International expansion and strategies of discount grocery retailers

Introduction
International expansion
and strategies of
discount grocery
retailers: the winning
models
Discount food retailing has experienced
considerable expansion over the last ten years
and currently occupies an important position
in the European retail industry. However, a
certain number of discount retailers have had
to abandon the market over the same period,
while others have obtained good results both
in their domestic markets and abroad.
The purpose of this article is to illustrate the
determining reasons behind the success or
failure of discount retailers on the
international scene through the identification
and analysis of the various strategic groups,
competitive advantages, entry barriers to the
sector and barriers to mobility between the
groups.
These concepts, well documented in
general business strategy literature (Porter,
1980, 1985), have not been used very often in
the analysis of the retail distribution sector,
particularly at the international level (Burt,
2002). This article takes into consideration
this literature and, concerning the data used,
this is essentially based on documentary
research that took in the main trade
magazines and professional journals, as well
as published surveys and studies of the sector
and analysis of individual companies. During
the course of research, the author extended
research to company documents, balance
sheets and activity reports, and also
interviewed company executives whose
contributions enabled a better identification
of the groups and individual company
strategies and the elaboration of the
hypotheses put forward in this article.
Enrico Colla
The author
Enrico Colla is Professor and Research Dean at
NEGOCIA, Paris, France.
Keywords
Internationalization, Strategy, Grocery, Retailing,
Competitive advantage, Diversification
Abstract
Illustrates the reasons that have determined the success
or failure of the discount retailers on the international
scene, through the identification and analysis of the
strategic groups, competitive advantages, entry barriers to
the sector and barriers to mobility between the groups.
Three strategic groups of discount food retailers that have
adopted different internationalisation strategies have
been defined and a series of key success factors of the
different strategic groups has been identified. The winners
in the race to international expansion are in particular the
leaders of the first group of German hard discount
retailers. But important niches in several foreign markets
can also enable growth of retailers in the second group,
the German soft discount retailers specialised abroad, and
of the third group, the French soft discount retailers
diversified abroad.
Discount food retailing in Europe
Electronic access
Discount food retailing in 2000 was present in
all European countries with 29,747 stores
trading under 72 names and with a market
share of 14.9 per cent of food sales. Market
share ranges from 4.2 per cent in Greece to
42.9 per cent in Norway (see Table I).
From 1995 to 2000, this retailing business
format experienced slow growth in Europe in
terms of market share; it has, however,
increased in the majority of countries, with
the sole exceptions of Italy, Switzerland and
the UK.
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International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . pp. 55-66
# MCB UP Limited . ISSN 0959-0552
DOI 10.1108/09590550310457845
55
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
Table I Market share of discount food retailing in Europe
Norway
Germany
Belgium
Denmark
Austria
Sweden
The Netherlands
Finland
Spain
Portugal
United Kingdom
France
Switzerland
Italy
Greece
Total
Table III Discount retailers without outlets abroad (by number of outlets
in 2000)
Market
share 1995
(%)
Market
share 2000
(%)
No. of
stores
Leader
38.3
29.5
24.7
20.0
16.5
11.0
12.2
10.7
6.5
6.1
11.3
6.4
8.6
9.7
1.6
13.6
42.9
32.6
27.8
22.0
21.8
15.2
14.1
11.2
9.5
9.5
8.2
7.9
7.9
6.7
4.2
14.9
1,380
13,081
815
859
777
328
797
855
2,865
420
1,290
2,622
777
2,620
225
29,747
Rimi
Aldi
Aldi
Netto
Hofer
Rimi
Aldi
Siwa
Dia
Minipreço
Kwik Save
Lidl
Denner
Lidl
Dia
Aldi
Name
Group and country of
origin
Kwik Save (9)
Denner (10)
Siwa (11)
Ed (12)
Euro Spin (15)
Zielkpunt (17)
CDM (18)
NP Market (19)
Sosty (21)
Kiwi (22)
Le Mutant (23)
In’s Discount (24)
Mondo (25)
Somerfield ± UK
Denner ± Switzerland
Tradeka ± Finland
Carrefour ± France
Italy
LoÈwa ± Austria
Intermarche ± France
Edeka ± Germany
Interdis ± Italy
Johansonn ± Norway
Coop ± France
Pam ± Italy
BML ± Austria
No. of
outlets
1995
No. of
outlets
2000
976
393
434
423
140
N/A
214
180
260
82
199
N/A
154
500
497
421
419
308
293
243
239
234
230
215
207
191
Note: The figures in brackets indicate the relative position of the brands
in terms of number of outlets in 2000
Source: AC Nielsen in Reidiboym (2001)
Source: AC Nielsen in Reidiboym (2001)
Structure of the sector and international
presence
The sector is relatively concentrated and a
mere eight names account for 70 per cent of
the stores. If one considers only the 25 biggest
names, all of which own at least 200 stores
(with the sole exception of Leader Price), 12
of them have outlets abroad and the top eight
are also the European market leaders (see
Table II), whereas the other 12 are only
present in their respective domestic markets
(see Table III).
This data demonstrate that the biggest firms
are present in the largest number of foreign
countries, confirming the existence of a
relationship between the size of the firm and
its international exposure.
Presence abroad seems also to depend on
the specialisation or diversification of the
group to which the discount retailer belongs.
If one compares the discounters in the light of
the extent of their international presence and
of the diversification of the group to which
they belong, one observes that the discounters
present in several countries belong to
Table II Discount food retailers with outlets abroad in 2000 (by number of outlets in 2000)
Trading name
Group and country of origin
Aldi (1)
Lidl (2)
Plus (3)
Dia (4)
Penny (5)
Netto (6)
Aldi ± Germany
Lidl & Schwarz ± Germany
Tengelmann ± Germany
Carrefour ± France
Rewe ± Germany
Dansk Supermarket ± Denmark
Spar AG ± Germany
Norma ± Germany
ICA AB-Svezia (Ahold)
Reitan ± Norway
Casino ± France
Coop ± Norway
Coop ± Denmark
Norma (7)
Rimi (8)
Rema 1000 (13)
Leader Price (14)
Prix (16)
Facta (20)
No. of
countries
No. of outlets
1995
No. of outlets
2000
8
11
3
4
3
3
4,171
2,194
2,662
1,906
2,225
880
5,246
3,927
2,950
2,816
2,537
1,397
2
3
3
2
3
2
1,046
472
286
189
230
262
1,270
666
370
333
299
234
Note: The figures in brackets indicate the relative position of the brands in terms of number of outlets in 2000
Source: AC Nielsen in Reidiboym (2001)
56
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
specialised, or relatively undiversified groups,
whereas the purely national retailing store
brands belong to highly diversified groups.
Inter-format synergies seem to be more
significant in domestic markets than at the
international level.
Furthermore, no hard discount retailer is
limited to mere national presence (one
exception was CDM – of the French
Intermarché group – which, facing huge
losses, recently changed store name adopting
Netto fascia) whereas many soft discounters
limit themselves to purely domestic
expansion. International development is
therefore a strategic option that appears to
impose itself on retailers in hard discount
more than in soft discount.
Strategic groups in international
discount retailing
We can now proceed to segment the 13
discount retailing brand names present
abroad, (the 12 in Table II to which we have
added Colruyt), using the concepts of strategic
groups and strategic dimension (Porter, 1980,
1985). The two dimensions retained are the
format, hard and soft discount – also called
discount supermarket (see Burt and Sparks,
1994) and the degree of diversification of the
parent company (see Table IV). Hard and soft
discount are defined by the amplitude and
breadth of choice of the products carried (less
than 1,000 SKUs in hard discount and three
times more in soft discount), the position in
terms of costs (much lower in hard discount),
pricing levels and value for money (hard
discount is more competitive than soft
discount), the roles of the retailing brand
names (in the hard discount the percentage of
exclusive private labels exceeds 90 per cent,
whereas in soft discount it only accounts for 50
per cent). For a more elaborate definition of
hard and soft discount (see Colla, 1997; Colla
and Dupuis, 1997).
The three winning business models
Among the retailing brand names thus
segmented, three strategic groups stand out
(see Table V): that of firms specialised in hard
discount (Aldi, Norma, Lidl and Netto), soft
discount retailers belonging to diversified
national groups (Penny, belonging to Rewe,
and Plus, belonging to Tengelmann) but
specialised abroad, and finally the discounters
belonging to large groups diversified not only
on the domestic market, but also abroad (Dia,
belonging to Carrefour and Leader Price
belonging to Casino).
These three strategic groups have a varied
international presence and somewhat
different key success factors.
Purchasing power and experience in own
label management are important factors of
success for all discounters, the former being
the most important for retailers from the first
group. While the retailers in the first and
second groups resort to use of numerous
private brands, generally one per product line,
those in the third group exclusively use their
own brand.
By contrast, expertise in fresh produce is
superior among retailers in the second and
Table IV Segmentation of discount retailers (DR) present on the international scene
Hard
discount
Soft
discount
DR belonging to specialised
groups
DR belonging to groups with
low foreign diversification
DR belonging to highly
diversified groups abroad
Aldi (10/2,750)
Norma (2/137)
Netto ± Dansk and ITM a (3/348)
Rema 1000 ± Reitan (7/326)
Colruyt (1/10)
Prix (3/299)
Facta (2/234)
Lidl (14/1,745)
Treff/E-Delta ± Edeka/AVA (4/124)
Penny ± Rewe (6/665)
Plus ± Tengelmann d (5/788)
Rimi/Ica AB (1/500)
Leader P. ± Casino b (2/213)
Dia ± Carrefour c (5/3092)
Notes: In brackets: the number of foreign countries and the number of stores abroad in 2001
a
Dansk Supermarkets is the owner of Netto stores in Denmark, the UK and Poland, whereas Netto network in
Germany has been the property of ITM since the buyout of Spar Handels (1997). Therefore we still consider this
store-name as being of Danish origin; b Of which 150 Barateiro in Brazil, in partnership with PaÄo de AzuÂçar;
c
Of which 277 Minipreço in Portugal, in Partnership with Sonae; d In Austria the fascia of the discount stores of
Tengelmann is Zielpunkt
Source: Derived by Enrico Colla from data provided in Food Business News, October 2002
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International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
Table V The three strategic groups of retailers in international discount
Hard discount specialised firms
Aldi, Lidla , Nettob , Norma
Very limited assortment
Dominant own labels
Mono-format
Global concept
International purchasing power
No inter-format synergies
Strong international presence
Leaders on domestic and foreign
markets
Soft discount groups specialised
abroad
Plus, Penny, Rema 1000
Larger choice (particularly of fresh
produce)
Strong own labels
Part of a multi-format national group
Concept partially adapted to foreign
markets
Purchasing power by country
No inter-format synergies on foreign
markets
Limited international presence
Followers on domestic and foreign
markets
Soft discount diversified groups
Dia, Leader Price
Larger choice (particularly of fresh
produce)
Strong own brand
Belongs to a group with multiple
format abroad
Concept partially adapted to foreign
market
Purchasing power by country
High level of managerial synergies
abroad
Strong international presence of the
group
Followers on domestic market and
pioneers on some foreign markets
Notes: aLidl & Schwartz also own a number of hypermarkets; bDansks Supermarket (Netto’s parent company) also
owns, but exclusively in Denmark, a substantial network of supermarkets
third groups, who carry a wider and more
diverse range of this family of products.
Finally, retailers in the third strategic group
benefit from sales and purchasing synergies
with the other retailing formats belonging to
the same group which owns a multi-format
network abroad.
The strategies adopted abroad demonstrate
a link with the characteristics of the formats
and expertise of the discounters: the more
limited and restricted assortment enables
more substantial globalisation of the range of
products offered by retailers in the first group
and enables them to secure bigger reductions
in international purchasing costs than those
secured by other groups. However, the third
group benefits from inter-format synergies,
both in terms of purchasing and in the
marketing of the brand (and store name).
Retailers of the first group are leaders in
discount food retailing in their domestic
markets holding substantial market share.
They are present abroad in most countries,
and with a larger proportion of market share,
and their rate of international expansion over
the past years has been higher in terms of
number of stores than penetration into new
countries.
Discounters in the third group, followers in
their domestic markets like those in the
second group, benefit from managerial
synergies abroad, which enable them to
penetrate some new markets more easily.
58
The importance of purchasing volume of
private label products in discount
retailing
The importance of sales and purchasing
volumes in discount retailing has been
underlined by analysts of the format (see
Colla, 1997; Colla and Dupuis, 1997). The
major difference in prices compared to
supermarkets and hypermarkets – from 15 per
cent to 30 per cent – for products of
comparable quality, is the main competitive
advantage and the principal criterion of
choice of this formula (see Colla, 1994). The
low prices are made possible by the
purchasing of large volumes of exclusive
products without any manufacturers’
proprietary brand name. The producers do
not pay for the communication and marketing
costs of these products and are also able to
reduce their manufacturing costs and
overheads. Thanks to large production
volumes and the intensive utilisation of
production equipment, they operate on net
margins that are lower than those of the
leading brands but, due to the high turnover
of investments, their profitability remains
perfectly satisfactory.
This special relationship between industry
and retailing is similar to the ‘‘comakership’’
relationship between manufacturers and their
suppliers of raw materials or components
(Lugli, 1993). It also enables a lightening of
what are termed interface costs – in selling
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
and logistics – between producers and
retailers.
Therefore, through the modification of the
vertical linkages, hard discount brings about a
complete overhaul of the value chain from
producer to retailer (Porter, 1985). The
co-ordinated management of certain activities
(logistics, sales) is optimised, others are
transferred – with a major reduction in costs –
from the supplier’s value chain to that of the
retailer. The balance of power in the channel
of distribution has tilted in favour of the
retailer (see Coughlan et al., 2001), who
decides on the characteristics of the products
and chooses suppliers in terms of their
performance in the pursuit of his objectives.
The latter are generally dependent on the
former, but they reap sufficient rewards to
accept this kind of relationship.
Hard discounters therefore, carry a range of
products that are of slightly inferior quality to
the leading industrial brands, but at a
substantially lower price. The greater the
percentage of such products (almost the
entire assortment for Aldi and Lidl), the more
competitive the price. Furthermore, all
management costs and investment costs are
reduced to a minimum and the huge turnover
of capital secures good profitability, in spite of
low gross margins. Therefore, these firms
have introduced innovations (Dupuis, 1998)
not only at the point of sale (easier to imitate
by their competitors), but also in the vertical
relationships in the value chain (harder to
imitate).
The competitive advantage over
competitors, in terms of purchasing is linked
to purchasing volumes by product line more
than to the overall size of the company (Filser,
1998).
In the French example (see Table VI), one
observes that the low number of players in
hard discount enables those present, in a
sector that in France accounts for around 9
per cent of market share, to benefit from
purchasing volumes per product line that are
three to four times higher than those of classic
supermarkets (which in France account for 36
per cent of the market).
A hard discount retailer should have a
market share of at least a quarter of that of a
rival supermarket to maintain the advantage
in terms of cost and price cited in the
example. In a European country where the
leading supermarket chain has a market share
in excess of 16 per cent (e.g. Tesco in the UK
59
and Intermarché in France), the discount
retailer will have a competitive advantage of
this order with a market share of 4 per cent in
the food sector. To achieve a market share of
this magnitude in these two countries, one
needs at least 1,000 stores. Only Lidl is in this
position in France. The importance for
retailers of this factor of competitiveness is
particularly marked at the national level in
each of the countries in which they are
present, where pooled international purchases
are of a lesser size. It is, however, more
significant in hard discount, because of the
limited number of products and the
concentration in groceries and beverages (less
fresh produce), making standardisation of the
assortment more common at the international
level.
Competitive advantages of hard
discount and defensive strategies of
their competitors on a national scale
These considerations explain the partial
failure or serious difficulties faced by soft
discount retailers already present in countries
where hard discount retailing has made
inroads (e.g. Kwik-Save in the UK).
But purchasing volume and the experience
acquired in supplier relationship management
by retailers in the first group, being hard to
imitate, also created entry barriers for other
formats (‘‘classic’’ supermarkets and
hypermarkets) and barriers to mobility
(Porter, 1980) for firms from other strategic
groups willing to enter the hard discount food
retailing business.
The existence of these entry barriers has not
always been perceived by the competitors,
who opened a certain number of stores and
gained market share at the regional level in
the short term, but subsequently had to quit
the market or change their strategy,
abandoning the hard discount business.
Those options confronted numerous
discount retailing brands that certain leading
national retailers (e.g. Intermarché in France,
Coop in Italy and Asda in the UK) who saw
fit to develop when the German hard discount
retailers appeared on the scene in their
countries in the early 1990s (Colla, 1997).
These retailers often work on developing the
benefits of location and purchasing synergies,
aided by their access to vast networks of stores
of other retailing formats, their knowledge of
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
Table VI Comparison of hard discount (HD) and supermarket (SM) in France (2000)
General consumer products + selfservice fresh produce
General consumer products department
Pharmacy sector
Beverages sector
Hygiene, health and beauty care sector
Self-service fresh produce department
Chilled foods sector
Frozen foods sector
No. of skus in
HD stores
No. of skus
in SM stores
Turnover/sku
in HD stores
(FRF)
Turnover/sku
in SM stores
(FRF)
1,200
885
568
126
191
315
212
103
8,164
6,529
3,591
790
2,148
1,635
1,172
464
267
225
186
462
185
385
459
234
72
60
63
126
47
120
141
66
Note: Sku = Stock keeping unit
Source: AC Nielsen in Le HeÂnaff (2001)
suppliers and their experience in private
brand management, acquired during the
development of their own brands. These
synergies were valuable in the short term and
at the regional level, but insufficient in the
long term and at the national level, when the
volume/costs/price advantage of the German
hard discount retailers started to gain ground
with their gains in market share. In France,
for example, the national discount retailers,
after a period of strong growth from 1991 to
1994, began to reduce the number of new
stores opened and to lose market share
(INSEE, 2001).
Furthermore, the defensive strategy of the
national players hardly ever transformed itself
into a strategy of international expansion,
confirming the defensive nature of their
approach and the competitive weakness of
their store concepts. No less than 32 discount
retail chains in Europe had to cease trading,
in the last five years alone, of which 25 in soft
discount and only seven in hard discount
(Dial in Belgium, Larc, Eda, Dia in France,
Tip in Germany, Prijs-slag in The
Netherlands and Billi in Switzerland). Among
the former, a significant number were
comprised of retailing brands created for
‘‘defensive’’ reasons, in the UK (Food Giant,
Crazy Prices, Pioneer, Dales, Discount Giant,
Norman’s, Solo), in Austria (Top Diskont,
Famila, Meinl-Jeee), in Finland (SäästariValtti-Rabatti), in Portugal (Mini-Preço), in
Spain (Superdescuento). Others tried to
penetrate certain countries, but were
unsuccessful when faced with local
competition and the inability to reach the
breakeven point rapidly (Dia, ED, Tip and
Plus in Italy, Penny Market in Spain, Rema
60
1000 in Sweden). After a phase of growth that
lasted until 1996-1997, when they went from
78 (1991) to 115, the number of operators in
the discount retailing sector diminished over
the following years to return to 104 in 2001.
Indeed, no new retailer has managed to break
into this group on an international level with
the sole exception of Netto, whose success
was in any event somewhat mitigated
(Bennison and Gardner, 1995).
Mobility barriers also appear to be high
towards the third strategic group. Mobility
into this group is available only to firms that
already have a substantial network abroad, or
that have (and are ready to invest) very
substantial financial resources; needed to
acquire (in the short term) or to develop (in
the medium and long term) a multiple-format
international network. Moreover, the multiformat portfolio has to be food oriented,
discount oriented and the firm has to have
some experience on small proximity format.
Not so many groups have these characteristics
and, apart from Carrefour and Casino, there
are no other successful examples, until now,
of that strategy. The international
diversification efforts of Rewe and
Tengelmann have not yielded very positive
results and Plus and Penny remain their only
retail brands to have succeeded abroad.
On the contrary, international
diversification is not an objective for retailers
in the first group of hard discounters. It is
certainly not one of Aldi’s objectives, who
consider that they have plenty of
opportunities to exploit with their format. By
contrast, Lidl has a hypermarket concept that
they have exported to the Czech Republic and
to Slovakia. But theirs appears to be an
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
opportunist strategy of acquisition of
locations, rather than one of genuine, longterm strategy of diversification.
Presence abroad, international growth
and globalisation of the business model
The stronger competitive advantages of the
firms of the first group mainly explains the
higher levels of performance in international
growth of the leading store names in this
group.
Retailers in the first group (specialised hard
discount) are present in a larger number of
foreign countries and have occupied more
important positions for longer (see Table II).
This successful aggressive internationalisation
(Treadgold, 1997) appears to confirm the
increasingly global aspect of their business
model (Salmon and Tordjman, 1989). Their
recent international growth is henceforth
greater in terms of market penetration rather
than market development in new countries
(see Table VII). Edeka/AVA, Norma and Lidl
increased their presence abroad in two new
countries in 1998-2001, whereas Rimi,
Leader Price and Dia only in one. The other
discounters did not increase at all their
presence abroad (in terms of countries) and
Plus (Tengelmann) even reduced the number
of foreign countries during the same period of
time (withdrawing from Italy). The retailers
of the first group, being already present in a
relatively high number of countries, have had
a larger number of growth opportunities to
exploit in these countries and are less likely to
need to look for others. At the same time, this
yet again underlines the importance for
retailers to achieve high sales volumes in each
country to reduce their costs.
On the other hand, leading retailers in the
second strategic group are those that
developed a competing store concept to
retaliate against Aldi (and Lidl) in Germany.
Over a long period of competition, they
achieved high sales volumes enabling them to
benefit from a price differential sufficient to
differentiate them from traditional
supermarkets (Colla, 1997). But their
international expansion has been modest and
cautious (see Treadgold, 1997), due to the
inferior differentiation of the business model
by comparison with classic supermarkets,
their greater need to adapt to different
markets and their difficulty to achieve high
purchasing volumes on certain lines of
products. Furthermore, the limited
international presence of the group they
belong to does not enable them to benefit
from synergies with other retail formats
abroad.
The importance of synergies in
international growth of multi-format
groups
Retailers in the third strategic group, such as
Dia and Leader Price, preceded the
penetration of hard discount in their countries
of origin (Spain for Dia and France for
Leader Price) where they had already
developed specific competitive advantages
that were somewhat different from those of
hard discount.
But they have always engaged in
international expansion thanks to the fact they
belong to major multiple format discount
Table VII International presence (2002) and growth among leaders in discount retailing (1998-2001)
Weak presence abroad in
terms of countries (< 10)
Low growth abroad in no. of
stores (< 100)
Strong growth abroad in no. of
stores (> 100)
Rimi/Ica AB (1/±14)
Colruyt (1/8)
Norma (2/47)
Netto (ITM et Danks) (3/42)
Treff/E-Delta ± Edeka/AVA (4/61)
Penny ± Rewe (6/93)
Leader Price (Casino) (2/142)
Plus ± Tengelmann (5/458)
Dia ± Carrefour (5/551)
Rema 1000-Reitan (7/153)
Strong presence abroad in
terms of countries (¶ 10)
Aldi (10/546)
Lidl (14/1745)
Note: In brackets: the number of foreign countries of presence in 2002 and the number of stores opened between
1998 and 2002
Source: Derived by Enrico Colla from data provided in Food Business News (1999, 2000, 2001, 2002)
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International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
retailing groups that use these retailing brand
names in their international expansion
strategy. Carrefour is the leader in several
European countries outside France (Spain,
Portugal, Belgium and Greece); it is number
two in Italy, the leader in Latin America
(Argentina and Brazil) and in Asia. Its success
in international markets is especially based on
the hypermarket but also, through a series of
acquisitions, the group has recently migrated
towards a multiple format strategy (see Colla
and Dupuis, 2002). Following the merger
with Promodès, Carrefour acquired Dia, the
market leader in limited range discount
retailing in Spain, which has gambled on
proximity creating a huge network of small
discount stores and developed considerable
expertise in the creation and management of
low-price private label products.
Carrefour, the leader in several markets, is
now in a position to favour the development
of the brand name in the countries where
there are growth opportunities for discount
retailing. The synergies that Dia can benefit
from within the group are entrepreneurial,
financial and managerial (Penrose, 1959;
Colla, 2001). In the various countries where it
is already present, Carrefour has created a
web of relations with its environment (Dupuis
and Prime, 1996) that facilitate the
introduction and success of a new retailing
brand.
Two examples of synergies are purchasing
and sales. Since pooling of purchases of
products present in the range offered by
several of the retailing formats enables an
increase in purchasing volumes by line of
product and by product item, one obtains
advantageous terms on the cost of purchases
for all the retailing brands within the group
that buy the same products, including the
discount retailing brand. If the company uses
the same brand for the products sold in its
different outlets, the advantages are not
limited to purchasing costs, but also enhance
the reputation of the brand.
Leader Price, part of the Casino group, has
indeed created and developed a complete
range of private label products, currently
benefiting from a far superior image in France
to all other discount retailing formats, in spite
of having three times less stores and spending
six times less on advertising than the market
leader Lidl (see Parigi, 2002). In foreign
markets, Leader Price products are
principally sold in the group’s hypermarkets
62
then, only when their sales, and the
reputation of the brand, reach a certain level,
the group opens discount outlets under the
Leader Price brand name. When 1,000
Leader Price product items are sold in about
ten or so hypermarkets in that country, the
threshold is reached at which it becomes
possible to open stores under the brand name
(Moyroud, 2000). Over and above the cost
savings, the enhancement in the brand image
resulting from this strategy enables them to
overcome this major difficulty of international
growth faced by retailers offering a large
number of private label products, such as
Marks & Spencer (McGoldrick and Blair,
1995). Unlike retailers in the third strategic
group, those in the first and second prefer to
fall back on private label brands, generally by
line of product. Not being in a position to
benefit from similar synergies, their policy
tends also to minimise the risks associated
with the potential failure of certain products.
The strategies of choice of country
adopted by the companies
A significant difference is apparent between
the three strategic groups in terms of their
choice of host country and the criteria that
underlie these choices. On the basis of the
survey and analysis (see Tables VIII and IX)
of countries where the retailing brand names
are present, one observes that hard discount
retailers have especially penetrated those
countries with high purchasing power, where
retailing is modern and supermarkets or
hypermarkets are the key formats, where
brands are strong and retailers’ strategies are
highly customer service oriented. The
competitive advantage acquired in domestic
markets via purchasing volume and
experience in the management of
relationships with suppliers by the retailing
brands, have been replicated in these
international markets, where enough
analogies existed in macro-environment, task
environment and organisational environment
(Burt, 2002). The impact of the format has
depended on the nature of the local
competition and the pace of the development
in the market (see Colla, 1994; Burt and
Sparks, 1994, 1995; Colla and Dupuis, 1997;
Colla, 2001). Aldi and Lidl are now present in
the majority of these countries and their
objectives over the coming years will be to
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
Table VIII Discount retailers in western Europe (number of stores abroad per foreign country in 2001)
Countries/retailers Germany Austria France Italy Belgium Denmark Spain Portugal
UK
Aldi
Lidl
Plus
Penny
Dia
Rema 1000
Netto
Norma
Edeka/AVA
Itm (Netto)
Leader Price
Colruyt
263
200
207
40
293
191
484
740
209
82
146
339
90
195
250
165
110
2,480
277
The
Greece Ireland Luxembourg Netherlands
20
10
1
7
393
58
202
80
178
125
107
36a
9b
630
10
a
b
Notes: Treff-Marche ; Coma
Source: Derived by Enrico Colla from data provided in Food Business News (October, 2002)
Table IX Discount retailers in central Europe, USA and Australia (number of stores per foreign country in 2001)
Countries/
retailers
Aldi
Lidl
Plus
Penny
Dia
Rema 1000
Netto
Norma
Edeka
Itm (Netto)
Leader Price
Colruyt
Rimi
a
Czech
Norway Latvia Lithuania Poland Republic Hungary Romania Slovenia Finland Turkey Argentina Brazil Australia USA
17
117
100
14
84
115
3
15
108
130
10
1
86
16
56
43
38a
45
60
500
16
249
24
3
150
20
30
38b
20
b
Notes: E-Discount; E-Delta
Source: Derived by Enrico Colla from data provided in Food Business News (October, 2002)
increase their market share, to the detriment
of supermarkets in particular.
By contrast, soft discount retailers tend to
prefer developing markets, geographically and
culturally close to their domestic markets, and
where traditional retailing still occupies an
important position. Growth in soft discount
will be at the expense of the latter, as well as
small supermarkets and other self-service
stores.
Retailers in the third group, who target the
synergies, seek to penetrate developing
markets and those where the group is already
present with hypermarkets or supermarkets.
There too, the retailing business models most
directly hurt will be small non-specialised
63
retail stores, small supermarkets and other
self-service stores.
Expansion strategies seem to confirm the
existence of differing development
opportunities according to the groups and
their retailing brands.
Aldi is predominantly oriented towards the
USA, Australia and New Zealand and is
looking for acquisitions in Spain. Lidl seems
to want to increase its presence in southern
European countries in the process of
modernisation, and is beginning to envisage
growth in central Europe, beginning with
Czech Republic. It is central Europe in
particular that is favoured by Penny and
Rewe, while Dia and Leader Price are
590
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
counting on expansion in Italy, South
America and Asia, where Carrefour and
Casino already have a network of
hypermarkets and supermarkets (Table X).
Competition and prospects for growth
within the different strategic groups
What developments in competition and
prospects for international growth can the
discounters from the three groups expect?
The competitive rivalry of firms from the
three different strategic groups has intensified
over the last few years for several reasons.
First, the number of countries, in which the
discounters of the different groups are present
simultaneously, has increased and
consequently so has their interdependence. In
addition, hard and soft discount constitutes
increasingly powerful strategic groups in
many countries, further increasing the
intensity of competition.
As long as their international presence is
differentiated and that there is no direct
competition with other discount retailing
brands, the retailers in the second and third
groups can impose their presence. This is the
case in Asia and Latin America, where hard
discount has not yet arrived and where
discount retailers from the third strategic
group enjoy good growth opportunities. But
when competition in the same market
becomes more direct, hard discount retailers
often take the upper hand over the other
discounters.
This is the case for the majority of
European markets, where hard discount
retailing, which in 1991 held a total market
share of 4.6 per cent as against 4.8 per cent
for soft discount retailing, had reached a total
market share of 8.4 per cent in 2000, as
against 6.5 per cent for soft discount retailing.
For hard discount retailing, this performance
stems from the growth of the leading discount
retailers in Germany, and especially in
international markets. By contrast, for soft
discount retailing, it stems more from the
reaction of national retailers to the
penetration of German hard discount
retailing brands (as stated above) than
genuine international growth of the
companies.
It is in Spain and in central Europe that this
confrontation between the discounters of the
different strategic groups is soon to become
more direct. In Spain, the rise in power of
Lidl and the forthcoming entrance of Aldi will
pose new threats for the market leader Dia. In
Poland and in the Czech Republic, Lidl (and
perhaps also Aldi), will challenge Penny and
Plus, already in a strong position in this part
of Europe. Given what is happening in other
countries and the analysis of relative
competitive advantages, hard discount
retailers should be able to impose themselves
in terms of market share compared to the
other retail formats. This does not mean that
the latter will not retain good positions, as
they did in Germany.
By contrast, in countries that are culturally
different and geographically distant from
Germany and where the risks for a new player
are higher – such as South America and the
Asian countries – it is the discount retailers in
the third group, benefiting from the
experience of an already established strong
international group, who remain favoured.
Table X Criteria of choice of country and foreign growth opportunities of leading discount retailers
Hard discount specialised
Aldi, Norma, Lidl, Netto
Soft discount specialised abroad
Penny, Plus, Rema 1000
Soft discount diversified groups
Dia, Leader Price
Criteria of choice of country:
Mature markets
Dominance of supermarkets
Strong brands
Strong service orientation
Growth opportunities:
Aldi: USA, Australia and New
Zealand
Lidl: southern Europe, Czech
Republic
Netto: France
Criteria of choice of country:
Developing markets
Strongly-placed traditional retailers
Cultural and geographic proximity
Growth opportunities:
Plus: central Europe
Penny: Romania, Czech Republic,
Croatia, Ukraine
Rema 1000: Scandinavia and
Baltic states
Criteria of choice of country:
Developing markets
Group already present with
hypermarkets and supermarkets
Growth opportunities:
Dia: Italy, France, Portugal, Greece,
Turkey, Brazil, Argentina
Leader Price: Argentina, Uruguay,
Venezuela, Taiwan, Thailand
64
International expansion and strategies of discount grocery retailers
International Journal of Retail & Distribution Management
Volume 31 . Number 1 . 2003 . 55-66
Enrico Colla
Conclusion
The article has defined three strategic groups
of limited range, discount food retailers that
have adopted different internationalisation
strategies, and it has identified a series of key
success factors and competitive advantages,
barriers to entry and barriers to mobility, with
varying importance to the different strategic
groups.
The importance of volume by product line
and product item, and the experience
acquired in the area of private brand
management, leading to the restructuring of
the value chain and to a channel leadership,
favours more specifically the competitiveness
of the specialised German hard discount
retailers.
These retailers are leaders in discount food
retailing in their domestic markets holding
substantial market share. But they are also
aggressive internationalists, present abroad in
most countries, and with a larger proportion
of market share, and their rate of international
expansion over the past years has been higher
in terms of number of stores than penetration
into new countries. They have especially
penetrated those countries with high
purchasing power, where retailing is modern
and supermarkets or hypermarkets are the key
formats, where brands are strong and
retailers’ strategies are highly customer service
oriented.
The German soft discount retailers,
belonging to large diversified groups
operating mainly on their domestic markets,
benefit from advantages – linked to their
purchasing volumes and price differentials
with supermarkets – lower than those of hard
discount and benefit less from synergies
abroad than discount retailers in the third
group. They use cautious internationalisation
strategies, in countries that are geographically
close and culturally similar.
By contrast, the synergies available within
multiple format groups favours the
international expansion of soft discount
retailing names like Dia and Leader Price in
the countries where the groups to which these
brand names belong (Carrefour, Casino) are
present in force. Moreover, the group may
reduce the risk of entry for the discount
format into new developing countries, thanks
to the synergies with other formats.
The winners in the race to international
expansion are in particular the leaders in the
65
first group, but important niches in several
foreign markets can enable growth, at least in
the short term, of retailers in the second and
third groups.
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