message is easy (and fun) and changing the organisation inside is hard (and painful), the lures of lipstick-on-the-gorilla mask management can become irresistible. In fact, they can even be dressed up as a new theory. Remember when we were told that punters didn’t buy the beer, but its advertising? Remember George, the Hofmeister bear?

Next on the list is brand hubris. Not long ago, it was fashionable among brand consultants to show their clients a chart depicting the relative prices of different T-shirts. Some sold for a fiver or less, while branded ones were at least £50. “Which T-shirt do you want to be?” the consultants would ask. The difference between being able to charge £5 and £50 lies in “branding”, they would say. “We can help you become experts at ‘branding’.”

Well, they may have been experts at branding, but they were dunces at economics. If you sell 1000 T-shirts for £5 with a £1 margin, you make £1000 profit. If you sell 10 for £50 with a £48 margin, you make £480 profit. By implying that the supply/demand curve could be ‘branded’ away, these consultants were usually doing their clients a real disservice. While they were doing the rounds with their presentations on ‘branding’, full of impressive words such as ‘intangibles’, the brand that romped it on the high street was Primark.

That is not to say that discounting is always the best strategy. Rather, it is to challenge the widespread belief that it’s the ‘extra stuff on top’ — the stuff added by ‘branding’ — that is the source of brands’ margins and profits. The fact is that, apart from some special cases such as luxury goods, if you look at most successful brands — such as Amazon, Apple, Dell, easyJet, Facebook, Google, IKEA, Nike, Starbucks, Tesco, Toyota, Virgin and Wal-Mart — what marks them out is not superb ‘branding’ (sometimes it’s superb, but very often it’s not) but that they deliver outstanding customer value, often via breakthrough innovations, technology and/or underlying business models.
‘Branding’ alone hardly ever makes a business successful. It is businesses, including their culture and ethos, that make brands successful. And as soon as the business drops the ball on innovation, service, quality or price, or forgets its cultural roots, the brand quickly loses its lustre.

Brand narcissism is our third, closely related, occupational disease. Brand narcissism works on two levels. At the first, every brand manager desperately wants their target audience to recognise their brand, love it and be loyal to it by, for example, acting as an unpaid yet enthusiastic brand advocate.
There is nothing wrong with these dreams per se. They are natural. What is wrong is when we morph the wish into a ‘strategy’ of ‘success by being popular’ — where getting people to talk about and ‘love’ the brand becomes an end in itself, pretty much divorced from the value it’s supposed to be delivering.

The second level of this brand narcissism, which is even more dangerous, is where the brand manager forgets the underlying purpose of the brand and starts acting as if it’s the job of the customer to add value to the brand (by paying a price premium or being its advocate, for example), rather than the job of the brand to add value to the customer.

An obvious point, perhaps, but it can be difficult to remember in a world where your every passing thought, and key performance indicator, is about how well-remembered you are, how preferred you are, or how many people are talking about you.

Our final occupational disease is toolkit myopia. Brand managers are surrounded by a dizzying array of sophisticated tools and techniques for research, testing, data-gathering and evaluation. They are on an endless quest for the breakthrough insight and the sparkling creativity. It’s difficult to master all these things and the quest easily becomes obsessive. So much so, that it soon seems as if excellence at these diverse technicalities lies at the heart of successful branding — when it is not.

You can, for example, use exactly the same technical toolkit, excellence, to build a brand that perfectly communicates a brand’s unique value.
And to hide the fact that the brand is nothing more than a me-too mediocrity. You can use technical excellence to articulate specialness and hide sameness, but content-wise, they are opposites, having an opposite meaning to the customer.

The one thing that branding as mask management, brand hubris, brand narcissism and toolkit myopia have in common is that they destroy trust. They are potentially catastrophic mistakes, yet they are in the air brand managers breathe, growing naturally in their working environment. So they have to be combated on a daily basis.

How? What’s the antidote? To remember that a brand’s real job is to build trust, and that everything the brand does must be tested against this yardstick. It’s this simple human understanding that successful brand managers never let anyone forget.

A winning recipe for growth in food retail?

Planet Retail’s Robert Gregory outlines the trends dominating the global grocery market

The global economic downturn has had a significant impact on the retail sector – albeit to a lesser extent on the grocers, due to the fact that food remains a non-discretionary purchase.

Nonetheless, grocery retailers have primarily responded to the downturn in two ways:

  1. Promoting value through the expansion of discount stores, economy ranges, price investments and increased promotions.
  2. Reducing costs and preserving cash by slowing growth plans and making staff redundant.

Over the next five years, Planet Retail forecasts the Top 30 to grow sales through grocery formats at a compounded annual growth rate (CAGR) of 5.2 per cent, compared with the 10.8 per cent recorded for the previous five years.

Store numbers, meanwhile, are expected to rise at a CAGR of 3.5 per cent, reflecting the fact that a slowdown in expansion will see retailers focusing on their most profitable existing stores.

Discount and small formats to the fore

One of the winning formats for the Top 30 will be the discount channel, which is expected to add $71bn in sales over the next five years. Driven by retailers such as Aldi and Schwarz Group, the no-frills format continues to attract cash-strapped consumers both in developed and emerging markets. By 2013, the Top 30 retailers operating in the discount segment are poised to open an additional 12,600 stores.

Discount stores are just one of the smaller store formats doing well. Retailers are increasingly likely to focus their efforts on small-box stores, given that they require less capital both to build and operate. In fact, stores less than 26,910 sq ft are poised to grow their store network by 4.1 per cent over the next five years compared with just 2.2 per cent for the large hypermarkets.

Also, in the long run, the outlook is positive for proximity retailing as demographic changes mean that there will be more single households combined with lower incomes (because of a higher share of pensioners) and less widespread car ownership.

This is especially the case in the US, where Tesco’s entry has sparked a series of reactive pilots, the most notable being Wal-Mart’s Marketside format, the retailer’s first new concept in the US in a decade. It is too early to say whether small-box will change the face of grocery retailing in the US, as this type of format caters to a very different shopping mode (high frequency/low spend), assortment (greater emphasis on fresh, private labels) and consequently calls for more frequent distribution.

As well as requiring relatively high investment, hypermarkets and superstores, despite being the backbone of many retailers’ strategies, are faced with a lack of available sites, increasingly prohibitive regulations, and a high degree of retail maturity in developed markets such as Western Europe and North America.

However, in the future, the channel will find more fertile grounds for growth in the developing markets of Asia and Latin America. Retail giants such as Auchan, Tesco, Carrefour and Wal-Mart still want to expand their hypermarket presence in markets such as China.

That said, the fact that such retailers are experimenting with smaller formats in these regions (eg, Tesco Express and Wal-Mart’s Smart Choice) suggests they are already planning for the increasing saturation in the large store sector in the emerging markets.

Indeed, internationalisation will continue to be a key trend, with the world’s largest grocers continuing (and in some cases increasing) their investment and commitment overseas. For many, such as Tesco and Carrefour, reducing their reliance on saturated home markets is part of a long-term strategy that will involve them looking beyond the present economic climate to years, if not decades, ahead.

With this in mind, markets such as India – where market entry by the world’s largest retailers is imminent – and Vietnam assume an even greater importance.

Multichannel, single-brand

Another key trend is the move towards multichannel/single brand. Carrefour’s conversion of its French store base to trade under the eponymous Carrefour name should help to strengthen the brand and create buying synergies across its supply chain and via its marketing campaigns. The retailer’s recent announcement that it is to replace its existing No. 1 economy private-label range with the new Carrefour Discount brand is all part of this approach. It is likely that future conversions will occur – particularly in Europe, where operating multiple formats is commonplace.

Private labels set for renewed focus

Against a background of tightening consumer spending, private labels are set for strong growth in almost all markets and for virtually all retailers.

Like discounters, the growth of private labels is nothing new. However, as economies weaken and consumer confidence dips, we are seeing accelerated growth in this arena. The trend is not just confined to the more mature markets either. While private label penetration is presently lower in emerging markets such as India, Brazil and Mexico, these countries are poised for the fastest growth in the coming years.

Also worth highlighting is the sophisticated positioning of own-label products emerging from some retailers, much to the dismay of many brand manufacturers. Retailers are cherry-picking consumers at both ends of the market by developing their economy ranges as well as premium lines.

One such example of a shift in strategy is Tesco’s new Discounter brand. Representing a shift away from the traditional three-tier strategy, Tesco is launching its first labels without the Tesco brand in order to fight German discounters Aldi and Lidl.

The growth of private labels represents a huge threat to the brands that have to compete, not just in terms of price but also for less shelf and promotional space.

With this in mind, Wal-Mart’s recently revamped, expanded and relaunched Great Value private label offering is sure to send a shiver down the backs of both major food and drink manufacturers and competing retailers in the US. With price differentials of up to 20 per cent over national brands and with a stylish new look, this might be the most significant makeover in the US retail sector in recent years, with significant long term impacts.

Is price here to stay?

The big question is what will the retail landscape look like when economic conditions improve? Certainly, some trends such as internationalisation will remain as important as ever as retailers are looking at the long-term picture in such cases.

But, what of the current popularity of discounters and private labels? In both cases, evidence suggests they will continue to grow – albeit at much lower levels than what we are seeing at present.

The past two decades have seen ongoing growth of discounting and private labels globally, even when economic conditions have improved. With many consumers stepping foot inside a discount store or switching from a brand to a cheaper private label for the first time, such recently formed shopping habits may prove to be difficult to break.

Robert Gregory is retail analyst at Planet Retail.

Why Wal-Mart’s First India Store Isn’t A Wal-Mart.

After years of controversy and opposition from local retailers, Wal-Mart this month is poised to open its first store in India, launching an expansion that will include 10 more big-box outlets in the potentially vast Indian market over the next two years.

But Indian consumers won’t be able to partake of Wal-Mart’s everyday low prices. India’s restrictive commercial laws prohibit most foreign companies from setting up shop to compete with domestic retailers. So Wal-Mart’s debut outlet, which will open in the city of Amritsar in northern India later this month, is a wholesale-only operation that will sell mainly to vegetable vendors, hospitals, hotels, restaurants and other companies. The Amritsar outlet won’t even carry the familiar Wal-Mart brand. To deflect the attention of politicians and activists who oppose the entry of foreign multi-brand retailers, the Little Rock, Ark., company has named its Indian outlets BestPrice Modern Wholesale.

Despite the stealth approach, industry experts expect Wal-Mart, known for squeezing efficiencies out of suppliers and supply chains, to have an impact on India’s $375 billion retail market, which is dominated by mom-and-pop businesses and outmoded distribution networks. “We can learn the science of retailing, how to build scale and efficiencies,” says Kishore Biyani, chairman of Pantaloon Retail, India’s largest homegrown retailer with 114 hypermarkets.

The world’s largest retailer isn’t new to India. For the past decade, the country has been an important Wal-Mart supplier of textiles, apparel, home products and jewelry. But in anticipation of its India launch, Wal-Mart for the last three years has been developing a network of suppliers to stock its stores with fresh produce and staples like lentils, wheat and rice — all with an appreciation for variations in local cultures and tastes. “India is not a homogenous market, so ours is not a cookie-cutter approach from the U.S.,” says Raj Jain, president of Wal-Mart India.

Although it is restricted to wholesale operations in its wholly owned stores, Wal-Mart has a small retail presence in India through a fledgling joint venture with New Delhi-based Bharti Enterprises. The U.S. company provides back-end support for Bharti’s chain of 25 Easy Day grocery stores that opened last year.

Although other foreign hypermarket chains are entering the country — British retail group Tesco has a joint venture with India’s giant Tata conglomerate, while France’s Carrefour is said to be in talks with Reliance — Jain says Wal-Mart is in no hurry to unfurl the Wal-Mart flag nationally. “The easiest thing is to roll out stores, but the most difficult is to sustain and feed them,” he says.

Indeed, Indian mass-merchandisers over the last several years expanded frenetically, trying to get a jump on foreign chains should Indian politicians eventually decide to open up the market to direct competition from overseas. Reliance Industries built 940 stores across the country in 18 months. Aditya Birla group has opened 548 stores since 2007. Today, with India’s economy slowing and with losses piling up, the domestic retailers have shut some outlets and laid off employees, partly because of difficulties in keeping large chains supplied with goods. “When you start opening stores and then work backwards, even we get scared,” says Mahadeo Pawar, a vegetable grower from Karjat, 31 miles (50 kms) north of Mumbai.

Caution in India may be a watchword considering the global recession and Wal-Mart’s blemished track record overseas. In 2006, the company pulled out of Germany and South Korea in the face of stiff competition and poor sales. Still, Wal-Mart has been weathering the economic crisis better than most. The company on May 14 announced it earned $3.02 billion in the three months ended April 30, about equal to the profit it made in the same period in 2008. Revenue fell 0.6% to $93.47 billion from $94.04 billion a year earlier. Highlighting the growing importance of markets such as India, nearly one-fourth of Wal-Mart’s sales for the quarter — 22.7% — came from its international division.

Tesco to roll out pharmacies in smaller-format superstores.

Tesco is to roll out pharmacies in its smaller-format superstores following a trial last year as it seeks to reach its target of 350 within the next three years.

Tesco opened an 800 sq ft pharmacy at its Harlow store in Essex – about a third smaller than its traditional pharmacies – in its last financial year and has earmarked a further 30 locations for roll-out this year.

Ashley Hicks, category director for healthcare at Tesco, said: “We wanted to get our pharmacies into more locations, so trialled it in one of our smaller superstores in Harlow and it’s worked really well.”

He added: “The smaller format has had its design squeezed and a slightly smaller range, but it still has a private consultation room.”

Hicks said Tesco recorded its “biggest ever year” for pharmacy in its full-year results, announced last week. He said the category now attracts 500,000 customers a week, prescriptions are up 10 per cent year on year and it is 9 per cent ahead in volume.

“We are very pleased with how we are progressing and customers like the convenience and services we provide,” said Hicks. “Customers can pick up their prescriptions while they are doing their food shopping, which is a clear benefit.”

At present Tesco has 270 pharmacies in the UK and Northern Ireland. Hicks also said pharmacies could be rolled out internationally in the long term. “Terry [Leahy, chief executive] asked me about international but it’s not in our short-term plan,” Hicks said. “The regulation is very different – but we will keep it on the long-term plan and not rule anything out.”

He added: “We believe our offer is as good as that of a traditional player like Boots. They offer a number of other private services but in terms of core NHS services, we also offer the same.”

Hicks said that Tesco will add new services to its pharmacy offer later this year. It launched its Health Check in January and has cut the cost of the service from £20 to £10 and will roll-out flu vaccinations to more stores this winter.

Chinese Retailers Listed In Top 100 Retailers Worldwide.

After rated among the world’s top 250 retailers in 2008, Chinese retailers, including Gome, Bailian Group, Suning, and Dashang, were again entered on the list this year, with their average ratings up 71 places.

Published by one of the world’s largest accounting firms Deloitte and the authoritative U.S. retail magazine Stores, the list provided the 2009 edition of the top 250 retailers in the world. According to the list, the worldwide retail industry was affected by the global financial crisis, with the impact on the United States, Britain, and Japan being the most obvious. But retail markets in Russia, South Korea, and China still had good performances, with two Russian retailers and four Chinese retailers climbing rapidly in the list.

Statistics showed that four Chinese retailers were included in the top 250 retailers in 2008. Apart from the Shanghai-based Bailian Group which sat at the 101 place, the other three, Gome, Suning, and Dalian Dashang Group, were all out of the top 200.

In the 2009 edition, Chinese electronics retailer Gome was up 155 places from 218th to the 63rd; Chinese electronics retailer Suning up 63 places from 216th to 152nd; Shanghai Bailian Group up 10 places to the 91st; and Dalian Dashang Group up 57 places to 167th.

In addition, the U.S. retail giant Wal-Mart still held the first place in the list, followed by French Carrefour, and the in third to the fifth places were Tesco from Britain, Metro from Germany, and Home Depot from the United States.

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