Walmart Looking at New International Markets, Store Formats

Walmart is examining new international markets and experimenting with new store formats.  Those are issues that can affect Walmart suppliers, as shoppers in different countries may prefer different brands or formulations.  In addition, store formats can dictate variables like pack size and price.

Those were the takeaways from a seminar that Doing Business in Bentonville held Wednesday morning at the Embassy Suites in Rogers, Arkansas.  Speakers included Paul Martin, commercial director of Planet Retail and based in the firm’s London office; as well as Brian Wisniewski, senior vice president for North America, Planet Retail, based in Chicago.

Walmart will add about 25 million square feet in 2010, with further acquisitions and international market entries likely, Wisniewski said. Walmart will grow in western Canada, a country where the retailer already does business, and where a new chilled distribution center will open later this year in Calgary, he said.

Walmart will spend about $1 billion to open 100 to 110 more units in Brazil in the coming year, Wisniewski said. And last year’s acquisition of D&S Distribucion y Servicio in Chile likely means Walmart — like D&S before the acquisition — is eying Peru.

“Our guess is that we will see a move in 2010/11 and it likely will be an organic entry by the Acuenta banner,” Martin said.

In many foreign markets WalMart tends to keep the store logo and branding of the acquired company, while using Walmart policies, best practices and sourcing. Colombia is the next obvious choice for Walmart in Latin America, as it is the only major Latin American market which Walmart lacks. “An acquisition is possible,” Martin said.

Wan Ling Martello, who then was senior vice president and chief financial officer of Walmart International, said in June 2009 that Walmart was looking to enter new markets if the time, the return on investment and acquisition opportunities were right. Martello specifically mentioned Africa, the Middle East and the Philippines as future markets. Martello since Jan. 28 has been Executive Vice President and Chief Operating Officer of Global.com, Walmart’s global e-commerce site.

South Africa has highly developed retail markets. The country’s two largest retailers are Pick n Pay and ShopRite, Martin said. In addition, South Africa is readying for the world spotlight with the FIFA World Cup to run June 11 to July 11.

“What the World Cup has done has stimulated investment in infrastructure and it will definitely put South Africa in the global picture,” Martin said, He expects Walmart to continue exploring an acquisition target over the next years in South Africa.

Walmart also is exploring store possibilities in Turkey, in the Philippines and in Vietnam.
Walmart already is in China, under the Walmart, Sam’s Club, Neighborhood Market, Smart Choice and TrustMart banners. China is the highest potential growth market for many international retailers. However, retailers must have patience and wait for more growth in China to take off in the next five to ten years, Martin said.

About 97 percent of Chinese retail sales are in the traditional sector, including informal markets and mom-and-pop operations.

“Modern retail has not even scratched the surface in the market,” Martin said.  The retailer is developing a Smart Choice small format discount concept for China’s urban retail environments.

Walmart has two Bharti cash and carry warehouse stores in India to supply other retailers and businesses. Entering India is difficult for foreign businesses as India has laws to prevent direct foreign investment. Foreign firms must partner with a domestic firm already doing business in India.

In addition, most of India’s retail, like China, lies with informal markets and more than 15 million small mom-and-pop operations, Martin said.

“They have a very, very large interest in stopping expansion of modern retailers,” he said.
With those challenges, Walmart views India as a long-term project over many years.

“It’s a market you have to be in but it is not going to pay any dividends for a long long time,” Martin said. “Walmart is heavily lobbying the Indian government to liberalize foreign direct investment restrictions.”

There are 32 states and four independent territories, meaning retailers must get licenses from a host of entities to do business in India, he said.

Walmart, has had an office in Moscow for several years, and there is speculation about their being in talks with an as yet unnamed retailer.  Russia is a tough market for foreign entities unfamiliar with local practices and customs.

Store Formats
Walmart has 70 different store concepts globally, Martin said, and most people are not aware of that diversity. “In the U.S., we can see seven distinct formats,” he said.

“Walmart has really learned they must diversify their store format offering and they have launched a whole host of new concepts over the last couple of years,” he said.

Putting a big box Supercenter on the outskirts of large cities like Mumbai and Sao Paulo do not work because residents may have small cars or ride bicycles. They can’t stock up on monthly or weekly shopping trips, as electricity may be unreliable and refrigerated items may spoil. People buy what they need each day or two in small quantities.

Small format stores are in development in Mexico, Puerto Rico, Brazil, Argentina and China, Martin said. New stores opening in 2010 in Mexico will be the small box Bodega Aurrera Express and Mi Bodega Aurrera.

“There’s a very very high drive on private label” in the small format stores, he said.

Private Labels
Walmart’s private label sales total about $200 billion, which is more than Nestle’s global sales. Walmart is not limiting its private label sales to a country or group of countries.
“What we are seeing today is brands such as Great Value, Durabrand and Equate that have gone global. Their private labels are now being exported to Japan and Mexico. They have been able to move 120 Great Value lines into Chile,” Wisniewski said.

However, private labels also can be customized to local tastes, with specific private label products for sale in Central America and Asda in the United Kingdom.

Global Brands
Walmart will work with suppliers to get some brands into markets where those items are not yet sold. Walmart and Clorox are working to get the GreenWorks products in Seiyu in Japan, Wisniewski said. Heinz is working to bring its brand of ketchup to Brazil.

Walmart’s Global Brands Import program will help suppliers source ingredients or components and get a brand onto shelves in international stores, Wisniewski said.

“I firmly believe that suppliers really need to engage with Walmart internationally. You really need to be proactive instead of reactive. Walmart is growing to grow $150 billion over the next five years and the question to you is are you going to get your fair share of that growth,” Wisniewski said.

“What’s the risk? What’s the opportunities? If you do engage with them, how do you get a proper return on investment?” are key questions to ask in developing that strategy.

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