Analysis Of Mercadonas Internationalizing Economics Essay

Mercadona is a 100 Spanish-owned Distribution Company within the supermarket segment. It is the largest chain of supermarkets in Spain. The executive President is Juan Roig. They have the “SPB´´ policy, which means in Spanish “Siempre Precios Bajos´´ (Always Low Prices). They are able to offer SPB because they buy their products directly from the sources, setting up long-term agreements with manufacturers. This Model is called `The Total Quality Model´ (Mercadona, 2010).

Recent research on retailers (Esade, 2011), shows that Mercadona is the leader in the ranking of house brands that are preferred by the customers.

STATEMENT ABOUT THE INTERNATIONAL PROFILE:

Mercadona has establishments in many cities in Spain but has no presence overseas. In spite of the crisis, the profits of Mercadona are still growing, and they are strong enough to start internationalizing. Mercadona has increased its turnover an 8% up on the previous year and grew 4% in sales per floor area. “ It is possible to continue advancing and growing, even in the highly adverse times we are living in´´ (Juan Roig, Annual Report 2012). The process of internationalization of the leader supermarket network in Spain started a few years ago. Applying a strategy is very difficult and requires studies of the different target markets. Mercadona is a LSE (Large Scale Enterprises according to the EU definition) with more than 250 employees. LSEs characteristics (Sirkeci and Cawley 2012, p.5) are mainly risk-averse, focus on long-term opportunities, capacity to take advantages of economies of scales and scope and use advanced techniques for finding information.

RATIONALE FOR INTERNATIONALIZATION:

According to Svend Hollensen (2007, p.5), international expansion provides new and potentially more profitable markets; helps increase the firm´s competitiveness; and facilitates access to new product ideas, manufacturing innovation and the latest technology. Mercadona is a mature and potentially global firm which capability to internationalize. It is prepared for globalization, basing in the nine strategic windows of Solberg (1997). (See appendix 2)

ANALYSIS OF VARIOUS TARGET MARKETS:

To decide the target market is important to consider the geographic the physic and the cultural distance (Johanson and Vahlne, 1977 cited in Hollense, S, 2007, p.244). According to the geographic distance, the nearest markets are Portugal, Morocco, Italy and France (Brief summary in appendix 3). Analyzing the physic distance, Italy is the nearest one because the culture is very similar. Portugal is also very similar, but is geographically so near than before or after, Mercadona will have presence there and it is not necessary to study the market. Analyzing Morocco is also very similar but the religion is different and this factor may difficult the expansion. France is discarded based on the physic distance and the competitive rivalry. We just have Italy, and according to Mercadona´s characteristics this is the most interesting country (El Confidential, 2012), a very close country psychologically and geographically. The protectionist regulation could be avoided by acquiring a supermarket chain of the country. Mercadona has a group there, directed by Francisco Espert, which is managing purchases from suppliers and studying the characteristics of the local sector of distribution (Carlos Herranz, 2012).

Mercadona is trying to find the best partner for the internationalization, maybe acquiring “Esselunga´´ (A. Caparós, 2006) which is very similar as Mercadona. But is so much similar that would be very difficult to change the present culture.

(add other approaches to analyse the target markets)

ANALYSIS OF THE CHOSEN TARGET MARKET- ITALY:

Italian retail market has several key characteristics are for example highly fragmented and a limited international presence (see appendix 3). Recent research on Italy´s Grocery (Euromonitor, 2012), grocery retailers had seen their sales increasing by 1% to 122€ billion in 2011, although grocery retailing stores sales are expected to decline slightly over the forecast period. In spite of the financial crisis, Italy is maintaining as one of the biggest economies in the world and it is consider as a country with high standards for business, investments and trade. Mercadona, if internationalize in Italy, would be on the Northern Italy, in which the population is higher, most of the between 15 and 64 years old, that are the commonly customers in grocery.

According to the political and legal factors, Italy has a stable government and nowadays they are removing several bottlenecks to facilitate bureaucratic burdens on citizens and SMEs.

Finally, the technology in Italy is developed. Carrefour has self-scanning and self-payment machines, Esselunga was the first Italian supermarket chain in introducing online shopping and Coop uses ZBD´s epaper. Mercadona will not have problems in introducing its technology in Italy.

A deeply analysis of the economy, demography, politic and legal factors and technology is available in appendix 4.

COMPETITORS ANALYSIS:

If Mercadona decide to internationalize in Italy, It would have to compete with big retailers, like Carrefour and Auchan, and local leaders such as Coop, Conad, Esselunga y Selex.

According to Graziella Ascenzi (Expansion, 2012), the Italian retailing market is very fragmented between small and big firms, with regional differences based not only in gastronomy traditions but also on households income. In the north of Italy (Target Market) there are many competitors for Mercadona. Detailed regional´s competitors research and competitor´s company descriptions are available in appendix 5.

CUSTOMER ANALYSIS:

Customers in Mercadona are known as the “bosses´´ (Mercadona, 2011).Demand is driven by consumer income and demographic trends. In Italy consumers are being more interested in private labels and cut-price promotions. (Grocery Retailers in Italy, 2012).

Italian consumers are moving away from expensive expenses and looking for discounted prices. This could be a competitive advantage for Mercadona, whose prices are low. Supermarket retailers have increased the private label range which helps Mercadona to introduce its house brands. Moreover, Mercadona´s supermarkets have an average retail area of between 1300 and 1500 square meters (Mercadona, 2012), and as it is said in the research, hypermarkets with a selling space of 4,500 square meters appears to struggle to remain attractive and customers are moving towards those supermarkets bigger than 1,200 sp. meters which are often placed in more reachable areas. Here we could consider another advantage for Mercadona´s strategy. More information is detailed in appendix 6.

POTENTIAL POSITIONING:

Mercadona has low prices (according to their policy “SPB´´) and high quality. The main competitor in Italy (Esselunga) is situated very near so it could be more difficult for Mercadona to set up their business, but it is easier for them to face the situation with their `Total Quality Model´.

RECOMMENDATION:

In my opinion, Mercadona should internationalize, starting in Italy with which Spain has very similar culture (Mediterranean Food, for example) and geographically is near too. According to a recent research in the Wall Street Journal (see appendix 7), it is strong enough to face the internationalization and the potential competitors that will have. A method could be buying a grocery retailer in the target market and learn of it before the establishment of their own brand.

APPENDICES:

APPENDIX 1:

The company employs over 70,000 people, all of them with permanent contracts. Their goal “is to satisfy the daily food , cleaning, hygiene and pet care needs of the more than 4.6 million households that do their grocery shopping at Mercadona every day´´. (Mercadona, 2012).

It has establishments in 46 provinces in Spain in 15 Autonomous Communities and represents a 13.5% share of Spain’s total food retail space while contributing to the dynamics of the commercial environments in which they are located.

The Total Quality model had been a success in terms of company growth and profitability, sustained by the success of Mercadona´s high investments in employee training and satisfaction (Mercadona, 2010).

SOURCE: adapted from “Mercadona´s Annual Report´´ (2011)

Mercadona is also well-know because of the good quality of their house brands as for example “Hacendado´´ that is used for food, “Bosque Verde´´ used for cleaning products or “Deliplus´´ for hygiene products. They buy products from a manufacturer and put their own name on the products.

SOURCE: adapted from “Mercadona´s Annual Report´´ (2011)

APPENDIX 2:

Source: Adapted from Solberg (2007)

Solberg (1997) discusses the conditions under which a company should `stay at home´ or `strengthen the global position´ as two extremes. (Hollensen, S, 2007). Mercadona is situated in the window number 6, mature according to the preparedness for internationalization (growth, profit and good basis for dominating the international markets) and potentially global according to the industry globalism (which is determinate by the international marketing environment).

APPENDIX 3:

The Italian retail market has several key characteristics. It is highly fragmented; The top 10 retailers have generated only 20% of retail sales in 2008 compared to 29% in Spain 43% in the UK. International retailers have a limited presence, although Carrefour, Auchan and Spar have all gained a place within the top 10. Internet retailing is growing too, but has less presence than in other West European markets, accounting 2% of sales in 2008 in contrast to an average of 5% for the region as a whole (Euromonitor, 2009). Mercadona has a website in which you can buy your grocery and then that will be sent to your home. This could increase the internet retailing in Italy.

Cuota+obj+Mercadona

APPENDIX 4:

ECONOMY:

The Italy Economy is one of the most developed with a per capita GDP higher than the EU average (Economy Watch, 2010). Most of the Economy is based in the tourism; because it is the world´s fifth most visited country in the world due to its history and culture.

Because if the crisis the rate of unemployed has been on the rise in the past few years with levels of 8,4% (OCDE, 2010) with a labour force of 25,05 million (International Living, 2012). According with the World Bank, Italy has been categorizes as a country with high standards for business, investments and trade. In 2012, Italy´s GDP was US$ 1.771,14 a bit lower than past years but it is remained one of the biggest economies in the world during the financial crisis.

DEMOGRAPHY:

Italy currently has the forth-largest population in the Europe Union and the 23rd-largest population worldwide (Demography in Italy, 2012). The highest density is in the Northern Italy. Milan is the most populated city in Italy with 7.4 million of citizens. About 69% of the population is between 15 and 64 years old (This range of years is the one that buy the most). 98,4% of the population is able either to read or to write. There are different religions, predominately Roman Catholic with mature Protestant and Jewish communities and a growing Muslim immigrant community. (Kmike, 2012)

POLITICAL AND LEGAL FACTORS:

Italy has been a democracy since the end of World War II. It is a republic in which the president is elected by popular vote. Italy has a bicameral legislature consisting of a 315-member Senate and a 630-member Chamber of Deputies.

Taxation in Italy is quite a complicated issue because there are numerous taxes that each citizen has to pay. Moreover taxation is high, representing 43.3 percent of the GDP. However, the number and quality of the public services are some justification for high taxes, and measures to simplify the tax system have been introduced since 1998. Income tax accounts for 34.9 percent of total tax revenues, while value-added tax (VAT) contributes 35.4 percent. In addition, local governments levy other indirect taxes. (Encyclopedia of the Nations, 2010)

For a long time, larger chains were discouraged by the difficulty of gaining planning permission for larger format stores, but this has become easier since the reduction of planning guidelines in 1998 (Euromonitor, 2009).

The current administration has removed several regulatory bottlenecks to economic activity which could increase GDP growth by around 0.3%-0.4% per year over a decade, easing bureaucratic burdens on citizens and SMEs (OCDE, 2012).

TECHNOLOGY:

Mercadona does not skimp in technology and it was the retailer in Spain using the scan barcodes and it owns automated logistics warehouses just outside Madrid (Computers monitor deliveries from suppliers and organise shipments to stores). Mercadona also has online shopping available at their website. In Italy, competitors use technology too. For example, Carrefour has self-scanning and self-payment machines, Esselunga Sharpens its Pricing Strategy with Oracle® Retail Planning Platform and it was also the first supermarket to introduce the online shopping (Oracle, 2012), and Coop has introduced de ZBD´s epaper reflecting the ‘technological style´ of their shops (Retail Systems, 2010).

APPENDIX 5:

Mercadona´s competitors are detailed here for the different parts of Northern Italy:

In Lombardy, the market is dominated by Esselunga with a 27,7% of the market share, followed by Carrefour and Auchan (10%) andCoop (8%).

In Veneto, Selex is the leader with a 33,3% of the share. Far away it is followed by Despar (10,9%) and Coop (9,5%).

In Piedmont Carrefour is the first supermarket with a share of 20%, in second position is Coop (18,7%) and with a 12,6% of the share it is Selex.

In Friuli Venezia-Giulia, Coop controlled the 27,9% of the grocery, followed by Despar (23,3%) and Selex (10,6%).

In Trentino-Alto Adige Agorá, Despar and Coop covered respectively a 31,4%, 24,5% and 22,3% of the share.

Finally, in Valle d´Aosta the C3 group owners a 39,7 per cent of the market followed by Carrefour with a 27,5% and Conad with a 17,1%.

COOP:

Their vision is “Together to the top.” It motivates them to do our very best in every way, each day. Their corporate profile expresses how they perceive their work: close, diverse, distinctive, innovative and partnership-oriented. (Coop, 2012)

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ESSELUNGA:

Esselunga is a leading Italian grocery store chain, with supermarkets and hypermarkets in northern Italy. The Italian grocery chain has long been rumoured to be a takeover target of foreign retailers because it operates in some of the richest regions in Italy. The company has been busy opening new stores and remodelling existing locations. Founded in 1957, Esselunga is owned by Supermarkets Italiani S.p.A., and controlled by its founder and Chairman Bernardo Caprotti and family. (Hoovers, 2012)

CARREFOUR:

Over the past 40 years, the Carrefour group has grown to become one of the world’s leading distribution groups. The world’s second-largest retailer and the largest in Europe, the group currently operates four grocery store formats: hypermarkets, supermarkets, cash & carry and convenience stores. The Carrefour group currently has over 9,500 stores, either company-operated or franchises.

Carrefour´s three values are: Committed, Caring and Positive that bring them closer to their customers and consumers and reflect their personality. (Carrefour, 2012)

In the figure they are briefly explained the five forces of the Porter Model that could be related with Mercadona.

APPENDIX 6:

In Mercadona, the customers are referred as “The bosses´´. The Italian consumption has raised 1,6 percent year to patterns seen before 2007. But the spending is falling down (In 2008-2009 it decreased until 1999 levels) because of the recession. Spending less on vacations, food and clothing have brought overall spending to the levels seen in 1999. The Euro zone´s third largest economy is recovering from its post-war recession. (Deepa, B. 2011)