SHENZHEN, China – Zhong Guoyan sifted through piles of fish at a Walmart in Shenzhen, one of China’s largest cities. She studied the fins, to make sure they were bright red and firm. She peered at the eyeballs – were they bulging?
“I like when the products are fresh, and the quality is good,” she said. “When I come here, I have a look. If it’s good, then I will buy it. If it’s only cheap, I won’t buy it.”
In American Walmarts, customers are not offered the opportunity to fondle their fish. But America is not China, as the world’s biggest retailer has learned. If the Arkansas-based company wanted to win over foreign consumers like Zhong, it would have to shed some of its American ways, and cater to very different customs and conventions that are fast changing.
In the U.S., Wal-Mart conquered the marketplace by offering “everyday low prices” to penny-pinching, bulk-buying customers, but Chinese shoppers have good reason to look for quality first, bargains second after scandals involving tainted and mislabeled food. And Chinese shoppers seek fresh food daily because their tiny refrigerators don’t give them room to stock up.
Zhong eventually tossed a couple of fish into a plastic bag – a small victory in this massive retailer’s struggle to build an international empire.
The stakes are high: Wal-Mart can’t count on much sales growth from its U.S. business – it’s facing challenges at home with intense competition from online leader Amazon.com and dollar stores, which offer low prices and convenience – so the retailer is depending more on its operations overseas.
China, the world’s most-populous country, is the ultimate prize. Right now, it represents just 3 percent of Wal-Mart’s global sales of $478.6 billion, according to estimates from IBISWorld, a research firm. And the company has just over 400 stores in China, compared with more than 5,000 in the U.S. But the Chinese grocery market, already the world’s largest at $1.1 trillion a year, is expected to grow to nearly $1.5 trillion in just the next four years, says IGD, a global consumer products research firm.
“China remains a strategic market for our future,” Doug McMillon, CEO of Wal-Mart Stores Inc. recently told investors.
Getting the food business right is critical for Wal-Mart. Shoppers buy groceries more often than anything else. If Wal-Mart can get them in the door to buy food regularly, perhaps they will visit more frequently for items like pajamas and coffee makers – and eventually become loyal online customers, too.
Still, markets in China and elsewhere in the world will not surrender to Wal-Mart, just because it’s Wal-Mart. In particular, global players like Wal-Mart have found that food retailing doesn’t cross borders easily because it’s a largely local business. After struggling on its own in China, Britain’s Tesco PLC decided two years ago to team up with China Resources Enterprise, a state-owned company. Wal-Mart has also taken some lumps.
Overall international sales growth has been uneven, dropping 9.4 percent last year largely because of the strong dollar.
And while Wal-Mart’s overseas business had a strong start to this year, it faces long-term challenges. Wal-Mart gave up in Germany and South Korea, abandoning those markets back in 2006 in the face of tough competition. It’s closing 10 percent of its stores in Brazil.
And it’s locked in a price war in the United Kingdom, slugging it out with no-frills German discounters Aldi and Lidl.
Overseas, Wal-Mart lacks the scale to squeeze local suppliers on price as it does in the U.S. It also faces nimble competitors who are entrenched in foreign markets. It has not always found it easy to duplicate its bedrock strategy of constant bargains outside the United States.
But Wal-Mart has learned over the years from its missteps, discovering that it can’t just impose its culture on the world, that it needs to adapt to local ways, that patience does pay off.
In countries like Mexico, Canada and Japan, Walmart has won shoppers over time. After the setbacks in Germany and South Korea, the company established a team to ensure it does a better job integrating international acquisitions, while avoiding the impulse to force employees overseas to adopt all its ways. In Chile, it launched a corporate culture campaign and worked closely with suppliers to coax them into its way of doing business. It’s using its global clout to find and import products from around the world, catering to increasingly sophisticated and demanding middle class consumers.
Walmart also has come to realize that it can thrive without being the biggest player in every market, says Bryan Roberts, global insights director at TCC Global, a London-based marketing consultancy for grocery retailers. But the company also knows that it needs to succeed in China, now the company’s fourth largest international market by sales. And he believes it will do just that.
“Walmart,” Roberts says, “is a very determined organization.”
