Plan for overseas growth

Suppliers can be retailers’ best friends. At a time when retailers are squeezing them for all they’re worth, it sounds unlikely, but their customer expertise is not to be underestimated – particularly when it comes to launching in new international markets. And at the moment, with the UK market in the doldrums, expansion into foreign climes is one of the few solutions to achieving growth.

But planting the flag in a new market is not easy. Even the biggest retailers have made high-profile mistakes – Walmart beat a hasty retreat from Germany, as did Tesco from Japan. Making the best of the opportunities that international markets offer means retailers need to be well informed. So in what circumstances can suppliers’ knowledge prove useful?

Aidan Bocci, chief executive of consultancy Commercial Advantage, says: “Suppliers can help give information on basic factors on the market such as how consumer lifestyles are changing and how different products are doing in that market.”

Moreover, it can be the start of a mutually beneficial relationship – suppliers will be keen to provide advice if they could then manage growth together with retailers’ profitably.

New markets

Tesco consultant John Hoerner has been involved in many of the grocer’s efforts to take clothing and homewares to new markets. He agrees that suppliers can be invaluable in this process. “We try and get information from where we can and certainly suppliers are a good source,” he says. “They can help with information on the things customers like to buy, price levels and shopping habits.”

In the clothing and home sector, he says this information is garnered on an ad hoc basis and is down to close relationships with particular partners.

Aurora Fashions chairman Derek Lovelock agrees. He says: “When entering a new market, we have a rigorous process for gathering information. We would naturally work and consult with our business partners based in those territories, so that we could utilise their local knowledge, where appropriate.”

In the grocery sector, FMCG companies have a more structured approach to helping retailers in new markets.

Coca-Cola, for example, has a special division, the Retailing Research Council (RRC), which commissions and disseminates all kinds of reports and information on consumer markets including emerging territories.

One report produced by the RRC, for instance, laid out a typical day for a Latin American professional, indicating when that person might visit a supermarket, demonstrating how different it might be from a similar person in the UK and where the retailing opportunities were.

With its wide global reach, Coca-Cola is able to share best practice among its customers and analyse how different approaches can work. Former Tesco boss Sir Terry Leahy once gave a speech laying out the UK supermarket’s attempts to be more ‘green’ to a forum of RRC clients in Beijing.

FMCG giants such as Unilever and Procter & Gamble have similar support facilities available for their strategic partners in different markets. Julie Watson, vice-president shopper and customer marketing at Unilever, says it prides itself on local market understanding of the retail environment, and seeks to establish a deep knowledge of different channels and formats. “We work hard to understand our shoppers and their differing shopper missions, dependent on the category our consumer is buying and where they are making their purchase,” she says.

She adds that the fact it operates across 14 categories gives it an ability to have a point of view across a large proportion of the store.

Supplier powerhouses

Helping the retail giants such as Tesco and Walmart suits the supplier powerhouses such as Coca-Cola, Unilever and Procter & Gamble; very often it is in their best commercial interests.

But given the recent furore over the Indian government’s plans to open up the market to retailers directly owned by foreign companies, it is clear that any supplier assistance given to these interlopers would not go down well with the thousands of mom and pop shops that have been distributing product such as soaps and shampoos for decades.

Competing priorities mean that some retailers find suppliers can only help on a peripheral level. Most suppliers based in China, for example, are not supplying the local market and so will have little useful information to give.

Data on clothing sizes and consumer habits is much more effectively provided by consultancies and market research. Reliability can also be a problem.

A clothing supplier that is not a strong strategic partner may be unwilling to divulge that consumers in Hong Kong are likely to want shorter sleeve lengths because changing production on orders for a small number of early stores would be inconvenient.

Some retailers are also wary of consulting suppliers in countries such as India and China because many of the major manufacturing groups are looking for opportunities to enter retail themselves. Those ambitions raise the prospect of conflicts of interest.

Richard Traish, senior partner at global management consultancy Kurt Salmon Associates, adds that major brands may also be wary of sharing information with retailers. “It can be adversarial,” he says.

Averting disaster

Certainly retailers seem to take suppliers’ information with a pinch of salt. But approaching them for help and advice when entering a new market can help avoid last-minute disasters.

Certain international markets can demand different packs of clothing sizes, for instance, and being warned well in advance that different packs might be required saves time and trouble. Some countries also ban imports of items from certain international markets, and so allowing time for planning can prevent the wrong product ending up in the wrong place.

Richard Wolff, who previously led Marks & Spencer’s international development and is now director at consultancy Javelin Group, says there has to be engagement from the top level within the supplier. “If you’ve not got that then they are not going to be able to persuade those lower down the food chain to take decisions, which short-term might affect their profitability,” he says.

He believes making suppliers feel part of the expansion process is an important part of getting support for a fledgling chain in a new market, particularly when they may be used to supplying large amounts to the UK or mainland Europe.

What’s more, suppliers are also willing and able to help those without ambitions to open stores abroad in some quite surprising ways. Andrew Gossage, chief operating officer of Ultimate Products, a supplier of homewares and electricals, says his business is more likely to be asked for help from a customer to set up their Far East buying office rather than launching a store presence.

Even though these buying offices may in effect be competitors, they also represent a selling opportunity for its own Far East offices.

Suppliers can play a role that extends far beyond that of getting product to the retailer. The importance of utilising their advisory capacity can reap tangible rewards when it comes to international success. And at the moment, international success seems even more critical than ever before.