Achieving success in emerging markets

by Morton Sosland
Share This:

Food manufacturers with global marketing ambitions for products that have been successful in developed nations often have hesitated about trying to develop business in emerging nations. This is so even though many studies of opportunities for building business in consumer products, not just food, point to emerging nations of Latin America, Africa and Asia as most promising. That is especially the case as the countries continue to lead globally in population growth while experiencing income advances that are reflected in a growing focus on urban areas. Yet, many of the efforts to establish a significant position in developing countries have fallen short of initial expectations and even have failed.

Trying to understand why great promise has so often proved disappointing received help from a recent study by McKinsey & Company. Aimed at identifying the causes of why modern grocery retailing did not achieve anything like the glorious expectations of several decades ago, the study looks back to the 1990s. Believed then, McKinsey says, was that multinational grocers operating hypermarkets and full-line supermarkets would take over food retailing in emerging countries. But instead of the expected transition in global food retailing to chains like Ahold, Tesco and Wal-Mart, the traditional small trade in most emerging countries proved resilient, fostering a situation where food retailing still differs greatly between emerging nations. As a result, McKinsey says, the global grocery giants struggle to grow profitably in many emerging nations.

Multinational grocers on entering emerging markets usually relied on the same formats that had worked well in developed countries. McKinsey points out that the success of hypermarkets in developed nations depends on good roads, increasing car ownership, a large middle class and sufficient time for shopping and space at home for storing large grocery purchases. Not only are emerging markets largely without any of these resources, but their differences waver sharply between nations. “An entirely different context” is how McKinsey describes what did not work.

Even with the variability among emerging markets, McKinsey has assembled “seven levers” it believes essential to successful grocery retailing in these nations. While food products are an important part of the list, McKinsey notes that small manufacturers locally account for a fragmented supplier base. In turn, this creates a complex network imposing a limit on the benefits of scale in either buying or marketing. The inability to source products as efficiently as is done in most developed markets means that anything improving this situation is highly favorable. This is perhaps the point where foreign food suppliers may play a particularly crucial role in providing volume and handling capacity that would lend efficiency to operations affected by this problem.

The first of the levers is “prioritize proximity,” which reflects the need to allow consumers to buy small amounts by locating stores near population centers. The second is low prices and making sure consumers know pricing policy. Be initially obsessive about boosting productivity to avoid future work problems. Enlist food manufacturers using creative approaches. Next is educating policy makers in each nation about advantages of modern retailing. Consider partnering with traditional retailers rather than competing against them. The seventh and final lever is urging modern retailers in emerging markets to adopt a city-based strategy, meaning “concentration on getting to scale in cities or city clusters” before expanding nationally. This point is stressed in citing experiences in China and India.

Achieving success in developing a successful grocery business in emerging markets is ranked by McKinsey as far from guaranteed. It emphasizes collaboration that includes governments and food manufacturers. Along with the seven levers to help gain success, the consulting firm stresses the necessity of becoming “experts at local tailoring.” The conclusion is that retailers excelling in all these areas in highly different emerging markets “will, in a sense, have conquered the world.” Being a food manufacturer in partnership with such an endeavor would most certainly earn regard as the Genghis Khan of food.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.








The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.