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International expansionand strategies ofdiscount grocery

retailers: the winningmodels

Enrico Colla

Introduction

Discount food retailing has experienced

considerable expansion over the last ten years

and currently occupies an important position

in the European retail industry. However, a

certain number of discount retailers have hadto abandon the market over the same period,

while others have obtained good results both

in their domestic markets and abroad.

The purpose of this article is to illustrate the

determining reasons behind the success or

failure of discount retailers on the

international scene through the identification

and analysis of the various strategic groups,

competitive advantages, entry barriers to the

sector and barriers to mobility between the

groups.

These concepts, well documented in

general business strategy literature (Porter,

1980, 1985), have not been used very often in

the analysis of the retail distribution sector,

particularly at the international level (Burt,

2002). This article takes into consideration

this literature and, concerning the data used,

this is essentially based on documentary

research that took in the main trade

magazines and professional journals, as well

as published surveys and studies of the sector

and analysis of individual companies. During

the course of research, the author extended

research to company documents, balance

sheets and activity reports, and also

interviewed company executives whose

contributions enabled a better identification

of the groups and individual company

strategies and the elaboration of the

hypotheses put forward in this article.

Discount food retailing in Europe

Discount food retailing in 2000 was present in

all European countries with 29,747 stores

trading under 72 names and with a market

share of 14.9 per cent of food sales. Market

share ranges from 4.2 per cent in Greece to

42.9 per cent in Norway (see Table I).

From 1995 to 2000, this retailing business

format experienced slow growth in Europe in

terms of market share; it has, however,

increased in the majority of countries, with

the sole exceptions of Italy, Switzerland and

the UK.

The author

Enrico Colla is Professor and Research Dean at

NEGOCIA, Paris, France.

Keywords

Internationalization, Strategy, Grocery, Retailing,

Competitive advantage, Diversification

Abstract

Illustrates the reasons that have determined the success

or failure of the discount retailers on the international

scene, through the identification and analysis of the

strategic groups, competitive advantages, entry barriers to

the sector and barriers to mobility between the groups.

Three strategic groups of discount food retailers that have

adopted different internationalisation strategies have

been defined and a series of key success factors of the

different strategic groups has been identified. The winners

in the race to international expansion are in particular the

leaders of the first group of German hard discount

retailers. But important niches in several foreign markets

can also enable growth of retailers in the second group,

the German soft discount retailers specialised abroad, and

of the third group, the French soft discount retailers

diversified abroad.

Electronic access

The Emerald Research Register for this journal is

available at

http://www.emeraldinsight.com/researchregister

The current issue and full text archive of this journal is

available at

http://www.emeraldinsight.com/0959-0552.htm

55

International Journal of Retail & Distribution Management

Volume 31. Number 1. 2003. pp. 55-66

# MCB UP Limited. ISSN 0959-0552

DOI 10.1108/09590550310457845
http://www.emeraldinsight.com/0959-0552.htmhttp://www.emeraldinsight.com/researchregister


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Structure of the sector and internationalpresence

The sector is relatively concentrated and a

mere eight names account for 70 per cent of

the stores. If one considers only the 25 biggestnames, all of which own at least 200 stores

(with the sole exception of Leader Price), 12

of them have outlets abroad and the top eight

are also the European market leaders (see

Table II), whereas the other 12 are only

present in their respective domestic markets

(see Table III).

This data demonstrate that the biggest firms

are present in the largest number of foreign

countries, confirming the existence of a

relationship between the size of the firm and

its international exposure.

Presence abroad seems also to depend onthe specialisation or diversification of the

group to which the discount retailer belongs.

If one compares the discounters in the light of

the extent of their international presence and

of the diversification of the group to which

they belong, one observes that the discounters

present in several countries belong to

Table I Market share of discount food retailing in Europe

Market

share 1995

(%)

Market

share 2000

(%)

No. of

stores Leader

Norway 38.3 42.9 1,380 Rimi

Germany 29.5 32.6 13,081 AldiBelgium 24.7 27.8 815 Aldi

Denmark 20.0 22.0 859 Netto

Austria 16.5 21.8 777 Hofer

Sweden 11.0 15.2 328 Rimi

The Netherlands 12.2 14.1 797 Aldi

Finland 10.7 11.2 855 Siwa

Spain 6.5 9.5 2,865 Dia

Portugal 6.1 9.5 420 Minipreco

United Kingdom 11.3 8.2 1,290 Kwik Save

France 6.4 7.9 2,622 Lidl

Switzerland 8.6 7.9 777 DennerItaly 9.7 6.7 2,620 Lidl

Greece 1.6 4.2 225 Dia

Total 13.6 14.9 29,747 Aldi

Source: AC Nielsen in Reidiboym (2001)

Table II Discount food retailers with outlets abroad in 2000 (by number of outlets in 2000)

Tr adin g name Group and cou ntry of origin

No. of

countries

No. of outlets

1995

No. of outlets

2000

Aldi (1) Aldi Germany 8 4,171 5,246

Lidl (2) Lidl & Schwarz Germany 11 2,194 3,927

Plus (3) Tengelmann Germany 3 2,662 2,950

Dia (4) Carrefour France 4 1,906 2,816

Penny (5) Rewe Germany 3 2,225 2,537

Netto (6) Dansk Supermarket Denmark

Spar AG Germany

3 880 1,397

Norma (7) Norma Germany 2 1,046 1,270

Rimi (8) ICA AB-Svezia (Ahold) 3 472 666

Rema 1000 (13) Reitan Norway 3 286 370Leader Price (14) Casino France 2 189 333

Prix (16) Coop Norway 3 230 299

Facta (20) Coop Denmark 2 262 234

Note:The figures in brackets indicate the relative position of the brands in terms of number of outlets in 2000

Source:AC Nielsen in Reidiboym (2001)

Table III Discount retailers without outlets abroad (by number of outlets

in 2000)

Name

Group and country of

origin

No. of

outlets

1995

No. of

outlets

2000

Kwik Save (9) Somerfield UK 976 500Denner (10) Denner Switzerland 393 497

Siwa (11) Tradeka Finland 434 421

Ed (12) Carrefour France 423 419

Euro Spin (15) Italy 140 308

Zielkpunt (17) Lo wa Austria N/A 293

CDM (18) Intermarche France 214 243

NP Market (19) Edeka Germany 180 239

Sosty (21) Interdis Italy 260 234

Kiwi (22) Johansonn Norway 82 230

Le Mutant (23) Coop France 199 215

Ins Discount (24) Pam Italy N/A 207Mondo (25) BML Austria 154 191

Note: The figures in brackets indicate the relative position of the brandsin terms of number of outlets in 2000

Source: AC Nielsen in Reidiboym (2001)

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specialised, or relatively undiversified groups,

whereas the purely national retailing store

brands belong to highly diversified groups.

Inter-format synergies seem to be more

significant in domestic markets than at the

international level.

Furthermore, no hard discount retailer islimited to mere national presence (one

exception was CDM of the French

Intermarche group which, facing huge

losses, recently changed store name adopting

Netto fascia) whereas many soft discounters

limit themselves to purely domestic

expansion. International development is

therefore a strategic option that appears to

impose itself on retailers in hard discount

more than in soft discount.

Strategic groups in internationaldiscount retailing

We can now proceed to segment the 13

discount retailing brand names present

abroad, (the 12 in Table II to which we have

added Colruyt), using the concepts of strategic

groups and strategic dimension (Porter, 1980,

1985). The two dimensions retained are theformat, hard and soft discount also called

discount supermarket (see Burt and Sparks,

1994) and the degree of diversification of the

parent company (see Table IV). Hard and soft

discount are defined by the amplitude and

breadth of choice of the products carried (less

than 1,000 SKUs in hard discount and three

times more in soft discount), the position in

terms of costs (much lower in hard discount),

pricing levels and value for money (hard

discount is more competitive than soft

discount), the roles of the retailing brand

names (in the hard discount the percentage of

exclusive private labels exceeds 90 per cent,

whereas in soft discount it only accounts for 50

per cent). For a more elaborate definition of

hard and soft discount (see Colla, 1997; Collaand Dupuis, 1997).

The three winning business models

Among the retailing brand names thus

segmented, three strategic groups stand out

(see Table V): that of firms specialised in hard

discount (Aldi, Norma, Lidl and Netto), soft

discount retailers belonging to diversified

national groups (Penny, belonging to Rewe,

and Plus, belonging to Tengelmann) but

specialised abroad, and finally the discounters

belonging to large groups diversified not only

on the domestic market, but also abroad (Dia,

belonging to Carrefour and Leader Price

belonging to Casino).

These three strategic groups have a varied

international presence and somewhat

different key success factors.

Purchasing power and experience in ownlabel management are important factors of

success for all discounters, the former being

the most important for retailers from the first

group. While the retailers in the first and

second groups resort to use of numerous

private brands, generally one per product line,

those in the third group exclusively use their

own brand.

By contrast, expertise in fresh produce is

superior among retailers in the second and

Table IV Segmentation of discount retailers (DR) present on the international scene

DR belonging to specialised

groups

DR belonging to groups with

low foreign diversification

DR belonging to highly

diversified groups abroad

Hard

discount

Aldi (10/2,750)

Norma (2/137)

Netto Dansk and ITM a (3/348)

Prix (3/299)

Facta (2/234)

Lidl (14/1,745)

Rimi/Ica AB (1/500)

Soft

discount

Rema 1000 Reitan (7/326)

Colruyt (1/10)

Treff/E-Delta Edeka/AVA (4/124)

Penny Rewe (6/665)

Plus Tengelmann d (5/788)

Leader P. Casino b (2/213)

Dia Carrefour c (5/3092)

Notes: In brackets: the number of foreign countries and the number of stores abroad in 2001aDansk Supermarkets is the owner of Netto stores in Denmark, the UK and Poland, whereas Netto network inGermany has been the property of ITM since the buyout of Spar Handels (1997). Therefore we still consider thisstore-name as being of Danish origin; bOf which 150 Barateiro in Brazil, in partnership with Pa o de Azu car;cOf which 277 Minipreco in Portugal, in Partnership with Sonae; dIn Austria the fascia of the discount stores ofTengelmann is Zielpunkt

Source:Derived by Enrico Colla from data provided in Food Business News, October 2002

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third groups, who carry a wider and more

diverse range of this family of products.

Finally, retailers in the third strategic group

benefit from sales and purchasing synergies

with the other retailing formats belonging to

the same group which owns a multi-format

network abroad.The strategies adopted abroad demonstrate

a link with the characteristics of the formats

and expertise of the discounters: the more

limited and restricted assortment enables

more substantial globalisation of the range of

products offered by retailers in the first group

and enables them to secure bigger reductions

in international purchasing costs than those

secured by other groups. However, the third

group benefits from inter-format synergies,both in terms of purchasing and in the

marketing of the brand (and store name).

Retailers of the first group are leaders in

discount food retailing in their domestic

markets holding substantial market share.

They are present abroad in most countries,

and with a larger proportion of market share,

and their rate of international expansion over

the past years has been higher in terms of

number of stores than penetration into new

countries.

Discounters in the third group, followers in

their domestic markets like those in the

second group, benefit from managerial

synergies abroad, which enable them to

penetrate some new markets more easily.

The importance of purchasing volume ofprivate label products in discountretailing

The importance of sales and purchasing

volumes in discount retailing has been

underlined by analysts of the format (see

Colla, 1997; Colla and Dupuis, 1997). The

major difference in prices compared to

supermarkets and hypermarkets from 15 per

cent to 30 per cent for products of

comparable quality, is the main competitive

advantage and the principal criterion of

choice of this formula (see Colla, 1994). The

low prices are made possible by the

purchasing of large volumes of exclusive

products without any manufacturers

proprietary brand name. The producers donot pay for the communication and marketing

costs of these products and are also able to

reduce their manufacturing costs and

overheads. Thanks to large production

volumes and the intensive utilisation of

production equipment, they operate on net

margins that are lower than those of the

leading brands but, due to the high turnover

of investments, their profitability remains

perfectly satisfactory.

This special relationship between industry

and retailing is similar to the comakership

relationship between manufacturers and their

suppliers of raw materials or components

(Lugli, 1993). It also enables a lightening of

what are termed interface costs in selling

Table V The three strategic groups of retailers in international discount

Hard discount specialised firms

Soft discount groups specialised

abroad Soft discount diversified groups

Aldi, Lidla , Nettob , Norma Plus, Penny, Rema 1000 Dia, Leader Price

Very limited assortment

Dominant own labelsMono-format

Global concept

International purchasing power

No inter-format synergies

Strong international presence

Leaders on domestic and foreign

markets

Larger choice (particularly of fresh

produce)Strong own labels

Part of a multi-format national group

Concept partially adapted to foreign

markets

Purchasing power by country

No inter-format synergies on foreign

markets

Limited international presence

Followers on domestic and foreign

markets

Larger choice (particularly of fresh

produce)Strong own brand

Belongs to a group with multiple

format abroad

Concept partially adapted to foreign

market

Purchasing power by country

High level of managerial synergies

abroad

Strong international presence of the

group

Followers on domestic market andpioneers on some foreign markets

Notes: aLidl & Schwartz also own a number of hypermarkets; bDansks Supermarket (Nettos parent company) alsoowns, but exclusively in Denmark, a substantial network of supermarkets

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and logistics between producers and

retailers.

Therefore, through the modification of the

vertical linkages, hard discount brings about a

complete overhaul of the value chain from

producer to retailer (Porter, 1985). The

co-ordinated management of certain activities(logistics, sales) is optimised, others are

transferred with a major reduction in costs

from the suppliers value chain to that of the

retailer. The balance of power in the channel

of distribution has tilted in favour of the

retailer (see Coughlan et al., 2001), who

decides on the characteristics of the products

and chooses suppliers in terms of their

performance in the pursuit of his objectives.

The latter are generally dependent on the

former, but they reap sufficient rewards toaccept this kind of relationship.

Hard discounters therefore, carry a range of

products that are of slightly inferior quality to

the leading industrial brands, but at a

substantially lower price. The greater the

percentage of such products (almost the

entire assortment for Aldi and Lidl), the more

competitive the price. Furthermore, all

management costs and investment costs are

reduced to a minimum and the huge turnover

of capital secures good profitability, in spite of

low gross margins. Therefore, these firms

have introduced innovations (Dupuis, 1998)

not only at the point of sale (easier to imitate

by their competitors), but also in the vertical

relationships in the value chain (harder to

imitate).

The competitive advantage over

competitors, in terms of purchasing is linked

to purchasing volumes by product line more

than to the overall size of the company (Filser,

1998).

In the French example (see Table VI), one

observes that the low number of players in

hard discount enables those present, in a

sector that in France accounts for around 9

per cent of market share, to benefit from

purchasing volumes per product line that are

three to four times higher than those of classic

supermarkets (which in France account for 36

per cent of the market).

A hard discount retailer should have a

market share of at least a quarter of that of a

rival supermarket to maintain the advantage

in terms of cost and price cited in the

example. In a European country where the

leading supermarket chain has a market share

in excess of 16 per cent (e.g. Tesco in the UK

and Intermarche in France), the discount

retailer will have a competitive advantage of

this order with a market share of 4 per cent in

the food sector. To achieve a market share of

this magnitude in these two countries, one

needs at least 1,000 stores. Only Lidl is in this

position in France. The importance forretailers of this factor of competitiveness is

particularly marked at the national level in

each of the countries in which they are

present, where pooled international purchases

are of a lesser size. It is, however, more

significant in hard discount, because of the

limited number of products and the

concentration in groceries and beverages (less

fresh produce), making standardisation of the

assortment more common at the international

level.

Competitive advantages of harddiscount and defensive strategies oftheir competitors on a national scale

These considerations explain the partial

failure or serious difficulties faced by soft

discount retailers already present in countries

where hard discount retailing has made

inroads (e.g. Kwik-Save in the UK).

But purchasing volume and the experience

acquired in supplier relationship management

by retailers in the first group, being hard to

imitate, also created entry barriers for other

formats (classic supermarkets and

hypermarkets) and barriers to mobility

(Porter, 1980) for firms from other strategic

groups willing to enter the hard discount food

retailing business.

The existence of these entry barriers has not

always been perceived by the competitors,

who opened a certain number of stores and

gained market share at the regional level in

the short term, but subsequently had to quit

the market or change their strategy,

abandoning the hard discount business.

Those options confronted numerous

discount retailing brands that certain leading

national retailers (e.g. Intermarche in France,

Coop in Italy and Asda in the UK) who saw

fit to develop when the German hard discount

retailers appeared on the scene in their

countries in the early 1990s (Colla, 1997).

These retailers often work on developing the

benefits of location and purchasing synergies,

aided by their access to vast networks of stores

of other retailing formats, their knowledge of

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suppliers and their experience in private

brand management, acquired during the

development of their own brands. These

synergies were valuable in the short term and

at the regional level, but insufficient in the

long term and at the national level, when the

volume/costs/price advantage of the German

hard discount retailers started to gain ground

with their gains in market share. In France,

for example, the national discount retailers,

after a period of strong growth from 1991 to

1994, began to reduce the number of new

stores opened and to lose market share

(INSEE, 2001).

Furthermore, the defensive strategy of the

national players hardly ever transformed itself

into a strategy of international expansion,

confirming the defensive nature of their

approach and the competitive weakness of

their store concepts. No less than 32 discount

retail chains in Europe had to cease trading,

in the last five years alone, of which 25 in soft

discount and only seven in hard discount

(Dial in Belgium, Larc, Eda, Dia in France,

Tip in Germany, Prijs-slag in The

Netherlands and Billi in Switzerland). Among

the former, a significant number were

comprised of retailing brands created for

defensive reasons, in the UK (Food Giant,

Crazy Prices, Pioneer, Dales, Discount Giant,

Normans, Solo), in Austria (Top Diskont,

Famila, Meinl-Jeee), in Finland (Saastari-

Valtti-Rabatti), in Portugal (Mini-Preco), in

Spain (Superdescuento). Others tried to

penetrate certain countries, but were

unsuccessful when faced with local

competition and the inability to reach the

breakeven point rapidly (Dia, ED, Tip and

Plus in Italy, Penny Market in Spain, Rema

1000 in Sweden). After a phase of growth that

lasted until 1996-1997, when they went from

78 (1991) to 115, the number of operators in

the discount retailing sector diminished over

the following years to return to 104 in 2001.

Indeed, no new retailer has managed to break

into this group on an international level with

the sole exception of Netto, whose success

was in any event somewhat mitigated

(Bennison and Gardner, 1995).

Mobility barriers also appear to be high

towards the third strategic group. Mobility

into this group is available only to firms that

already have a substantial network abroad, or

that have (and are ready to invest) very

substantial financial resources; needed to

acquire (in the short term) or to develop (in

the medium and long term) a multiple-format

international network. Moreover, the multi-

format portfolio has to be food oriented,

discount oriented and the firm has to have

some experience on small proximity format.

Not so many groups have these characteristics

and, apart from Carrefour and Casino, there

are no other successful examples, until now,

of that strategy. The international

diversification efforts of Rewe and

Tengelmann have not yielded very positive

results and Plus and Penny remain their only

retail brands to have succeeded abroad.

On the contrary, international

diversification is not an objective for retailers

in the first group of hard discounters. It is

certainly not one of Aldis objectives, who

consider that they have plenty of

opportunities to exploit with their format. By

contrast, Lidl has a hypermarket concept that

they have exported to the Czech Republic and

to Slovakia. But theirs appears to be an

Table VI Comparison of hard discount (HD) and supermarket (SM) in France (2000)

No. of skus in

HD stores

No. of skus

in SM stores

Turnover/sku

in HD stores

(FRF)

Turnover/sku

in SM stores

(FRF)

General consumer products + self-

service fresh produce 1,200 8,164 267 72General consumer products department 885 6,529 225 60

Pharmacy sector 568 3,591 186 63

Beverages sector 126 790 462 126

Hygiene, health and beauty care sector 191 2,148 185 47

Self-service fresh produce department 315 1,635 385 120

Chilled foods sector 212 1,172 459 141

Frozen foods sector 103 464 234 66

Note: Sku = Stock keeping unit

Source: AC Nielsen in Le He naff (2001)

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opportunist strategy of acquisition of

locations, rather than one of genuine, long-

term strategy of diversification.

Presence abroad, international growth

and globalisation of the business model

The stronger competitive advantages of the

firms of the first group mainly explains the

higher levels of performance in international

growth of the leading store names in this

group.

Retailers in the first group (specialised hard

discount) are present in a larger number of

foreign countries and have occupied more

important positions for longer (see Table II).

This successful aggressive internationalisation

(Treadgold, 1997) appears to confirm the

increasingly global aspect of their business

model (Salmon and Tordjman, 1989). Their

recent international growth is henceforth

greater in terms of market penetration rather

than market development in new countries

(see Table VII). Edeka/AVA, Norma and Lidl

increased their presence abroad in two new

countries in 1998-2001, whereas Rimi,

Leader Price and Dia only in one. The otherdiscounters did not increase at all their

presence abroad (in terms of countries) and

Plus (Tengelmann) even reduced the number

of foreign countries during the same period of

time (withdrawing from Italy). The retailers

of the first group, being already present in a

relatively high number of countries, have had

a larger number of growth opportunities to

exploit in these countries and are less likely to

need to look for others. At the same time, this

yet again underlines the importance for

retailers to achieve high sales volumes in each

country to reduce their costs.

On the other hand, leading retailers in the

second strategic group are those that

developed a competing store concept to

retaliate against Aldi (and Lidl) in Germany.

Over a long period of competition, theyachieved high sales volumes enabling them to

benefit from a price differential sufficient to

differentiate them from traditional

supermarkets (Colla, 1997). But their

international expansion has been modest and

cautious (see Treadgold, 1997), due to the

inferior differentiation of the business model

by comparison with classic supermarkets,

their greater need to adapt to different

markets and their difficulty to achieve high

purchasing volumes on certain lines of

products. Furthermore, the limited

international presence of the group they

belong to does not enable them to benefit

from synergies with other retail formats

abroad.

The importance of synergies ininternational growth of multi-format

groupsRetailers in the third strategic group, such as

Dia and Leader Price, preceded the

penetration of hard discount in their countries

of origin (Spain for Dia and France for

Leader Price) where they had already

developed specific competitive advantages

that were somewhat different from those of

hard discount.

But they have always engaged in

international expansion thanks to the fact they

belong to major multiple format discount

Table VII International presence (2002) and growth among leaders in discount retailing (1998-2001)

Low growth abroad in no. of

stores (< 100)

Strong growth abroad in no. of

stores (> 100)

Weak presence abroad in

terms of countries (< 10)

Rimi/Ica AB (1/14)

Colruyt (1/8)

Norma (2/47)

Netto (ITM et Danks) (3/42)

Treff/E-Delta Edeka/AVA (4/61)

Penny Rewe (6/93)

Leader Price (Casino) (2/142)

Plus Tengelmann (5/458)

Dia Carrefour (5/551)

Rema 1000-Reitan (7/153)

Strong presence abroad in

terms of countries (1 0)

Aldi (10/546)

Lidl (14/1745)

Note: In brackets: the number of foreign countries of presence in 2002 and the number of stores opened between1998 and 2002

Source: Derived by Enrico Colla from data provided in Food Business News (1999, 2000, 2001, 2002)

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retailing groups that use these retailing brand

names in their international expansion

strategy. Carrefour is the leader in several

European countries outside France (Spain,

Portugal, Belgium and Greece); it is number

two in Italy, the leader in Latin America

(Argentina and Brazil) and in Asia. Its successin international markets is especially based on

the hypermarket but also, through a series of

acquisitions, the group has recently migrated

towards a multiple format strategy (see Colla

and Dupuis, 2002). Following the merger

with Promodes, Carrefour acquired Dia, the

market leader in limited range discount

retailing in Spain, which has gambled on

proximity creating a huge network of small

discount stores and developed considerable

expertise in the creation and management oflow-price private label products.

Carrefour, the leader in several markets, is

now in a position to favour the development

of the brand name in the countries where

there are growth opportunities for discount

retailing. The synergies that Dia can benefit

from within the group are entrepreneurial,

financial and managerial (Penrose, 1959;

Colla, 2001). In the various countries where it

is already present, Carrefour has created a

web of relations with its environment (Dupuis

and Prime, 1996) that facilitate the

introduction and success of a new retailing

brand.

Two examples of synergies are purchasing

and sales. Since pooling of purchases of

products present in the range offered by

several of the retailing formats enables an

increase in purchasing volumes by line of

product and by product item, one obtains

advantageous terms on the cost of purchases

for all the retailing brands within the group

that buy the same products, including the

discount retailing brand. If the company uses

the same brand for the products sold in its

different outlets, the advantages are not

limited to purchasing costs, but also enhance

the reputation of the brand.

Leader Price, part of the Casino group, has

indeed created and developed a complete

range of private label products, currently

benefiting from a far superior image in France

to all other discount retailing formats, in spite

of having three times less stores and spending

six times less on advertising than the market

leader Lidl (see Parigi, 2002). In foreign

markets, Leader Price products are

principally sold in the groups hypermarkets

then, only when their sales, and the

reputation of the brand, reach a certain level,

the group opens discount outlets under the

Leader Price brand name. When 1,000

Leader Price product items are sold in about

ten or so hypermarkets in that country, the

threshold is reached at which it becomespossible to open stores under the brand name

(Moyroud, 2000). Over and above the cost

savings, the enhancement in the brand image

resulting from this strategy enables them to

overcome this major difficulty of international

growth faced by retailers offering a large

number of private label products, such as

Marks & Spencer (McGoldrick and Blair,

1995). Unlike retailers in the third strategic

group, those in the first and second prefer to

fall back on private label brands, generally byline of product. Not being in a position to

benefit from similar synergies, their policy

tends also to minimise the risks associated

with the potential failure of certain products.

The strategies of choice of countryadopted by the companies

A significant difference is apparent between

the three strategic groups in terms of their

choice of host country and the criteria that

underlie these choices. On the basis of the

survey and analysis (see Tables VIII and IX)

of countries where the retailing brand names

are present, one observes that hard discount

retailers have especially penetrated those

countries with high purchasing power, where

retailing is modern and supermarkets or

hypermarkets are the key formats, where

brands are strong and retailers strategies are

highly customer service oriented. The

competitive advantage acquired in domestic

markets via purchasing volume and

experience in the management of

relationships with suppliers by the retailing

brands, have been replicated in these

international markets, where enough

analogies existed in macro-environment, task

environment and organisational environment

(Burt, 2002). The impact of the format has

depended on the nature of the local

competition and the pace of the development

in the market (see Colla, 1994; Burt and

Sparks, 1994, 1995; Colla and Dupuis, 1997;

Colla, 2001). Aldi and Lidl are now present in

the majority of these countries and their

objectives over the coming years will be to

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increase their market share, to the detriment

of supermarkets in particular.

By contrast, soft discount retailers tend to

prefer developing markets, geographically and

culturally close to their domestic markets, and

where traditional retailing still occupies an

important position. Growth in soft discount

will be at the expense of the latter, as well as

small supermarkets and other self-service

stores.

Retailers in the third group, who target the

synergies, seek to penetrate developing

markets and those where the group is already

present with hypermarkets or supermarkets.

There too, the retailing business models most

directly hurt will be small non-specialised

retail stores, small supermarkets and other

self-service stores.

Expansion strategies seem to confirm the

existence of differing development

opportunities according to the groups and

their retailing brands.

Aldi is predominantly oriented towards the

USA, Australia and New Zealand and is

looking for acquisitions in Spain. Lidl seems

to want to increase its presence in southern

European countries in the process of

modernisation, and is beginning to envisage

growth in central Europe, beginning with

Czech Republic. It is central Europe in

particular that is favoured by Penny and

Rewe, while Dia and Leader Price are

Table VIII Discount retailers in western Europe (number of stores abroad per foreign country in 2001)

Countries/retailers Germany Austria France Italy Belgium Denmark Spain Portugal UK Greece Ireland Luxembourg

The

Netherlands

Aldi 207 484 339 195 263 10 7 393

Lidl 40 740 209 90 250 110 200 20 1 58

Plus 293 165Penny 191 82 146

Dia 2,480 277 202

Rema 1000 80

Netto 178 125

Norma 107

Edeka/AVA 36a 9b

Itm (Netto) 630

Leader Price

Colruyt 10

Notes: aTreff-Marche ; bComa

Source: Derived by Enrico Colla from data provided in Food Business News (October, 2002)

Table IX Discount retailers in central Europe, USA and Australia (number of stores per foreign country in 2001)

Countries/

retailers Norway Latvia Lithuania Poland

Czech

Republic Hungary Romania Slovenia Finland Turkey Argentina Brazil Australia USA

Aldi 17 590

Lidl 117 14 3 10

Plus 100 84 108 15

Penny 115 130 1

Dia 86 249 24

Rema 1000 16 56 16 20

Netto 43

Norma 30

Edeka 38a 38b

Itm (Netto) 45

Leader Price 60 3 150

Colruyt

Rimi 500 20

Notes: aE-Discount; bE-Delta

Source: Derived by Enrico Colla from data provided in Food Business News (October, 2002)

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counting on expansion in Italy, South

America and Asia, where Carrefour and

Casino already have a network of

hypermarkets and supermarkets (Table X).

Competition and prospects for growthwithin the different strategic groups

What developments in competition and

prospects for international growth can the

discounters from the three groups expect?

The competitive rivalry of firms from the

three different strategic groups has intensified

over the last few years for several reasons.

First, the number of countries, in which the

discounters of the different groups are present

simultaneously, has increased and

consequently so has their interdependence. In

addition, hard and soft discount constitutes

increasingly powerful strategic groups in

many countries, further increasing the

intensity of competition.

As long as their international presence is

differentiated and that there is no direct

competition with other discount retailing

brands, the retailers in the second and third

groups can impose their presence. This is the

case in Asia and Latin America, where hard

discount has not yet arrived and where

discount retailers from the third strategic

group enjoy good growth opportunities. But

when competition in the same market

becomes more direct, hard discount retailers

often take the upper hand over the other

discounters.

This is the case for the majority of

European markets, where hard discount

retailing, which in 1991 held a total marketshare of 4.6 per cent as against 4.8 per cent

for soft discount retailing, had reached a total

market share of 8.4 per cent in 2000, as

against 6.5 per cent for soft discount retailing.

For hard discount retailing, this performance

stems from the growth of the leading discount

retailers in Germany, and especially in

international markets. By contrast, for soft

discount retailing, it stems more from the

reaction of national retailers to the

penetration of German hard discount

retailing brands (as stated above) than

genuine international growth of the

companies.

It is in Spain and in central Europe that this

confrontation between the discounters of the

different strategic groups is soon to become

more direct. In Spain, the rise in power of

Lidl and the forthcoming entrance of Aldi will

pose new threats for the market leader Dia. In

Poland and in the Czech Republic, Lidl (and

perhaps also Aldi), will challenge Penny and

Plus, already in a strong position in this part

of Europe. Given what is happening in other

countries and the analysis of relative

competitive advantages, hard discount

retailers should be able to impose themselves

in terms of market share compared to theother retail formats. This does not mean that

the latter will not retain good positions, as

they did in Germany.

By contrast, in countries that are culturally

different and geographically distant from

Germany and where the risks for a new player

are higher such as South America and the

Asian countries it is the discount retailers in

the third group, benefiting from the

experience of an already established stronginternational group, who remain favoured.

Table X Criteria of choice of country and foreign growth opportunities of leading discount retailers

Hard discount specialised Soft discount specialised abroad Soft discount diversified groups

Aldi, Norma, L idl, Net to Penny, Plus, Rema 100 0 Dia, Leader Price

Criteria of choice of country:

Mature markets

Dominance of supermarkets

Strong brands

Strong service orientation

Growth opportunities:Aldi: USA, Australia and New

Zealand

Lidl: southern Europe, Czech

Republic

Netto: France


Developing markets

Strongly-placed traditional retailers

Cultural and geographic proximity

Growth opportunities:

Plus: central EuropePenny: Romania, Czech Republic,

Croatia, Ukraine

Rema 1000: Scandinavia and

Baltic states


Developing markets

Group already present with

hypermarkets and supermarkets

Growth opportunities:

Dia: Italy, France, Portugal, Greece,Turkey, Brazil, Argentina

Leader Price: Argentina, Uruguay,

Venezuela, Taiwan, Thailand

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Volume 31. Number 1. 2003. 55-66


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Conclusion

The article has defined three strategic groups

of limited range, discount food retailers that

have adopted different internationalisation

strategies, and it has identified a series of key

success factors and competitive advantages,barriers to entry and barriers to mobility, with

varying importance to the different strategic

groups.

The importance of volume by product line

and product item, and the experience

acquired in the area of private brand

management, leading to the restructuring of

the value chain and to a channel leadership,

favours more specifically the competitiveness

of the specialised German hard discount

retailers.These retailers are leaders in discount food

retailing in their domestic markets holding

substantial market share. But they are also

aggressive internationalists, present abroad in

most countries, and with a larger proportion

of market share, and their rate of international

expansion over the past years has been higher

in terms of number of stores than penetration

into new countries. They have especially

penetrated those countries with high

purchasing power, where retailing is modernand supermarkets or hypermarkets are the key

formats, where brands are strong and

retailers strategies are highly customer service

oriented.

The German soft discount retailers,

belonging to large diversified groups

operating mainly on their domestic markets,

benefit from advantages linked to their

purchasing volumes and price differentials

with supermarkets lower than those of hard

discount and benefit less from synergies

abroad than discount retailers in the third

group. They use cautious internationalisation

strategies, in countries that are geographically

close and culturally similar.

By contrast, the synergies available within

multiple format groups favours the

international expansion of soft discount

retailing names like Dia and Leader Price in

the countries where the groups to which these

brand names belong (Carrefour, Casino) are

present in force. Moreover, the group may

reduce the risk of entry for the discount

format into new developing countries, thanks

to the synergies with other formats.

The winners in the race to international

expansion are in particular the leaders in the

first group, but important niches in several

foreign markets can enable growth, at least in

the short term, of retailers in the second and

third groups.

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