International Marketing – Iceland Supermarket
Introduction
Iceland Foods Ltd. is one of the leading names in the food retail sector in the UK. The company was founded by Malcolm Walker in 1970; and, since then, it has undergone consistent growth in its popularity, consumer-base, and profitability in the domestic market. Before, fridges and freezers came to be commonly used; it focused on selling loose frozen foods i.e. vegetables and meat. Later on, it worked on product development strategy by introducing some branded grocery items that proved to be a booster to its sales revenue. Within 46 years of its business life, the company has expanded tremendously with 850 stores in the UK alone and covering several other key European locations (Iceland.co.uk 2014). Iceland is, now, proposed to enter German retail market and this report consists of a detailed plan to give analytical coverage to this proposed international marking move.
1. Strategic Analysis of the Organization
1.1. Environment Analysis
1.1.1. Pestle Analysis
Given below is the comprehensive pestle analysis for the company on hand to assess potential opportunities and threats in the external environment of Iceland with reference to the current idea of internationalization:
Political Factors: The data collected from Germany shows that the political stability of the German government is at a decent level though not as high as it was in the last decade of the 20th century. It is also illustrated in the diagram provided below:
(The Global Economy, 2015)
Besides political stability, another positive indicator is that the government provides support and assistance to foreign investment (Invest in EU, 2016). On a political level, there are hardly any restrictions imposed on setting up foreign companies in the region. These conditions serve as ‘opportunities’ for the company in hand.
Economic Factors: After hitting hard by economic downtrend (recession) in 2007, the German economy is now showing the signs of recovery. After reaching the lowest range i.e. below -4% in 2009, now GDP is consolidating between 1% and 3%. Germany has always been characterized by slow but consistent economic growth that is at the bottom of its being fifth largest economy in the world (Trading Economics, 2016). To be more specific, supermarket and food retail is also one of the rapidly growing industries in the region, as also depicted below:
(Statistia, 2016)
Apart from this, it is also interesting to see that the aggregate spending of German consumer is on consistent rise that denotes growing purchasing power on the whole as also shown in the figure below:
(Trading Economics, 2016b)
Social Trends: Eating trends are growing in Germany. However, the company will have to respond appropriately to growing health consciousness and the mood shift from non-organic to organic food items (Burnaby, 2014).
Technological Trends: In the digital age, retail grocery stores are integrating technologies that make shopping experience convenient and enjoyable for consumers. Then, trends in online shopping are also undergoing an uptrend and are expected to fetch sales revenue of £320 in next three years wherein the Germany is expected to be one of the main contributors (Ruddick, 2015).
Legal Factors: German Direct Foreign Investment Act ensures restriction free environment for foreign businesses. There is no distinction between local and international companies whether pertaining to startup cost, or business operations, or transactions, or any other types of activities (GTAI, 2013).
Ecological Factors: Growing awareness towards ethical consumerism in Germany as well as across the world requires the company to ensure sustainability, environmental protection, and corporate social responsibility in all matters from packaging to wasting (Fifka & Reiser, 2015).
1.1.2. Competitive landscape
The underlying store is faced both by direct and indirect competition. As a matter of fact, German grocery food market is characterized by intense competition, and none of the top retailers is taking the marginal lead. Some of the major direct competitors of Iceland in the case of its making entry into the German supermarket include Aldi, Schwarz, Metro, and Edika. Market occupation of each of these competitors is illustrated through the diagram provided below:
(Rehder, 2015)
Edeka’s growth is largely based on its refined approach to advertising and CSR. Here, it is also worth mentioning that Iceland will face the strongest competition from discounters that are capitalizing on the change in consumer buying habits since the recession took place as shown in the figure given below:
(Eurofish International, 2013)
After indirect competitors (i.e. non-branded retail shops), discounters like Aldi and Lidl were recorded to be enjoying the highest growth rate (Rehder, 2015)
1.1.3. Analysis of risk
1.2. Resource and Competence Analysis
1.2.1. Porter’s diamond model
Given below is the resource analysis for Germany utilizing Porter’s diamond model:
Factor Conditions: Each of German governments focuses on producing and upgrading resources instead of overly relying on natural resources (though the country is also rich in natural resources).
Demand Conditions: As a result of the crisis in Euro-Zone, it is less profitable for the country to rely on exports. The demand for German products is declining in the European markets due to which the government is focused on boosting demand on a domestic level. And, it has also lowered interest rates on loan allowing investors to borrow capital at low cost and pass its benefit onto customers by lowering product and service prices (Elekdag, and Muir, 2015).
Related and Supporting Industries: Based on the external analysis, it is found that the German retail sector is intensively competitive, and suppliers are also faced with immense competition. It is indicative of cost-efficient mechanism for production that is also suitable for innovation.
Firm Strategy, Structure, and Competition: Hierarchical organizational structure is trendy with Germany (Walker, Walker, & Schmitz, 2003). Then, competitive rivalry at the local level is intense, which is a threat for Iceland with its intention to making an entry into that market according to Porter’s diamond model (Porter, 1990).
1.2.2. Resource mapping
VRIO model provided below deals with key resources and capabilities of the company with regard to the proposed expansion plan:
1.2.3. SWOT analysis
Based on the insight derived from the external environment and the study of the company’s profile, the writer has designed its SWOT analysis as follows:
2. Strategic Choices
2.1. Analysis and Justification of the Proposed International Marketing Strategy
The company is proposed to join German supermarket sector, and this proposal is backed by solid rationale. From the external analysis, it is found that there are more potential opportunities than threats in the external environment of its target market. For instance, political, economic, social and all other relevant indicators (discussed in Pestle) are supporting this decision. Then, German economy and the political scenario is quite stable, and it involves very little threats. The government welcomes foreign investment through soft terms and conditions. In addition to this, consumer eating habits and buying habits are also parallel to the company’s business style and value proposition.
Even though there is intense competition in the retail sector on a domestic level, any new entrant can establish itself by bringing innovation in one way or another, because the industry is mainly characterized by standardization (with a little approach to innovation). The company also has small stores with ordinary appearance, and it is also weak at technology adaption. By making little improvement in these areas and keeping the marketing strategies aligned to the behavioral, demographic, and psychological needs of its customers, it can stand out in the competition. To sum up, the proposed move to internationalization promises high growth in competitive advantage and profitability if implemented in a cautious way. Due to lack of practical knowledge about operating a business in Germany, intense competition, and some other risks, the company is advised to adopt ‘joint venture’ as the preferred entry mode. It will allow it to start the business in a foreign market with a decent market share (the market share of other party in the joint venture). It is a defensive option when it comes to international marketing, but ensures safe entry (exposed to less risk) (Doole, and Lowe, 2014; Pervez, and Phillip, 2014).
2.2. Analysis of Selected Entry Mode
Certain factors make joint venture a preferable option for the company in hand. For example, to ensure long term profitability and expansion, the management at Iceland is advised to follow Uppsala Model of internationalization. According to the said model, the company should first expand to the markets or geographic regions that are culturally and geographically close the parent country, and later on, shift its attention to culturally and geographically distant segments. Then, it should start with defensive expansion strategy and after having a grip on the knowledge of its international target market, it should use aggressive techniques (Ford, Gadde, L.-E, Håkansson, & Snehota, 2014).
The company is still new to German market with no prior experience of operating over there though it is not at divergence from the UK regarding cultural values. The company first has to gain practical knowledge of the German market and key trends over there before introducing any aggressive approach. Therefore, the company is advised to come into a joint venture with any of retailers having established a brand name and having a business style similar to that of Iceland. Even though the company will have to share its rewards (profits), it will also allow it to share responsibilities and risks (which are more important in beginning).
2.3. Strategy Plan
The company’s main objective associated with the current expansion plan is to enhance its brand recognition and competitive strength both locally and internationally. Furthermore, it aims to maximize the shareholder’s benefits by enhancing its consumer base. By capitalizing on business opportunities in Germany, and avoiding potential threats in that foreign geographic segment, it will smoothen the way towards future plans of internationalization (to some other countries).
Top management will discuss the matter with key members in the management and with the representatives of the workforce to take everyone into confidence prior to the implementation of a joint venture (to avoid any resistance). The next step will be to decide on the company to which Iceland will offer this partnership. It can be any name in the retail sector with decent market share and loyal consumer base. Furthermore, its value proposition and business strategy must not be much different from that of Iceland. After the approval of joint venture, the company will decide the ratio of profit sharing based on risk and responsibility sharing. Finally, it will execute its internationalization plan (through a joint venture).
The company’s implementation of marketing strategy with respect to 5Cs of marketing is discussed below:
Customers: The customers are 18-65 years male and female low and middle income range German consumers looking for cost-effective but convenient shopping experience.
Company: The company offers low cost products. All it has to do it is to overcome its weaknesses relating to store appearance and technology adaption that will add to customer’s convenience.
Competitors: As discussed, discounters are the most potential competitors of the company. Their strength is cost-leadership while the lack of innovation or technology adaption is their main weak area.
Collaborators: the company will be in a joint venture with an established domestic entity in the retail sector. The German government through its supporting policies towards foreign investment can provide technical assistance to Iceland.
Context: As discussed in Pestle analysis, there are no such restrictions or limitations except intense competition in German retail sector. So the environment is lucrative for any new entrant if it has good competitive strength.
There are two major issues when it comes to the proposed marketing plan. There is intense competition in the external environment, and the company has no competitive approach to technology adaption and innovation. Therefore, it is recommended that Iceland should strike the perfect balance between pricing and differentiation in order to ensure its competitive strength. With respect to TWOS (a tool for the evaluation of different business strategies) (Wheelen & Hunger, 1998), recommended SO strategy is to capitalize on the growth of consumer spending in the German supermarket. However, this strategy is challenged by the current competitive landscape of the German grocery retail sector. In its WO strategy, it can work on product diversification (by adding to its product lines in the retail sector), as consumer’s high level of purchasing power supports this decision. Here, again competition hinders the successful implementation of this strategy. Ideal ST will be to stand out in the competition through its low price strategy. But, it is also facing competition in terms of pricing by discounters. Finally, the company is recommended to add value to the business by improving its approach to innovation and technology adaption. It will not only be an effective WT strategy (overcoming the threat of competition) but will also help it capitalize on a potential opportunity (lack of technology and innovation in German retail industry).
3. Development Approach
Some of the most potential issues with relation to the current international marketing move faced by Iceland food are discussed in the previous part of the report. It was followed by four alternative strategies to overcome those issues. The writer finds the fourth strategy (WT) to be the most viable and parallel to the current demands of the underlying retail sector. Technology adaption will add to the competitive strength of the company because discounters and other low price retailers are deprived of these features. For this purpose, the company will make two changes.
Firstly, it will focus on the appearance of its stores in Germany. For this purpose, Iceland will opt for cost-effective, but attractive atmospherics (including background music). Secondly, it will also install technologies in stores that will help consumers in their search for products and shelves to save their time. Apart from this, Iceland will also cash in the current trend of online selling (as mentioned earlier) by offering home delivery services. The cost of home delivery services will be covered by charging appropriately for each item delivered (delivery charges).
The company will also make sure that it is properly responding to the changing customer demands. For this purpose, it will work on cost-efficient, but comprehensive R&D plan based on consumer feedback. Consumers will be allowed to record their feedbacks on forum section on the company’s website. It will also enhance consumer engagement and will create a sense of connectedness among them.
4. Conclusion
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