Tesco have recently announced they are going to leave the American food and grocery market to the Americans, after selling Fresh and Easy. Tesco have been taking flak for this, but they are not alone in terms of cutting their losses.
Sam Walton founded Walmart in 1962. The rapid growth of the small Arkansas store eventually reached every state in the USA and indeed has travelled across borders. The Walmart principles of keeping costs and prices cheap to entice customers has seen them become the world’s largest retailer. However not every country and culture has greeted Walmart with open arms. The example of their glorious failure in Germany is one to think about.
Walmart bought Wertkauf in 1997 and Interspar in 1998, existing German grocers. They didn’t do exactly badly. Sales of $2 billion kept an 11,000 strong staff going in 85 stores. Remarkably, their market share was only around 1.1%! Less than a decade later, Walmart’s Teutonic adventure was over, as in 2006 they sold the entire German Walmart operation to rivals Metro.
Many reasons have been put forward as to why Walmart failed.
The main reasons do seem to be cultural.
German staff are more reserved than Americans and certainly more unionised. Stories of German employees hiding in toilets to avoid the embarrassing team practices seem to be true. A team chant or song that was often used early in the mornings was also axed as staff just didn’t get it.
Customers in Germany had also become used to self-service checkouts, without need of staff help. This again was alien to Walmart. The employment of the extra staff Walmart like to use to create their atmosphere and in store culture resulted in Walmart’s labour costs sitting around the average for the industry.
In addition, the ‘Walmart welcome’ – smiling employees or ‘greeters’ as customers enter the stores had to be stopped, as the Germans – often an unfounded focus of fun for British comedians for claiming the Germans lack a sense of humour, in particular the men interpreted this as a form of flirting!
The unions did not approve of many of Walmart’s dealings with employees and their overall industrial relations. Even when they moved their HQ lock, stock and barrel they expected the staff to move with them. To their surprise, the majority of employees (including many executives) preferred to quit rather than up sticks. This seems alien to American ideals and indeed again something becoming more prevalent in the UK.
Walmart’s pricing tactics came under fire from regulators also. Walmart were accused of destroyer pricing – setting prices artificially low to destroy competitors – in order to put small local grocers out of business. Walmart were ordered to raise prices. Ironically, Walmart, who so often aim for the low cost, value market, had nowhere to go as Germany has strong discount stores such as Aldi and Lidl.
The tagline of “Everyday low prices” simply didn’t ring true in Germany.
German legislation also stood in the way of standard Walmart practices. Walmart often open 24 hour stores… 7 days a week. Germany has restrictive shopping practices which denied Walmart this often used advantage.
Even the locations of the stores they inherited from Wertkauf and Interspar were in rather less family friendly areas, which put off many target customers. The Interspar stores were generally viewed to be run down and also in need of a total refit. It took Walmart a considerable amount of time to upgrade these stores, and by then the writing was already on the wall.
Also Walmart’s practice of parachuting in American executives to lead the transition did not go down well either. Germans preferred German managers with local market knowledge.
So it seems that the generic ideals of globalisation may not work in every culture, without significant adaptation. Is Walmart’s ‘Rural America’ model inflexible enough not to grow and adapt to different peoples?
Perhaps Tesco have learned from their rivals and cut their losses as they focus on a culture and market with greater long term potential profits and a culture that perhaps is more suited for a very British type of supermarket: India.
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