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Where did it go wrong for European grocery retailers in Asia Pacific?

The Drum 14 Apr 2020 10:59
Many European grocery retailers used their own e-commerce platforms and delivery mechanisms.

European grocery retailers have struggled with the realities of the scope and scale of operations in Asia Pacific, with British retailer Tesco became the latest to depart the region, selling off its Thailand and Malaysia businesses to CP Group in a deal that valued the business at US$10.6 billion in March 2020.

The trend began in 2018 when French grocery giant Carrefour, German supermarket operator Metro and Spanish’s chain Dia started selling off or taking lesser control of their China operations to their joint venture partners.

Another British retailer Marks & Spencer also sold its retail business in Hong Kong and Macau to its franchise partner Al-Futtaim of the UAE after exiting China in 2016.

Tesco had previously sold its remaining stake in its Chinese joint venture to its state-run partner China Resources Holdings for £275 million (US$355 million) in February 2020 and withdrew from South Korea in 2015.

Instead, high-quality products, produce, innovation and sensorial experiences lead the way. As a result, a number of local premium grocery chains – both online and offline – have witnessed explosive growth around China.

“In addition, China has witnessed an uptick in the number of small-scale grocers specializing in imported products in its first-tier cities, tapping not only into these cities’ thriving ex-pat communities but also China’s high-end consumers.”

In agreement with Zhou was Jacob Cooke, chief executive officer at Web Presence In China Marketing + Technologies, who pointed out Carrefour, for example, did not do anything with the layout of their stores to appeal to local consumers.

Alex Woodford, the vice president, client partner for APAC at Essence, points to issues with product fit and business terms as another reason why the European retailers were not winning at the same rate in Asia compared to their home markets.

“Equally, the international and local management at certain foreign grocery retailers may not have seen eye to eye, resulting in decisions that were not best placed to succeed in the local market,” he explains.

“Commuters could then scan the QR codes of products via a smartphone app and get their purchases delivered to their doorsteps. This was based on the local insight that the typical tech-savvy commuter did not have the luxury of time to shop at a brick-and-mortar store.”

While the European grocery retailers have struggled in APAC, their American counterparts, namely Walmart and Costco, have fared much better.

“Walmart is a big American name, and Chinese buyers traditionally keep their eye on what is going on in the states and not Europe,” she explains to The Drum.

“I still see Carrefour in full French packaging on the shelves of Cold Storage in Singapore. That tells me they are only catering to the French ex-pat population and may therefore potentially have less interest in catering to the local population.”

What was these grocery retailers’ e-commerce strategy in APAC?

He notes that originally, many European grocery retailers would use their own e-commerce platforms and delivery mechanisms. However, given the tough market competition and local providers like Alibaba and JD.com already had the much-needed reach, some switched their strategies to partnering with these platforms.

Some European retailers also failed to combine their operations with Alibaba’s finance platform Alipay and Tencent’s super app WeChat, instead of relying on their ageing customer relationship management systems built around membership card, something that feels like a lifetime ago for Chinese consumers.

“Beyond just groceries, any foreign retail brand operating in APAC and China needs to have a slick digital and e-commerce operation to survive. Brands that have been slow to react and adopt these operations have struggled to survive, with the majority exiting China,” explains Zhou.

“My guess is that their North American team could stand to learn something from their China team because it’s so successful and forward-thinking,” remarks Cooke, noting that Walmart’s Sam’s Club app today is successful in China as well.

In APAC, provenance plays well in markets like Singapore where there are discerning buyers who will be attracted or interested in a product by reputation alone.

Burke notes with more households being pressured to purchase online due to social distancing during the coronavirus pandemic (Covid-19), there are vast opportunities for disruption and new players who can cater to a more localised, niche, responsive and personalised level as food security at a household level is a growing concern.

Woodford says it is imperative that international grocery retailers establish a clear strategic differentiation, whether it is a competitive advantage or positioning, for themselves, compared to local players as well as other foreign retailers in the market.

“With many markets experiencing e-commerce domination by a few key players, and with future consolidation on the cards, foreign grocery retailers without the clearest of differentiators will increasingly struggle.”

They launched online first in China in 2014, demonstrating to customers who they are and how they are unique. Doing that online first means it required much less of an investment than brick and mortar. Then, they went to brick and mortar once customers understood what the offering is.

Key lessons for foreign grocery retailers

Secondly, buck the hypermart trend and start with a few smaller, well-designed “local marts” in key neighbourhoods that are staffed with a bright, helpful and personable butcher, barista, cheesemonger and florist in smart, well-designed uniforms.

“These hypermarts and all tech grocery retail concepts have forgotten a key role that the grocery store used to play in people’s lives, which is to foster community and connection. Sadly, copy and pasting concepts from Europe is not going to cut the mustard.”

He explains the major Chinese e-commerce operators are connected to practically the entire population and have immense amounts of data to target, analyse trends and set price points. Also, the vast ecosystem of online services for consumers means these operators have become thoroughly entangled with the online lives of most Chinese netizens.

"Without a localization strategy, foreign companies, whether grocery retailers or ride-sharing apps, will find it almost impossible to keep up with the unrelenting onslaught of competition. Uber quit the fight against Didi, and foreign online travel agencies like Booking.com and Airbnb continue to struggle in China."

He adds: "Events like 11.11, 12.12 have even spilled over to South East Asia and other parts of the world. This was not likely something foreign grocery retailers were expecting to face. It'd be difficult to be a net positive contributor to growth from their China operations with this happening year after year."

If looking to maintain offline shopping, focus on creating a value-add experience that differentiates it from online shopping, and finally, integrate all of their consumer touchpoints and media to drive traffic and maintain buzz.

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