International expansion and strategies of discount grocery retailers: the winning models

Enrico Colla

Introduction
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.

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. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0959-0552.htm

Discount food retailing in Europe

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. 55

International Journal of Retail & Distribution Management Volume 31 . Number 1 . 2003 . pp. 55-66 # MCB UP Limited . ISSN 0959-0552 DOI 10.1108/09590550310457845

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Table I Market share of discount food retailing in Europe Market share 1995 (%) Norway Germany Belgium Denmark Austria Sweden The Netherlands Finland Spain Portugal United Kingdom France Switzerland Italy Greece Total 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 Market share 2000 (%) 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 No. of stores 1,380 13,081 815 859 777 328 797 855 2,865 420 1,290 2,622 777 2,620 225 29,747

Table III Discount retailers without outlets abroad (by number of outlets in 2000) Leader Rimi Aldi Aldi Netto Hofer Rimi Aldi Siwa Dia Miniprec o Kwik Save Lidl Denner Lidl Dia Aldi Name 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) Ins Discount (24) Mondo (25) Group and country of origin Somerfield UK Denner Switzerland Tradeka Finland Carrefour France Italy Lo wa Austria Intermarche France Edeka Germany Interdis Italy Johansonn Norway Coop France Pam Italy BML Austria No. of outlets 1995 976 393 434 423 140 N/A 214 180 260 82 199 N/A 154 No. of outlets 2000 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 Aldi (1) Lidl (2) Plus (3) Dia (4) Penny (5) Netto (6) Norma (7) Rimi (8) Rema 1000 (13) Leader Price (14) Prix (16) Facta (20) Group and country of origin 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 No. of countries 8 11 3 4 3 3 2 3 3 2 3 2 No. of outlets 1995 4,171 2,194 2,662 1,906 2,225 880 1,046 472 286 189 230 262 No. of outlets 2000 5,246 3,927 2,950 2,816 2,537 1,397 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)

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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 Intermarche 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.

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

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

Table IV Segmentation of discount retailers (DR) present on the international scene DR belonging to specialised groups Hard discount Soft discount Aldi (10/2,750) Norma (2/137) Netto Dansk and ITM a (3/348) Rema 1000 Reitan (7/326) Colruyt (1/10) DR belonging to groups with low foreign diversification 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) DR belonging to highly diversified groups abroad 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 Pa o de Azu c ar; c Of which 277 Miniprec o 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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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 (Nettos 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

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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 suppliers 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 Intermarche 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. Intermarche 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

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Table VI Comparison of hard discount (HD) and supermarket (SM) in France (2000) No. of skus in HD stores 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 Note: Sku = Stock keeping unit Source: AC Nielsen in Le He naff (2001) 1,200 885 568 126 191 315 212 103 No. of skus in SM stores 8,164 6,529 3,591 790 2,148 1,635 1,172 464 Turnover/sku in HD stores (FRF) 267 225 186 462 185 385 459 234 Turnover/sku in SM stores (FRF) 72 60 63 126 47 120 141 66

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, Normans, Solo), in Austria (Top Diskont, Famila, Meinl-Jeee), in Finland (Sa a stariValtti-Rabatti), in Portugal (Mini-Prec o), 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 Aldis 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

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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) Low growth abroad in no. of stores (< 100) Weak presence abroad in terms of countries (< 10) 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) Strong growth abroad in no. of stores (> 100) 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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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 Promode ` s, 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 groups 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

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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 Aldi Lidl Plus Penny Dia Rema 1000 Netto Norma Edeka/AVA Itm (Netto) Leader Price Colruyt
a b

UK 263 200

The Greece Ireland Luxembourg Netherlands 20 10 1 7 393 58

207 40 293 191

484 740 82

209 146

339 90

195 250 165 2,480 80 110

277 125

202

178 107 36a 630 10 9b

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 84 115 108 130 16 30 38b 3 150 3 15 1 86 16 56 43 38a 45 60 500
b

590

10

249

24

20

20

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

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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 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 Soft discount specialised abroad Penny, Plus, Rema 1000 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 Soft discount diversified groups Dia, Leader Price 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

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International expansion and strategies of discount grocery retailers Enrico Colla

International Journal of Retail & Distribution Management Volume 31 . Number 1 . 2003 . 55-66

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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