IndiaRetailBiz

We came across an interesting blog written by the London-based Max, which analyses as to how the UK’s biggest retailer Tesco, following a smart strategy, is pushing its arch rival ASDA (the UK-based subsidiary of Wal-Mart) into the jaws of the discount retailers. Wal-Mart seems to be suffering because while on the one hand it refuses to adapt to local tastes, on the other it attempts to foist Supercentres on unwilling consumers.

Wal-Mart, in recent times, had to shut shop in South Korea and Germany, perhaps, for similar reasons. Bharti, the Indian partner of Wal-Mart, which for statutory reasons, has been forced to own the joint venture’s front-end retail operations in India, would hopefully be more cautious and adapt an approach that is in tune with the buying needs and habits of the local consumers.

We are reproducing the blog as it throws interesting light on the manner in which the world’s biggest retailer Wal-Mart operates in foreign markets.

It’s now over six years since Wal-Mart bought ASDA (a chain of supermarkets in the United Kingdom offering food, clothing and general merchandise products, which became a subsidiary of the American retail giant Wal-Mart in 1999) the second largest chain in the UK after Tesco, promising to revolutionise the UK grocery market.

This was the opening move in the game - Wal-Mart saw ASDA as a pawn that could be used to destablise Tesco in it’s principle market, forcing it to consume managerial and financial resources that should be focused on international expansion, allowing Wal-Mart to colonise the rest of the world. While not a disaster, Wal-Mart’s marriage to ASDA has not been a fruitful one. ASDA has consistently lost market share to Tesco, which continues its successful international expansion, based on a strategy of adapting to local tastes, in stark contrast to Wal-Mart’s attempts to foist Supercentres on unwilling consumers. Simultaneously, John Lewis has expanded its Waitrose store format into a highly profitable niche at the top of the market.

How did this come to pass? How did the world’s mightiest retailer fail to make a dent in the market which, culturally, is closest to it’s own? ASDA blames a lack of land and calls for the government to confiscate Tesco’s “land bank”. Tesco might point to it’s successful investment in data-mining and the “Clubcard” loyalty scheme. Both represent managerial failings on ASDA’s part and successes for Tesco, but neither are the answer.

Tesco’s market lead is sustained by ASDA’s marketing department. Comparison shoppers tell us that there is no real difference in the price of a basket of food bought at Tesco or ASDA and consumer’s know this from experience. Tesco’s advertising and range of brands, from “Value” to “Finest”, highlight the range of goods that can be found in-store - it manages to offer discount shopping without alienating the, highly profitable, aspirational middle-class shoppers. On the other hand, ASDA talks only of it’s cheapness and, in doing so, has become a no-go area for the image-conscious Brits. At the other end of the market, Wal-Mart cannot compete on price with the continental discounters who have a different business model. Furthermore, those who, for financial reasons, must use a discount outlet don’t have the car necessary to reach a Wal-Mart Supercentre - whereas the small-format of Aldi and Lidl means that they have stores in convenient urban areas.

Tesco has managed to force ASDA further and further down-market, into the jaws of the discounters. ASDA recently announced that it would roll-out a new store format, based on the compact offering of Lidl and located within cities. It remains to be seen if a format tied to Wal-Mart’s structural costs can compete on price with the stripped-down model it now has to fight for customers.

Check-mate may be only a few more moves away.