Harvard Case - Should Kaufland Exit the International Market in Australia?
"Should Kaufland Exit the International Market in Australia?" Harvard business case study is written by Arpita Agnihotri, Saurabh Bhattacharya. It deals with the challenges in the field of Strategy. The case study is 11 page(s) long and it was first published on : Nov 18, 2020
At Fern Fort University, we recommend that Kaufland re-evaluate its international expansion strategy in Australia, focusing on adapting its business model to better cater to the local market. This includes enhancing its product offerings, improving customer experience, and strengthening its brand presence. We believe that with the right adjustments, Kaufland can achieve sustainable growth in the Australian market.
2. Background
This case study focuses on Kaufland, a German supermarket chain, and its struggles to establish a foothold in the Australian market. Despite its success in Europe, Kaufland faced significant challenges in Australia, including fierce competition from established players like Coles and Woolworths, a complex retail landscape, and a lack of brand recognition.
The main protagonists are:
- Kaufland: A German supermarket chain with a strong presence in Europe, seeking to expand its international reach.
- Coles and Woolworths: Dominant Australian supermarket chains with extensive market share and strong customer loyalty.
- Australian consumers: Diverse and demanding customers with specific preferences and shopping habits.
3. Analysis of the Case Study
We conducted a comprehensive analysis of Kaufland's situation in Australia using the following frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High, due to the relatively low barriers to entry in the Australian supermarket industry.
- Bargaining Power of Buyers: Moderate, as consumers have a wide range of options and can easily switch between retailers.
- Bargaining Power of Suppliers: Low, as suppliers have limited leverage due to the large number of supermarkets.
- Threat of Substitute Products: Moderate, as consumers can choose from various retail formats, including online shopping and convenience stores.
- Competitive Rivalry: High, as the market is dominated by established players with strong brand recognition and customer loyalty.
b) SWOT Analysis:
Strengths:
- Strong European brand reputation
- Efficient supply chain and logistics
- Low-cost operating model
- Focus on private label products
Weaknesses:
- Limited brand awareness in Australia
- Lack of understanding of local consumer preferences
- Difficulty adapting its business model to the Australian market
- Limited investment in technology and digital capabilities
Opportunities:
- Growing demand for value-oriented supermarkets
- Increasing online shopping penetration
- Potential for expansion into new geographic markets
- Growing focus on sustainability and ethical sourcing
Threats:
- Intense competition from established players
- Economic downturn impacting consumer spending
- Rising costs of labor and raw materials
- Changing consumer preferences towards healthier and more sustainable products
c) Value Chain Analysis:
Kaufland's value chain in Australia was initially focused on its core competencies in procurement, logistics, and private label product development. However, it lacked key elements for success in the Australian market, such as:
- Customer experience: Limited understanding of local customer preferences and needs.
- Marketing and branding: Weak brand awareness and limited investment in marketing campaigns.
- Technology and innovation: Lagging behind competitors in adopting digital technologies and online shopping capabilities.
d) Business Model Innovation:
Kaufland's traditional business model, successful in Europe, did not translate effectively to the Australian market. It needed to adapt its approach to:
- Product offerings: Expand beyond its European-centric product range to include more Australian-specific items and cater to local tastes.
- Pricing strategy: Adjust its pricing to be more competitive with local rivals, considering the lower cost of living in Australia.
- Customer experience: Enhance its in-store experience with more personalized services, improved layout, and a focus on customer convenience.
4. Recommendations
1. Adapt the Business Model:
- Product Diversification: Introduce a wider range of Australian-specific products, including local brands and fresh produce.
- Pricing Strategy: Implement a more competitive pricing strategy, considering local market conditions and competitor pricing.
- Customer Experience: Invest in improving the in-store experience, focusing on customer convenience, personalized services, and a more welcoming environment.
- Digital Transformation: Embrace digital technologies to enhance customer experience, including online shopping, mobile apps, and loyalty programs.
2. Strengthen Brand Awareness:
- Marketing Campaigns: Launch targeted marketing campaigns to increase brand awareness and build customer loyalty.
- Community Engagement: Participate in local events and initiatives to foster a sense of community and build positive brand associations.
- Partnerships: Collaborate with local businesses and organizations to expand reach and create brand synergy.
3. Focus on Local Needs:
- Market Research: Conduct thorough market research to understand local consumer preferences and shopping habits.
- Product Development: Develop products specifically tailored to the Australian market, considering local tastes and dietary requirements.
- Employee Training: Train employees on local customer service standards and best practices.
4. Leverage Technology and Analytics:
- Data Analytics: Utilize data analytics to gain insights into customer behavior and optimize operations.
- E-commerce Platform: Develop a robust e-commerce platform to expand reach and cater to online shoppers.
- Supply Chain Optimization: Implement technology solutions to improve supply chain efficiency and reduce costs.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Kaufland's core competencies in procurement, logistics, and private label product development can be leveraged to achieve success in Australia, but they need to be adapted to the local market.
- External customers and internal clients: Kaufland needs to understand and meet the specific needs of Australian consumers while also ensuring employee satisfaction and retention.
- Competitors: Kaufland must develop a competitive advantage by differentiating itself from established players and offering a unique value proposition.
- Attractiveness - quantitative measures: The potential for success in the Australian market is attractive, considering the growing demand for value-oriented supermarkets and the increasing online shopping penetration.
6. Conclusion
Kaufland's exit from the Australian market would be a missed opportunity. By adapting its business model, strengthening its brand presence, and focusing on local needs, Kaufland can achieve sustainable growth and compete effectively in the Australian supermarket industry.
7. Discussion
Alternatives:
- Complete withdrawal from the Australian market: This would be a costly decision and would result in significant losses.
- Maintaining the current strategy: This is unlikely to be successful, as Kaufland's current approach has not yielded positive results.
Risks and Key Assumptions:
- Economic downturn: A significant economic downturn could impact consumer spending and hinder Kaufland's growth.
- Competition: Kaufland's competitors could respond aggressively to its efforts to gain market share.
- Consumer acceptance: Australian consumers may not readily embrace Kaufland's brand and product offerings.
8. Next Steps
- Conduct a thorough market research study to gain a deeper understanding of local consumer preferences and shopping habits.
- Develop a detailed implementation plan for the recommended business model changes, including timelines and resource allocation.
- Launch targeted marketing campaigns to increase brand awareness and build customer loyalty.
- Invest in technology and digital capabilities to enhance customer experience and improve operational efficiency.
- Continuously monitor market trends and competitor activity to ensure strategic flexibility and adapt to changing conditions.
By taking these steps, Kaufland can position itself for success in the Australian market and achieve its long-term growth objectives.
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Case Description
The case considers the entry of Germany's leading retailer, Kaufland Warenhandel GmbH & Co KG (Kaufland), known for its hypermarket retail format and low prices, into the Australian market. Before entering Australia in 2016, the retailer had only expanded into Eastern European countries. Australia was its first developed market. In April 2019, a change in chief executive officer (CEO) took place at Kaufland, with the new CEO, Klaus Gehrig, demanding more centralized decision making. In Australia, Kaufland was struggling to get approval for its larger stores. Competitors in Australia, such as Woolworths and Coles, were also gearing up for the competition, with Coles sending a team of executives to study Kaufland's operations in Germany. In November 2019, after a series of weather-related issues in Australia, the retail price of several grocery items increased. Kaufland was still searching for suppliers and working on opening its stores. Experts felt that Kaufland Australia had the potential to make an impact on the grocery market, as higher prices offered by other retailers would lead consumers to shift to it. Going forward, Gehrig faced a challenging decision: Should he revisit the decision to expand into the Australian market? How might his competitors retaliate?
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