A demographic challenge: Retail giants struggling for profitability in emerging economies
The entry of global leaders in retail market into emerging economies was presumed to be a threat to local businesses. It was believed that leaders such as Walmart, Tesco, Metro, etc. would wipe out local businesses in developing countries. The story however did not turn out to be as expected.
Are there areas that the super, hyper, or multinational retail leaders forget to comprehend?
One of the major factors is basketing the emerging economies as one and ignoring the individuality of the regions altogether. The rise in buying power among the middle class in the developing countries, lead to an assumption that power play and one-stop solution for all needs would change the business landscape in these economies.
Demographic similarity trap:
A business, no matter how large it is in one economy, should understand that the emerging economies are distinct in various aspects from one another. Every economy has distinct cultural aspects that influence the business practices. The hypermarkets thrived in developed economies and witnessed unparalleled growth over the years. However, when the same concept was introduced in emerging economies, the leaders in the business witnessed a setback.
The pressing concern would be to find a reason for such a setback. The answer is in simply seeing the market differently. Lifestyle of people in developed economies is different when compared to living standards in developing countries. For example, people in the developed countries are not averse to frozen food, and would not mind buying groceries and other essentials and freeze them for weeks. However, that is not the case with the people living in developing economies. People would still prefer to cook fresh food on a daily basis and not like frozen food.
The hypermarket concept relies heavily on bulk buying, which means, buying in bulk and storing for weeks and sometimes months. However, the facility to manage such storage is yet to be accepted in the emerging economies. The middle class would not afford storage that would store food and other essentials for a long period. The people in emerging economies heavily rely in buying products that would cater to a family for a day or two or a week to the most. In such situations, the local market or small vendors would play a prominent part in the daily lives of people.
The hypermarket concept relies on the space, as these markets are huge in nature and are spread across wide area. The gigantic nature of the hyper markets would invariably lead the owners to find places that are out of the city limits, and with ample parking spaces. Distance becomes a factor for people in the emerging economies, as long travel to buy groceries would be impractical. Weekends offer opportunities for hypermarkets, as weekends allow people to plan things for the week ahead.
Living standard also contributed to a setback to the leaders in retail sector. When almost all the houses have cars for people to travel in the developed regions, which is not the case in emerging economies. There are families that do not own a car at all. Public transport plays a dominant part in the lives of people in developing countries. Most of the families would own a two wheeler, such as a bike, and is not a great way to conduct big ticket shopping. Therefore, a small family would be happy to shop from a nearby grocery store and still be content. Living standards of people would have a huge impact on hypermarkets and their survival in the emerging markets.
Reshaping the business strategies: The way ahead
Different factors are responsible in shaping the retail environment in every country. These factors would cumulatively impact on the variability of business in the country. Nevertheless, the potential that is offered by the retail sector worldwide is phenomenal. Reshaping business strategies, and addressing limiting factors and empowering positive factors would open new landscape for retail business in the emerging markets.
If hyper market leaders can build strategies that would address the limitations of the people in the emerging economies, the possibility of a new wave within the retail business is inevitable, as emerging economies are a huge untapped markets.