WHY WAL-MART FAIL & CARREFOUR SUCCEED
IN
INDONESIA ROIKE TAMBENGI BLEMBA 5 SBM ITB
WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA
Chapter 1 Background Indonesia Retail Market The Indonesian government opened the retail industry to foreign investment in 1998 following the letter of intent, which the Indonesian government signed with the International Monetary Fund (IMF) to revive the Indonesia’s ailing economy. Soon after the 1998 liberalization, many big foreign retailers began to invest in Indonesia. Foreign retailers have been particularly active in the hypermarket sector. While many business sectors are slowly recovering from the economic crisis, the retail sector is on a rebound. The rapid recovery of the retail industry has been driven mostly by strong domestic consumption, serving as a primary factor to improve Indonesia’s economy. Competition in the Indonesian retail industry has been very sharp, especially after the entrance of foreign retailers. While some foreign retailers failed and closed down their outlets, many are successful and expanding their business. In Indonesia, there is no regulation governing where a retailer can establish outlets. As a result, many large retailers are strategically located in the heart of Indonesia’s big cities and compete directly with smaller retailers. In Indonesia, most hypermarkets are
located strategically in heavily
populated areas in many big cities. Consequently, hypermarkets attract many customers every day and compete directly with supermarkets and minimarkets. In the near future, the hypermarket business is expected to expand significantly as many major players are planning to open more outlets all over Indonesia. In terms of total sales turnover, mini-markets do not contribute significantly to the Indonesian retail industry. However, franchised mini-markets have enjoyed substantial growth in recent years. With a comfortable shopping ambience, a complete range of products, competitive prices, and easy
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA accessibility, the mini-markets have been gaining popularity and establishing a solid presence in residential and business areas. Specialty shops have also been gaining popularity in Indonesia as they provide opportunities for customers to compare products from many different suppliers prior to making a purchase. They usually attract serious customers, display their products in an attractive fashion and maintain reasonable prices. Most specialty shops also employ an ample, knowledgeable sales promotion staff that is ready to assist customers. With the proliferation of malls into Indonesia’s secondary markets, specialty shops are expected to expand rapidly and gain market share from other retail competitors. In Indonesia, specialty shops are available in many product lines. Examples are Electronic City (electronic products), Toys R Us (toys), Guardian (pharmaceutical products), and many others. Wal Mart Wal-mart was founded by Sam Walton and his brother, James “Bud” Walton, in 1962. The Walton boys revolutionized discount retailing, with the result that by 1989 Walmart was the world’s largest retailer. The Walton’s proposition was simple, deliver a wide array of merchandise at discount prices topped up by a friendly service. Sam Walton led the company until 1988, being a powerful CEO whose philosophy drove every aspect of the business. He believed in empowering yet controlling employees, maintaining Wal-mart’s costs and prices below everybody else’s, and aimed at logistics excellence by maintaining technological superiority. In 1996, Wal-Mart entered Indonesia with Lippo Group, the most powerful Indonesian conglomerate outside of the almost royal Suharto family. Through a license with Lippo's Multipolar unit, Wal-Mart got its first supercenter up and running in August 1996. The license is a very close working arrangement, with Wal-Mart paid by Multipolar on a fee for services basis. Research estimates there is 18 million sq. ft. of shopping center and mall space in Megamal. Wal-Mart is getting in on the ground floor of mass merchandising in Indonesia, where the local newspapers regularly debate the size and shape of the emerging middle class as though it were a delightful but puzzling new life form. As in most of Asia, nearly all shopping is done in the
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA tiny stores that dot every street. But the middle class, fond of status symbols, broad selection and good values, flocks on weekends to the shiny new malls that are rising all around Jakarta, a city of 8 million, with a metro census of 20 million. Carrefour The second largest retailer in the world after Wal-mart, Carrefour had humble beginnings. The first store, was opened by Marcel Fournier and Louis Defforey in the summer of 1960. This was followed quite quickly by the first Carrefour “hypermarket”, which was established at the intersection of five roads (Carrefour means “crossroads”) in Sainte-Genevieve-des-Bois outside Paris. The store was a first of its kind, an initial test of the one-stop shop formula where consumers could get almost all of their shopping needs satisfied at one location. The store provided selfservice grocery shopping at discount prices and stocked items such as clothing, sporting equipment, auto accessories, and consumer electronics. Carrefour hypermarket concept and the company grew rapidly. Between 1965 and 1971, sales growth exceeded 50 percent per annum with non-food items accounting for about 40 percent of the total volume. Starting in 1970, Carrefour opened the first of its “commercial centers”, colossal operations with piling areas as large as 25,000 sq. mt. By the end of 1971, the company was operating 16 wholly owned stores, had an equity interest in 5 stores operated as joint ventures, and had franchise agreements with 7 additional stores. Carrefour began its internationalization and by 1999, after the merger with Promodes, it had 681 hypermarkets, 2,259 supermarkets, 3,124 hard discount stores, and 1,921 convenience stores and other formats selling under its banner. The stores were located mostly in France but also throughout Europe, Asia, and Latin America. PT. Carrefour Indonesia (Carrefour), since its establishment in 1998, Carrefour of France has been expanding its business rapidly in Greater Jakarta and other big cities. When French retailer Carrefour entered the Indonesian market – also in 1998 – its aim was to organically increase a network of hypermarkets in collaboration with its joint venture partner Tigaraksa. Carrefour, as a major player in the hypermarket sector, currently operates 29 outlets throughout the country. The company markets more than 50,000 product items and 1 3
WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA employs more than 10,000 employees. In 2006, Carrefour recorded sales of $656 million. In 2008, the company booked €893 million in total sales.
Chapter 2 Company Strategy
Wal-Mart A key strategy of Wal-Mart is to dominate the retail market.
Company
founder Sam Walton put in place a retail philosophy the company still follows. Wal-Mart is primarily a discount retailer because they sell their products at the lowest possible prices. By selling at the "lowest price" outlines that the essence of successful discount retailing to cut the price on an item as much as possible, lowering the markup, and earn profit on the increased volume of sales. If there is one competitive element that differentiates Wal-Mart from its competitors, it is EDLP, every day low pricing. While simple in its conceptualization, EDLP is probably one of the most difficult pricing strategies for any retail business to execute. It requires a level of discipline that most retailers do not have. To successfully execute EDLP, retailers must go against the competitive tide of using promotional activity to drive traffic. Trust has to be built with the consumer over a period of years convincing them that the business will not promote and that the consumer is actually better off, day-in, day-out, receiving the lowest price for a basket of goods. In order to deliver on this promise of low price, an EDLP retailer also has to be every day low cost retailer in the market. Wal-Mart achieves this objective by having an all encompassing passion for driving down costs in all aspects of their business. Their goal is to be the low cost provider in the market. Their basic business model is probably best illustrated by the productivity loop.
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA EDLP offers many operational advantages as well. EDLP allows for more accurateforecasting and combined with POS data sharing with suppliers, helps reduce inventory throughout Wal-Mart’s supply chain, improving inventory efficiency for both Wal-Mart and their suppliers. A second cost advantage of EDLP is that it does not require the kind of continuous priceitem advertising that hi-lo pricing retailers must do.
Wal-Mart’s advertising strategy also provides a competitive cost advantage. The company spends less than one percent of sales on advertising. This strategy derives from the company’s “every day low pricing” philosophy and its “no deal” merchandising strategy. This reduces costs in other ways. Promotions put an enormous strain on logistical and distribution systems, and Wal-Mart doesn’t have that, reducing complexity and taking cost out of the business. Wal-Mart’s advertising is image-oriented, national, and focused on reenforcing a low-price image. It does no store specific ads or promotions. You will not find an item specific flyer in your local Sunday newspaper for WalMart as is the common practice for most of their competitors. Wal-Mart not only works closely with suppliers, it focuses on its best suppliers. The goal in all cases is to significantly reduce supply chain complexity. Wal Mart does this by running a “best price, no deal” business: no markdowns, no allowances, no promotional money. This reduction in supply chain complexity is a critical component in Wal-Mart’s focus on reducing the cost of doing business. Inventory never has to be built up for a special promotion. Store layout need not be changed for the same reason. The Retail Link system enables Wal-Mart to share information with their suppliers on a real-time basis. Everyone — the company, its merchandisers, its inventory managers, its sales people, and its suppliers — are looking at the same data, at the same time. Suppliers know their inventory position in every
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA store, on any day. Over 70% of this inventory is owned by the supplier, which gives them an added incentive to improve productivity and sell-through. The benefit to the suppliers is that they get paid as soon as the product gets scanned. Invoices, purchase orders and other documentation are processed through a more commonly used Electronic Data Interchange system. All this requires a substantial investment in technology — technology to enable both Wal-Mart and their suppliers to capture, process, understand and act upon information. At the end of the day, Retail Link is the key to WalMart’s success. Without Retail Link, there would be no Wal-Mart as we know it today. Wal-Mart’s competitive position in the marketplace does not depend on them squeezing their suppliers ever harder, for more and more concessions. Wal-Mart relationship with their best suppliers is a win-win for both Wal-Mart and the supplier. By conforming to Wal-Mart’s standards for doing business, suppliers increase their market share and become better suppliers. Carrefour Carrefour strategy is being the preferred retailer, which has many meaning. It means having stores where customers are naturally drawn to shop, and to which they are loyal. It means having the trust of customers, trust in product quality, price and service. It means being able to satisfy and anticipate customer needs and giving customers the best special offers. It means respecting producers and the environment. It means earning customer preference through social commitment and action. It means making their staff proud to work. Being the preferred retailer means making customers want to visit, and keep visiting. It means making customers happy by making lives easier. Client-oriented culture,
getting to know the customers better in order to
serve them better. As a multi-format retailer, Carrefour can offer solutions addressing a wide variety of shopping habits. Carrefour try to enhance its knowledge of customers, with the aim of serving them better and improving its brand image. In stores, the Carrefour brand will be conveyed in a way that is closer to the customer and more emotionally involving. By being more competitive, the brand will again become a tool for winning customers, enhancing customer loyalty and distinguishing Carrefour from the pack. In 1 3
WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA towns and villages, as convergence accelerates, the Carrefour brand will provide its best stores to more customers. In this way, Carrefour will make customers want to come, and keep coming, to its stores, regardless of the format or product offering. By focusing on retailing, Carrefour will become customers' preferred retailer Carrefour's success is based on the talent and motivation of its staff. To increase efficiency and competitiveness, and in order to improve as a retailer. Carrefour enhances synergies between sales and purchasing, and creates new relationships between head offices and stores. Sharing of knowledge and best practice will form the heart of this transformation process, which will be carried out by, and for the benefit of their staff. While most of the global retailers and consumer product companies considered Indonesia to be a single huge market, Carrefour adopted a different approach. It considered the country to be comprised of several markets. The company approached these markets with flexible procurement, store management, marketing, and service strategies. Since the initial years of its operations in Indonesia, Carrefour concentrated on keeping the prices low, keeping in mind the fact that for Indonesian consumers, price was the main consideration. This made Carrefour’s hypermarkets very popular among the Indonesian consumers. Carrefour sold a wide variety of goods, which attracted consumers to the stores. Convenience was another factor that the company promoted. The Indonesian consumers had to visit several places like wet markets for purchasing fish, grain markets to pick up grocery items, and small specialty stores to obtain other items. Carrefour provided the convenience of obtaining all these items under one roof. Carrefour chose the store location based on the available space and the purchasing power of the people in that location. Before opening new stores, a team conduct a detailed study of the store location followed by a study on the culture, customs, and traditions of that region. As a part of the study, the team also assessed the purchasing potential of the local people and assessed their purchasing habits. Carrefour was careful in choosing the locations and opened stores in highly populated areas.
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA Carrefour procured most of the goods from within Indonesia to cater to its local operations. Since its initial years of operation in Indonesia, about 85% of the stock sold was procured locally. This helped Carrefour maintain lower prices compared to other foreign retailers, who sold imported products. Buying and stocking local products was part of Carrefour’s strategy to cater to the needs of the local customers. However, the items stacked were also different depending on the location of the store. Carrefour sold its own label of products that were of good quality. As of 2006, there were over 2000 products that Carrefour sold under its own label which included food, grocery, daily necessities, and clothes. These products were priced 20-40% below the market price of competing branded products for the private label products sold by Carrefour.
Chapter 3 Failure & Success Wal-Mart in Indonesia The biggest failure Wal-Mart has suffered in expanding internationally was in Indonesia. The company did not understand the local market. In a Wal-Mart store, merchandise was presented in a very orderly way, but the Indonesian consumers think order means high price. They like merchandise thrown out on tables, not the Wal-Mart way. The company also had a lot of disagreements with local partners about ownership and direct competition; and in 1998, when civil unrest broke out as a result of the Asian currency crisis; one of the Wal-Mart stores was burned down. That’s when the retailer decided to leave the Indonesian market. While trying to establish itself in Indonesia, Wal-Mart was shut down by rioting during the Asian financial crisis at this time.
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA Wal-Mart claims that Lippo violated the franchise agreement when, without Wal-Mart's prior knowledge, it bought a controlling stake in rival discounter Matahari. One of Matahari's Mega M stores is in the same mall as a Wal-Mart supercenter in Jakarta. Wal-Mart feared that the acquisition would give its rival access to proprietary information. "There was a clear noncompete clause" in the franchise agreement, says WalMart spokesman Dale Ingram. Plus, he claims that Lippo owes Wal-Mart millions of dollars in franchise fees. The world's largest retailer is seeking arbitration in U.S. District Court in San Francisco to settle the dispute. Lippo, meanwhile, has sued Wal-Mart in West Jakarta District Court. It's accusing the retailing giant of financial misrepresentations and is seeking to prevent
Wal-Mart
from
abandoning
allegations "completely fiction." Lippo has figured prominently
in
the
business.
ongoing
federal
Wal-Mart and
calls
the
congressional
investigations of finance abuses during the 1996 U.S. Presidential campaign. The Riady family -- founders of Lippo Group -- is close to President Clinton, and almost $1 million in campaign contributions from Riady family members and employees had to be returned by the Democratic National Committee because of their foreign origin. Lippo signed a flurry of ambitious joint-venture agreements with U.S. companies in the early 1990s. Many have unraveled, with Wal-Mart being the latest. The two partners opened their first store in August, 1996, and a second in January, 1997. Before Wal-Mart entering Indonesia, one of the largest retail chain, department store operator Matahari, has been preparing for the openings for more than a year, and had sent teams around the world to gain first-hand knowledge of its American nemesis. When the first Wal-Mart Supercenter opened, Matahari was waiting directly across the sub-urban Supermal atrium with its own new supercenter concept, dubbed Mega M. Mega M is waiting at the Megamal too, where it operates a four-level store, open since November, at the opposite end from the new Wal-Mart. Mega M shouts its stance with a new slogan, "Garansi: harga termurah setiap hari," which means "Guaranteed: lower prices every day." Wal-Mart's slogan, "Harga murah selalu" translates as "Cheap prices always." To win over the consumer, Wal-Mart is hammering away at the value and price messages, because most consumers in developing countries at first
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA glance think Wal-Mart looks too upscale. In Indonesia, Wal-Mart and Mega M first squared off to do battle in dueling three-level, 180,000-sq.-ft. stores at one end of the Supermal Karawaci. This is the 2 million-sq.-ft. retail showcase of Lippo Karawaci, a completely new suburban community about one hour from downtown Jakarta. To Indonesian shoppers, the Wal-Mart Supercenter's bright and colorful cornucopia of domestic and imported products can seem overwhelming. In Indonesia, the second Mega M is showing new signage, upgraded fixtures, better merchandising discipline on endcaps, friendly store greeters and visible loss prevention personnel , all innovations borrowed from Wal-Mart. After the first few months of operation, the Wal-Mart team has reacted too, offering special promotions on items from paper towels to plush animals to TV sets, altering the mix in some product categories and changing the presentation priorities in others. In the second Jakarta supercenter, many shoppers entering the main mall will do so through Wal-Mart's ground floor, which is devoted to deli, bakery and fresh floral departments.
Carrefour in Indonesia The success of Carrefour’s hypermarket concept in France soon drew international attention as other retailers in other countries sought to learn and duplicate the process. Carrefour’s international expansion was begun initially through joint venturing with local partners. These partnerships were seen as the best way of merging the company’s format and systems with the local knowledge of merchandise preferences, vendor relationships and human resources possessed by their local partner. The year of 1998 was the time of the Indonesian government opened the retail industry to foreign investors. It was following the letter of intent, which the Indonesian government signed with the International Monetary Fund (IMF) to revive the ailing economy due to financial crisis. The letter of intent stated that the Indonesian government should revoke the ban on foreign investors to enter the wholesale and retail businesses. The decision to open the Indonesian retail industry to foreign investors was later legalized by a Presidential Decision No.99/1998 and a Decision Letter of the State Minister of
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA Investment (Head of Capital Investment Coordinating Board) No.29/SK/1998. The regulations stipulated that licensing procedures and all other requisitions that a foreign retailer has to fulfill are the same with those applicable to local large-scale retailers. Reformation of economy by International Monetary Fund (IMF) in 1998, Indonesia had to open the market for retail industry. In 1999 Carrefour entered Indonesia in many strategic places. Localization Strategies. Carrefour believed that its stores should reflect the local environment and complement the local culture. The western style hypermarket was customized by Carrefour to effectively cater to the needs and preferences of Indonesia consumers. Most of Carrefour’s stores in Indonesia were spread across several floors and ramp escalators were provided to move shopping carts between the floors. Carrefour stocked products preferred by the local population, in a manner they demanded. In some of the company’s stores in Indonesia, the department selling fresh food and groceries was designed to resemble the local outdoor markets.
Carrefour also acquire Alfa Retailindo, a listed company on the Jakarta Stock Exchange, a major operator in Indonesia, operating 29 stores (Alfa Super Market) across the country (with sales area comprised between 1000m2 and 4000m2), of which 13 are located in Jakarta. Alfa Retailindo reported net sales in 2006 of IDR 3624bn (€265m). With this acquisition, Carrefour Indonesia consolidates its position as a leading food retailer in the country. This acquisition forms part of Carrefour’s strategy to reinforce its presence in key growth markets through a locally adapted multi format approach. Carrefour’s operations in Indonesia today consist of 37 hypermarkets (vs. 29 hypermarkets in 2006). Carrefour in Indonesia recorded €627m sales in 2006, and sales were up 14.4% over the first nine months of 2007. Carrefour give franchise services in Indonesia, As the No 1 retailer in Europe and No 2 worldwide, Carrefour aims to set the benchmark in modern retailing for the protection of health, consumer safety and the environment. This
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA company mission is expressed by seven core values: freedom, Responsibility, Sharing, Respect, Integrity, Solidarity, Progress. Quality is one of the main source of competitive differentiation and is part of the fundamental policies defining the implementation of the Group’s strategy. It always corresponds to what the customer explicitly or implicitly wants and must be clearly perceived as such. The value for money must be the best. Controlled products whether banner brands or own brands, offer exemplary quality and safety. A product must demonstrate the required quality level before it can be approved for purchase. The best possible value for money is offered at every price level (first price products/ own brand and banner brand products). For own brand and banner brand products, the quality process includes signing a set of specifications, approving production sites and product control plan, processing and archiving any con-compliant products and following up of customers claims. To complete this system, Carrefour has deployed in 2005 a Quality Scorecard available on the group’s intranet site, which enable all the countries to track products at every stage of their marketing and to react more efficiently in case of a crisis. To guarantee the quality of its food products and its own brand and banner brand products, Carrefour systematically conducts audits on its suppliers’ production sites, which are audited health and safety conditions.
Chapter 4 Conclusions Increasingly, the world of retailing is becoming Wal-Mart’s world. It is one of the most global retailers in the world, operating in 11 different countries around the world, with multiple formats, all tied together by a state-of-the-art retail distribution system known as Retail Link. Wal-Mart has had both successes and failures in foreign expansion, but it is important to note that Wal-Mart is a learning organization. When Wal-Mart has problems, they solve them by learning and adapting. Carrefour has learned how to enter foreign market and try to be succeeding in the market they are trying to enter. 1 3
WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA So, in sum, the common attributes of the countries in which Carrefour are as follows: (1) Small-scale retail rationalization and reorganization has not progressed. (2) Large-scale chain supermarkets are absent from the market. (3) Potential competitors that carry specialty items, like household electrical appliances and clothing, are absent from the market. (4) Large amounts of retail space can be attained at low cost. (5) Laws and regulations governing large-scale retail operations are "developer-friendly." Taken together, the combination of these attributes of the target market, coupled with carrefour's strategy of sewing up suburban and metropolitan areas in an effort to draw customers from both areas and thereby displace local small-scale retailers, are key factors in the company's success overseas.
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