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Carrefour's entry in UAE and marketing strategy

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Carrefour's operations across the world and entry in UAE market.

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Carrefour's entry in UAE and marketing strategy

  1. 1. Q. How Carrefour has grown further? In 1960, Carrefour opened its firstsupermarket in France. In 1963, Carrefour invented a new store concept—the hypermarket. The hypermarket concept was novel, and revolutionized the way French people did their shopping. It moved daily shoppingfromsmall stores to enormous stores where customers find everything they want under one roof, in addition to self-service,discountprice,and free parkingspace. International development of Carrefour Year Country and mode of entry No. of stores(2009 ) Formats 1969 Belgium—Carrefour’s first hypermarket outside France 120 57(HM), 63(SM) 1973 Spain 2,241 162(HM), 96(SM), 1,972(HD), 11(CS)1975 Brazil—Carrefour’s first hypermarket in the Americas 476 162(HM), 39(SM), 267(HD), 8(CS) 1982 Argentina 518 67(HM), 112(SM), 339(HD) 1989 Taiwan—Carrefour’s first hypermarket in Asia 59 HM 1991 Greece 544 31(HM), 209 (SM), 271 (HD), 33(CS)1993 Italy 494 66(HM), 236(SM), 178(CS), 14(C&C)1993 Turkey 578 22(HM), 125(SM), 431(HD) 1994 Malaysia 16 HM 1995 China 443 134(HM), 309(HD) 1996 Thailand 31 HM 1997 Poland 303 78 (HM), 225(SM) 1997 Singapore 2 HM 1998 Colombia 59 HM 1998 Indonesia 43 HM 2000 Japan 0 Note: HM = hypermarkets SM = supermarkets HD = hard discountstores CS = convenience stores C&C = cash and carry stores In 1995, Carrefour expanded its European hypermarket concept that ithad originally pioneered decades ago into Dubai,United Arab Emirates. Followinga cautious country-by-country expansion strategy into Emerging Markets, Carrefour sawpotential in the Dubai emirate. The emirate had a flourishingretail industry and exhibited strong fundamentals in its flourishingeconomy. Carrefour’s objectivewas to find a mode of entry that would allowitto reduce risk of failureand maintainingprofitability,whileoffsetting its longstandingglobal rival Wal -Mart.
  2. 2. Was UAE a favorablecountry to enter? UAE presented many advantages for companies consideringmarketentry into Dubai in 1995. Despite a small population relativeto other markets it served, UAE offered an unusual composition of Expatriates and local residents in an economy with one of the higheststandards of livingand incomein the world. The market was extremely business friendly with many advantages likezero corporate taxes in conjunction with very few barriers to trade. It had superior transportation networks,a well-defined legal system, positiveretail conditions,strong economic growth and low political,and transfer risks. Carrefour’s mode of entry in UAE: Carrefour reviewed the UAE laws and determined that a jointventure would be best to minimizethe risk of failure whilehavinga qualified partner to aggressively seek growth and manage operations.It partnered in a jointventure with Majid Al Futtaim, a pan-regional conglomeratewith retail experience in the Middle East. The jointventure adapted to the market by changingthe placeof its stores to the shoppingmall,adapted its food to socio-cultural norms, promoted mostly non-food items because of higher profitmargins,and was very careful in discounting amidstinflation.The venture was successful for Carrefour given that it increased the number of stores opened in Dubai and expanded to nearby countries.Ultimately, Carrefour was successful becauseitdeveloped a FirstMover Advantage, it thoroughly adapted to the extent that it did not feel foreign to many consumers, and because of Majid Al Futtaim’s aggressiveness in identifyingand pursuinggrowth opportunities.Carrefour faces two key problems includingCustomer inconvenience and Dubai’s long-term macroeconomic challenges.To address these challenges,Carrefour should seek to build new advantages through market positioning,strengthen its FirstMover Advantage to limitcompetitive pressures,and build up specialty foods sections to better target expatriates. Carrefour evaluated Dubai’s market benefits and risks aswell as themodes of entry and decided in 1995 to partner with Majid Al Futtaim (MAF), a company owning and operating mall properties.The firstbenefit was that MAF owned the high-traffic malls and properties thatwould be perfect for Carrefour’s location.Also,this could prevent other largehypermarket chains fromentering the same malls,limiting directcompetition.Secondly, MAF had operations throughout the entire MiddleEast, and this could potentially allowCarrefour to expand to other countries in the MiddleEast under the same partnership.Thirdly Carrefour preferred Dubai as a firstmarket because itis the most populated emirate in the UAE; Lastly,MAF had experience in venturing with foreign retailers,and could handleCarrefour’s operations.By positioningitself correctly in Dubai,Carrefour could then use the waterfall approach to enter the remainingsix emirates and capitalizeon the risinggrowth of standard of living in the UAE. Previous Foreign Entries: Lessons Learned: Carrefour has a tradition of strongly seekinggrowth, particularly in EmergingMarkets where growth is higher than in Developed markets. The company pursues a Waterfall Growth Strategy becauseit carefully chooses to expand after feeling comfortable about success in thetarget market. Yet, despite this cautiousness,the company has had to withdrawfrom markets where it has not achieved its growth objectives.” First,in the 1980s Carrefour failed in the United States with only two hypermarkets. Its market entry in Philadelphia was rough,with union antagonismprotesting the 335,000 squarefoot store and visiblepi cketlines that bothered existingcustomers.After this difficultexperience,it opened a store in New Jersey in 1992 that was much smaller and that resembled a warehouse with products that looked likethey originated from a supermarket. But Carrefour conducted littleadvertisingto bringmore customers into its huge stores. Also,Wal -Martopened a store nearby and Carrefour finally pulled outof the US. Ultimately, Carrefour lost$80 million on its failed US expansion.Second, Carrefour failed in Japan becauseof Carrefour’s inability to answer the needs of Japanese consumers,highlightingthe importance of pre-entry research.In addition,the company tried to enter alonerather than working with a local partner in a jointventure. Consequently Carrefour sold its stores to the AEON group, a Japanese retailingchain,to operate its stores under the Carrefour brand name. In addition,Carrefour withdrew from Hong Kong in 2000 due to the difficulty in transferringthe concept due to the lack of retail spaceand Korea in
  3. 3. 2006,largely due to intense competitive practices and poor performance. Likewise, Carrefour uses both direct ownership as well as jointventures, depending on the market. Specifically, markets considered difficultby Carrefour tend to be joint ventures. Marketing Strategy Place: Carrefour/Majid al Futtaim’s strategy was to adapt to the cultural importanceof shoppingmalls and createa “city within a city”by being located insidea mall with entertainment centers, cinemas,food courts and other convenience amenities. Hence, Carrefour decided to placeits stores in bigmalls in Deira City Centre Mall,Mall of the Emirates, Al Mamzar Century Mall and Bur Dubai - Al Shindagha.Indeed this adaptation differed from Carrefour’s standard location of a freestandingwarehouse-likebuilding. The rationalebehind adaptingthe traditional hypermarketwas due to the factthat Dubai has a very strongmall culture, owing largely to Dubai’s cultural dynamicsand harsh climate.First,the climatein Dubai is often so harsh that going to the mall is oneof the few options to keep cool and entertained. Second, on a daily basisthe mall provides an excitingexperience beyond the shopping.In Arab society,socializingwith family is paramount,and malls provideculturally appropriateentertainment for long periods of time. Duringthe workday, Arab housewives will often go to malls with their friends to socialize,and bringtheir young children to play with each other at entertainment centers located on upper floors,whilemen are at work. Men will often go with their friends to watch movies in cinemas located in the upper levels of the mall,and drink coffee with friends at cafes into the late hours of the night. During the Friday and Saturday weekend, largeArab families pour into malls and spend many hours there shopping,taking their kids to arcades,eatingat restaurants,stayingatmall hotels,walkingand reclining.Despitespendinglong periods of time in the malls,many consumers only expect to window-shop and leave without buying merchandise.Third, Dubai’s society has adapted to the convenience of being ableto get high quality consumer goods in one mall.Fourth, Dubai’s society is very young and enamored by the popular brands, found in malls.For many of these reasons,retailers mustoften accept malls as theplaceto locatetheir stores. The other benefits of being located in shoppingmalls werethat Carrefour could expect even higher volume of customers tricklingdown into the Carrefour stores. In addition,there was a largeenough retail spacein Dubai’s malls for Carrefour to operate. Furthermore, Carrefour maintained its traditional bigsize,given that Majid Al Futtaim owned two of the malls under consideration.As a result,Carrefour’s Deira City Center store became the largeststore in Dubai.Nevertheless, by being located in central areas of Dubai,Carrefour had competition with traditional,small retail stores thatwere located closer to the consumer. The importance of location in Dubai could not be understated given Dubai’s traffic problems. Product: Dubai was a very international and diverseEmirate,particularly dueto the largenumber of foreign workers. As such,Carrefour adapted by accepting foreign credit cards,the currencies of all GCC countries and international currencies likethe Euro and US dollar.WhileCarrefour implemented bilingual signagein the stores,language and cultural barriers werenot likely problems given that English was so widely spoken and consumers had experience with Western products. First,Carrefour had to adaptits merchandiseto the culture. For example, certain food nuances had to be appreciated,such as the saleof halal food that lacked pork. Second, Carrefour had to adaptto the seasonality of Dubai’s business cyclegiven that it was customary in Dubai’s culturefor people to take their summer vacations to escape to cooler destinations.Third,Carrefour had to adaptto Islamic cultural holidayslikeRamadan and Eid, which would build its peak sales.Duringthese holidays,Carrefour had to account for increased demand and plan its supply accordingly to not disappointshoppers.Fourth,operating hours in Dubai had to accommodate Dubai’s workweek from Sunday to Thursday,and the weekend from Friday to Saturday.
  4. 4. Promotion: Carrefour did not adaptits promotional effort, which consisted of discountingcertain items.Majid Al Futtaim handled local promotions,and coordinated some of these regionally with its stores throughout the Middle East. Promotions were placed in printmedia and in-store,to attractmall-walkingtraffic.BecauseDubai was a society emphasizingthe importanceof social relationship,Carrefour could reasonably expectthat consumers might discusssomeof the deals. Promotion was important in Dubai becauseof the high costof livingand high inflation.Dubai’sdemographics were highly skewed. Around the time of Carrefour’s entry, only 17% of the population consisted of “Local Arabs”in 1998,while 85% were “Expatriate Asians”and 3% were Westerners. The Asian expatriatesegment had the lowest disposableincome,but was a largesegment and was largely open to buyingWestern electronics and products. Because of the importance of inflation and thesedemographics,Carrefour’s target segment mostly involved expatriates. Price : Carrefour’s priceposition was as a discounter,and used pricingas partof its promotional effort. Because of its strong brand name, Carrefour did not have to worry about brand dilution due to its discounted products.However, discountingwas problematic in Dubai where inflation was sky high,and when fluctuations in inflation could erode profits.Another pricingconcern was the food retail market was most competitive and thus profitmargins were thin. Carrefour could sell non-foods,household goods and toiletries athigher margins.