Pada september 1994, Brasil mengalami perubahan ekonomi yang signifikan setelah sebelumnya mengalami hyper inflasi. Rendahnya inflasi dipandang sebagai kondisi yang dapat meningkatkan daya beli masyarakat Brasil. Kondisi ini mendorong banyak perusahaan asing untuk melakukan investasi baru di Brasil, di samping potensi jumlah penduduk Brasil yang sangat besar yang telah mencapai lebih dari 170 juta orang.
Di pertengahan tahun 1980an, Wal Mart mulai melakukan ekspansi internasional antara lain di Mexico, Canada, Argentina, Hong Kong dan Brazil. Perusahaan berharap dengan mengandalkan seluruh kekuatan dan pengetahuan bisnis ritel yang dimilikinya dapat beroperasi di berbagai negara sebagai sebuah sistem logistik dan komunikasi yang efisien. Merek “Wal-Mart” diharapkan bisa menjadi merek internasional yang memiliki keunggulan bersaing. Strategi entri di setiap negara dilakukan melalui kemitraan dengan perusahaan lokal.
Ekspansi Internasional Wal Mart di Mexico
Meksiko adalah negara pertama dimana Wal Mart memulai ekspansi internasional. Toko pertama dibuka dengan bermitra bersama Cifra –pemimpin ritel lokal. WalMart kesulitan beradaptasi dan memahami budaya dan kebiasaan konsumen Meksiko. Keberhasilan diperoleh setelah Wal Mart berganti nama dari Cifra menjadi Wal Mart de Mexico. Enam Wal Mart de Mexico melayani konsumen dari segmen pelanggan yang berbeda.
Di Kanada, Wal Mart lebih memilih mengakuisisi rantai lokal –WOOLCO – dibanding bermitra. Budaya dan Pasar Kanada mirip dengan AS. Wal Mart memanfaatkan popularitas merek sebagai strategi memasuki pasar dengan menggunakan tag-line “ Everyday Low Prices”. Operasi Wal Mart di Kanada merupakan yang paling sukses di luar negeri.
Masuk ke Pasar Brasil
Pada 9 Mei 1994, Wal-Mart Stores memutuskan untuk berinvestasi di Brazil melalui kemitraan dengan Lojas Americanas. Misi utama Wal Mart saat memasuki pasar Brazil adalah menjadi ritel nomor satu di pasar Brazil dengan menggandeng pemain lokal dalam waktu yang singkat. Strategi Entri Wal Mart ke Pasar Brazil :
- Melakukan perencanaan infrastruktur logistik dan komunikasi untuk mensupport 80 toko Wal Mart di Pasar Brazil
- Ekspor keahlian dan keterampilan praktek dengan menyediakan manual operasi berikut dengan berbagai produk, optimalisasi penataan ruang dan bauran produknya
- Lima toko pertama dibuka dengan menggunakan strategi harga yang sangat agresif
- Karyawan disiapkan untuk selalu membantu konsumen dan menawarkan produk secara lebih luas
Strategi entri yang begitu agresif dan spektakuler yang memberikan gambaran gelap bagi para pesaingnya.
Strategi Entri yang agresif dan begitu menjanjikan tersebut TERHENTI setelah WalMart mengalami masalah operasional yang berat dan tidak terduga. Wal Mart mengalami kegagalan karena : Antrian yang sangat panjang, Tingkat persediaan habis hingga tinggal 40 persen, Jalur suplai yang tidak dapat diandalkan, Ukuran kinerja manajemen yang gagal, Kemacetan lalulintas, Reaksi pesaing dan reaksi Aparat pemerintah.
WalMart melakukan revisi atas strateginya dengan memasukkan strategi yang digunakan di Canada dan Mexico. Strategi pun didesain ulang.
- Mengadopsi strategi ekspansi yang lebih konservatif dan terkendali
- Konsolidasi jalur distribusi
- Meningkatkan asimilasibudaya Brazil
- Hanya membuka 10 toko, sebelumnya ada 80 toko
- Menempatkan manajer berpengalaman yang berasal dari pesaingnya
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ENGLISH VERSION :
In September 1994, Brazil was experiencing a new thrust in its economy. After several years of hyperinflation, the ‘‘Real Plan’’ implemented in March 1994, an economic stabilization program that indexed the Brazilian currency to the U.S. dollar, began to reduce inflation to reasonable levels. In February 1994, the annual inflation rate was 40 percent, whereas by September of that same year, it was a relatively low 3 percent.
Alower inflation rate was viewed as a viable step in improving the purchasing power of the Brazilian people, particularly those in the lower socioeconomic stratum.
The optimistic scenario encouraged many foreign companies to make new investments in Brazil. If Brazil is the leading economy in Latin America with a population ofmore than 170 million, why not invest there, now that a better business horizon lies ahead in this continental country? Wal-Mart Stores, the world leader in retailing, announced on May 9, 1994, that it had decided to invest heavily in Brazil through a partnership with LojasAmericanas, Brazil’s leading department store chain.
Following the implementation of ‘‘Real Plan’’ in 1994, and subsequent stabilization of Brazil’s economy, appreciation of the U.S. dollar in the late 1990s and a global economic slowdown due to the Asian crisis forced the country to float its currency in January 1999. As a result, inflation increasedmoderately from 3 percent to 8.9 percent but has steadily declined since, with a 8 percent inflation rate at the end of 2005. In addition, with estimated economic growth of 5 percent for 2005, Brazil was viewed as a viable investment opportunity by foreign investors. As an illustration of Brazil’s economic prospects, it must be pointed that the year 2000 showed a record amount of direct foreign investment in Brazil from abroad, amounting toUS$30 billion. However, a recent energy crisis presents significant problems to Brazil’s economy and its retail industry, in lieu of changes in consumers’ purchase behavior and income allocation.
Sam Walton entered the retail business through a small store in Newport, Arkansas, in 1945, as a variety store franchisee. Six years later, he decided to open his own stores with the name ‘‘Walton’s Five and Dime,’’ referring to the coins that could have value to the customers.
As of 2005, there were 5,379 Wal-Mart units around the world, with 3,752 located in the United States, 706 in Mexico, 291 in theUnitedKingdom, 261 in Canada, 89 inGermany, 152 in Brazil, 54 in Puerto Rico, 47 in China, 11 in Argentina, and 16 in Korea. Net sales for the year 2004 totaled $287 billion (see Exhibits 1 and 2). Wal-Mart also owns a 37.8 percent interest in Japan’s Seiyu Ltd., which operates 403 stores in Japan.
Wal-Mart operates with five different divisions within the United States: Wal-Mart Stores, Wal-Mart Supercenters, Sam’s Club, McLane’s Company, and Wal-Mart International.
Wal-Mart Stores is the division accounting for about 55 percent of total company revenues. Wal-Mart Supercenters generates 10 percent of total company revenues and is the fastest growing division. In the United States, there are three different Supercenters: Wal-Mart Supercenters, Hypermart USA’s, and Bud’sWarehouseOutlets. Supercenters are stores with more than 10,000 m2 of area and a minimum of 40,000 items. Sam’s Club is the division responsible for 25 percent of revenues. The first Sam’s Club—a ‘‘buyers’ club,’’
namely, a store where the consumer pays an annual fee to have access—was opened in 1976. By the end of 2005, there
were already more than 500 Sam’s Clubs in the United States.
McLane’s Company isWal-Mart’s distribution company.Wal-Mart acquired this company, a leading distribution company, in 1990. In 1995, McLane’s represented 6 percent of Wal-Mart’s total revenues. McLane’s has 14 distribution centers in the United States and caters not only to Wal-Mart needs but also to 25,000 other retailing stores in the United States.
Wal-Mart International, the fifth division, accounts for 17 percent ofWal-Mart’s total revenues, with net sales of $35 billion for the year 2002. The international division is the fastest growing, with over 41 percent increase in net sales from the year 2000.
In the second half of the 1980s, Wal-Mart began its international expansion in Mexico, Canada, Argentina, Hong Kong, and Brazil, among others. The company expected that all its strengths and retailing knowledge could leverage operations abroad as well as the efficient logistics and communication systems. The company considered that with a prospective of market globalization, the brand ‘‘Wal-Mart’’ could be a competitive advantage in many countries where it would operate. The company also decided that the entry strategy in each country should be through a partnership with local companies. A brief summary of Wal-Mart’s international operations in Mexico and Canada is provided in order to ensure better understanding of Wal-Mart’s operation in Brazil.
Mexico was the first country in which Wal-Mart initiated its international expansion. The first store was opened in 1991. The local partner was Cifra, a Mexican retailing leader. It is undeniable that Wal-Mart has had some difficulties adapting to and understanding Mexican culture and consumer habits. For example, Mexican consumers prefer to buy Mexican food and other goods rather than American products. Wal-Mart insisted on prioritizing imported goods from theUnited States for a long time. Another problem in Mexico is related to the Mexican habit of buying food in small stores rather than in supermarkets.
Despite its initially disappointing performance, Wal-Mart is currently Mexico’s largest retailer. This success was achieved only after the company changed its name from Cifra to Wal-Mart de Mexico, and spread its operations into six different retail formats and the country’s largest sit-down restaurant chain. Wal-Mart de Mexico’s six retail formats allowed the company tomeet the needs and purchase behaviors of various customer segments. In November 2004, Wal-Mart opened a massive 7.5 acre Superstore a mile from Mexico’s holy area, Teotihua´can, just outside of Mexico City.
In Canada, Wal-Mart preferred to acquire a local chain— Woolco—instead of having a local partner. Due to the maturity of the Canadian retail market, and due to significant income and cultural similarities between theUnited States and Canadian markets, acquisition was arguably the easiest way for Wal-Mart to tap into Canada. Since most Canadians live near the U.S. border, they were already familiar with the company.
Hence, Wal-Mart leveraged this high brand recognition into customer acceptance and loyalty by introducing its ‘‘Everyday Low Prices’’ approach to a market accustomed to high/low retail pricing. Coincidence or not, Canada is the most successful Wal-Mart operation abroad. Nevertheless, out of the 196 stores in Canada, 122 were originally Woolco stores. By the year 2002, Wal-Mart as Canada’s number one retailer with revenues of approximately $8.75 billion, just eight years after its entry into Canada. In early 2005 Wal-Mart shut down its only unionized store in Canada, claiming it was due to dropping sales and the problem of dealing with a union.
ENTRY INTO BRAZIL
Wal-Mart’s original intention was to achieve the number one retailer position in the Brazilian retail market through a partnership with a local ‘‘player’’ in a very short period of time. In order to achieve this ambitious goal, Bentonville headquarters planned a logistics and communication infrastructure capable of supporting no fewer than 80 stores in the Brazilian market.
In addition, the headquarters’ intention was to export its expertise and practices in the form of an extensive set of operational manuals that proved successful in the United States, including product assortment and internal space utilization as well as its product mix. Wal-Mart began its operation in Brazil in spectacular fashion. The first five stores were opened in a few months and, through a very aggressive pricing strategy, attracted thousands of enthusiastic consumers ready to empty the shelves. Another attraction was employees’ disposition to help consumers, as well as wide product offering. Overall, during its initial periods of operation in the Brazilian market,Wal-Mart had captured a very favorable image from consumers and, subsequently, had painted a dark picture for its competitors’ future.
The initially aggressive and promising entry strategy came to a halt after Wal-Mart immediately encountered severe unexpected operational problems. Long checkout lines, a high stockout rate (40 percent), unreliable supply lines, faulty management-performance measures, traffic congestion, competitors’ reactions, and governmental forces were responsible forWal-Mart’s initial failure in the Brazilian retail market.
Following Wal-Mart’s disappointing performance in the Brazilian retailmarket, the company had to revise its originally aggressive strategy. To accomplish this, some valuable lessons learned fromWal-Mart’s international expansion into Mexico and Canada had to be incorporated into the redesigned strategy for Brazil. Consequently, Wal-Mart’s strategy revision planned for adoption of a more conservative and controlled expansion, consolidation of distribution lines, and improved assimilation into the Brazilian culture. An example of Wal-Mart’s revised strategy included the opening of only 10 stores from 1995 to 1997, down from the initial 80-plus stores. Furthermore, Wal-Mart intended to acquire an existing retail chain instead of exploring other partnerships, as was originally planned. In addition, the company wanted to acquire experienced managers from other competitors.
CHALLENGES IN BRAZIL
The challenges that Wal-Mart has experienced in Brazil may be grouped into six categories: state of the economy, cultural differences, management, advertising, logistics and distribution, and competition.
SinceWal-Mart’s entry into the Brazilian retailmarket in 1994 until the end of 2001, Brazil’s economy has been all but stable. The ‘‘Real Plan,’’ implemented in 1994 to curb the currency hyperinflation brought the inflation rate from 40 percent in the year it was instituted to 3 percent in 1999. Thanks to the appreciation of the U.S. dollar, the Asian financial crisis, and a resulting global economic slowdown, Brazil floated its currency in 1999, as was the case prior to the Real Plan of 1994. This caused the inflation to increase moderately to 8.9 percent in 1999, but it was brought down to 5.3 percent at the end of 2001. However, riggered by the national currency depreciation, inflation increased again in 2002 and had crossed 8 percent by 2005.
The Brazilian economy was recently struck with the energy crisis. The crisis was the result of Brazil’s electricity consumption exceeding its production, thus forcing the import of electricity from Paraguay. Although the current state of the Brazilian economy could be characterized as somewhat stable as compared to that before 1994, the future outlook of the economy does not provide any guarantees on a long-term basis.
Brazilian retail consumers consider product quality the most important factor in the decision-making process of purchasing, followed by product price, customer service, store cleanliness, and store distance. Most Brazilians prefer shopping in small- to medium-sized neighborhood stores. Nevertheless, they also enjoy the occasional shopping trip to a big discount supercenter. This trip, however, occurs only once amonth, and thusmaking so-called monthly purchases, instead of weekly as in the United States.
Yet the current energy crisis has forced most Brazilians to turn off their freezers and to adjust their shopping habits accordingly. Namely, food-related trips to the store in Brazil have increased in frequency but decreased in the quantity of food purchased, especially in perishable goods. Despite the unbelievably bad traffic jams, the average Sao Paulo residents are willing to take the long trip to a specific Supercenter if they perceive it as cost efficient and need satisfying.
Similarly, Brazilian consumers do not greatly appreciate the notion of having to pay a membership fee in order to shop at Sam’s Club, especially when shopping at a ‘‘buyer’s club’’ is not perceived as providing greater savings and overall extra benefit to the end-consumer. The product mix in Wal-Mart’s supercenters should reflect the needs of Brazilian consumers as closely as possible. Offering products popular in the United States such as golf equipment, vacuum cleaners for garden leaves, American
footballs, and food grinders shows complete ignorance to Brazilian consumers since they have little or no use for these items. Assigning 25 percent of supercenter space for food in a country where food represents 60 percent of supermarket sales is another example ofWal-Mart’s cultural ignorance.
Because of dissimilarities in income and culture between U.S. and Brazilian markets, a greater degree of managerial autonomy may be desirable for Wal-Mart in Brazil. In addition, Wal-Mart in Brazil has not made full use of the concept of getting back to the basics, or in other words, implementing Sam Walton’s ‘‘Management by Walking Around’’ concept. A faulty product mix and store-space misallocation present examples of bad management policies. Moreover,Wal-Mart’s overall corporate grip on its subsidiary in Brazil can best be exemplified by the fact that performance of the local managers in Brazil was based primarily on store sales volume.
Thus, managers set prices below cost to artificially stimulate demand and inflate sales volume numbers. Managers should have greater freedom inmanaging on amicro level.Wal-Mart, recognizing the need to hire professionals, has recently started a head-hunting campaign to acquire proven professionals from local competitors. This move should reduce Wal-Mart’s need to micromanage the Brazilian effort.
Many Brazilian consumers, housewives in particular, listen to the radio during the day while cooking and/or cleaning the house. Radio advertisements, therefore, should be used to reach and attract potential shoppers. Contrary to logic, however,Wal-Mart did not use radio as amedium for communicating to its customers. The company uses some television and newspaper advertising, but the resources allocated to the overall advertising campaign amount roughly to only 2 percent of Wal-Mart’s revenues. Although Wal-Mart has hired a Brazilian advertising agency, the lack of autonomy given to the agency defeats the whole purpose of ‘‘going local’’ through advertising.
Logistics and Distribution
Initially,Wal-Mart experienced an alarming 40 percent stockout rate in Brazil, as compared to 5 percent in the United States. Although the stockout rate has decreased since then, the problem is far from being completely eliminated. Namely, Brazilian suppliers are lagging behind their U.S. counterparts in logistics technology, thus making computerized inventory management systems useless. In addition, constant traffic jams present another major obstacle to consistency and predictability in supply of both Wal-Mart stores and distribution center(s).
Since Wal-Mart entered the Brazilian retail market in 1994, competition has been ever increasing, and all to the benefit of end-consumers. Many retailers are focused on expansion into different retail formats, with the purpose of targeting different customer segments. Increasing the number of stores across the country is another way retailers compete in Brazil. Thanks to Wal-Mart, ‘‘price wars’’ are the most visible effects of fierce competition.
According to 1995 data, Brazil’s entire retail industry accounts for 6.6 percent of GNP, with total consolidated sales of US$43.7 billion. The top five retailers in the Brazilian retail market account for roughly US$11.2 billion. The 1997 data show that Wal-Mart’s major competitors are Carrefour, Companhia Brasileira de Distrubuicao (P˜ao de Ac¸ucar), Royal Ahold, and Makro Atacadista. In addition, some smaller retail chains and a large number of individually owned stores account for the remaining portion of the Brazilian retail market.
Carrefour. Carrefour, a giant French retailer that entered the Brazilian retail market in 1974, is the oldest and most established
foreign competitor. This company has fully adapted to Brazilian culture and thus is not viewed as a foreign company. Carrefour currently controls 20 percent of the Brazilian market, with 229 stores total. Interestingly enough, the French retailer purchased 23 supermarkets from Wal-Mart’s entry partner, LojasAmericanas, in 1998 when that company exited the grocery business.
In addition, Carrefour merged with Promodes SA, the rival Brazilian retailer, in 1999 in an attempt to achieve an even stronger position in that market. Decentralized management style and effective advertising campaigns continue being Carrefour’s competitive strengths.
Companhia Brasileira de Distrubuicao (CBD). CBD, the second largest food retailer in Brazil, currently operates more than 500 stores in Brazil with over US$4.7 billion in total sales for 2004. The company is grouped into hypermarkets, supermarkets, an electronics and home appliances division, and an e-commerce division. The supermarket division consists of two retail formats: P˜ao de Ac¸ucar and Barateiro Supermercados.
P˜ao de Ac¸ucar’s total 2000 sales were similar to those of Carrefour. When adding the sales of Barateiro Supermercados, the division that caters to the lower class, CBD’s total sales make it the number one competitor within Brazil. With regard to the ownership of the company, France’s Casino Group currently owns minority share (40 percent) in CBD. Use of Sam Walton’s ‘‘Management by Walking Around’’ concept continues to be one of CBD’s advantages.
Royal Ahold. Royal Ahold is a Dutch firm specializing in supermarket retailing. Surprisingly enough, the company entered the Brazilian retail market through a joint venture with Brazil’s fourth largest retailer, Bompreco, in 1996. The company has since purchased Bompreco and is currently the leading food retailer in the northeast region of Brazil, with 108 hypermarkets and supermarkets.Royal Ahold’s 2002 sales totaled 16.4 billion euros (approximatelyUS$17 billion).Local retailer flexibility and rich product mix present the company’s source of advantage.
Makro Atacadista. Makro Atacadista is another Dutch retailer whose wholesale outlets represent direct competition to Wal-Mart’s Sam’s Club. Established in 1972, the company currently operates more than 30 stores across most of the country. It has over 1.3 million registered users, of which 80 percent are small business owners and the remaining 20 percent are individual customers. Unlike Sam’s Club, Makro Atacadista charges no annual fee to its members. Selling third-party products under its own brand name (thus achieving economies of scale in advertising) continues to be a major advantage for the company.
Since originally entering the Brazilian retail market in 1995, Wal-Mart has revised its strategy and has consequently gained a substantial share of the marketplace. Although Wal-Mart is currently the sixth largest retailer in Brazil, it still holds a relatively small share of the retail market, which is dominated by the French retailer Carrefour. Still, future prospects are looking good for Wal-Mart in Brazil.
As of 2005, Wal-Mart had a total of 152 stores in operation (see Exhibit 3) and 7 percent of the market. Out of 152 Wal-Mart stores in Brazil today, it operates under three different formats: 16 Supercenters, 11 Sam’s Clubs, and 2 Wal-Mart Todo Dia stores in the states of S˜ao Paulo, Rio de Janeiro, Minas Gerais, and Parana (AOL Latin America Announces Marketing Alliance with Wal-Mart Brazil, 2001).
To add to that is the newly acquired 118 Bomprec¸o unit formats. Bomprec¸o stores are operated under various formats. Bomprec¸o stores sell apparel, food, and general merchandize. Prior to this acquisition, some industry analysts believed that
Wal-Mart was facing problems succeeding in Brazil because it had not made an acquisition.
As previously stated, Wal-Mart’s first revised strategy called for the opening of only 10 stores from 1995 to 1997, down from initial plans of over 80 stores. Looking back, Wal-Mart actually opened only three stores over that same time period. Most of the expansion occurred within the two years until 2001 (see Exhibit 4 for store openings). Wal-Mart revealed its revised plan for expansion in Brazil in July 2002. According to the plan, the company would inaugurate five stores in Brazil.
However, by the end of 2002, the total number of stores in operation continued to be 22. But, in the next few years until 2005, Wal-Mart added a whopping 130 stores to bring the total to 152. Most of these stores (118) were acquired from Royal Ahold in 2004.
In May of 2001, Wal-Mart opened the Barueri distribution center in S˜ao Paulo. Wal-Mart previously had three rented, limited-capacity distribution centers. The new distribution center has 35,000 square meters of storage space and is built on a 200,000 square meter lot owned by Wal-Mart. This new facility is designed to easily supply 20 local stores at its current
size; it gives Wal-Mart better control over supply lines and allows for future building expansion.
In May of 2001, Wal-Mart also opened its first Todo Dia store in the eastern S˜ao Paulo section, Sapopemba. Since the Sapopemba section of S˜ao Paulo is inhabited mostly by a lower income segment of the population, this move signals that Wal-Mart is looking to increase its market share through catering to different market segments. Another Todo Dia store opened on October 10, 2001, in the Taboao de Serra region of S˜ao Paulo, with a third store scheduled for opening by the end of the fiscal year 2001. As opposed to a Wal-Mart Supercenter which carries 60,000 items, Wal-Mart’s Todo Dia carries only 12,000 items.
Besides being a smaller format store, Todo Dia’s inventory is stored directly above display shelves. It is reasonable to suspect that Wal-Mart’s introduction of the Todo Dia store format is being used to test the market in Brazil for future expansion into local and extremely value-conscious neighborhoods. This strategy is similar to that of Wal-Mart de Mexico where the company currently dominates the retail market with six retail formats.
In line with Wal-Mart’s revised strategy which called for improved assimilation into Brazilian culture, the company is currently involved with local communities, supporting social programs such as SpecialOlympics Brazil andMesa S˜ao Paulo. Wal-Mart’s latest move is the announcement of the marketing alliancewithAOL LatinAmerica whereby AOL Brazil will be promoted in all Wal-Mart and Sam’s Club units in Brazil. This marketing partnership is a logical strategic response to the current growth of the e-commerce sector.
The value of business-to-consumer (B2C) e-commerce sales is forecasted to reach $4.3 billion in 2005. The number of Internet users in Brazil is expected to jump to 29 million in 2005. The Wal-Mart executive team in Brazil will be meeting with business consultants in a few weeks. In the meantime, they are wondering whether they have made the right moves for further expansion in the Brazilian market.