Table of Contents
This is the beginning.
CEI Framework
Way of Proceeding
Original: Hypothesis
Paraphrased: Theory
Quickly tap into markets
Chile
France
Hong Kong
New Zealand
Long-Term Markets
China
India
The countries of the North, such as Norway, Sweden, Finland, and Denmark.
Suggestions
This is the beginning
This report has developed a concise COSTCO Corporation expansion strategy taking into account the markets that are already in place. First, we developed an analytical framework to determine the best countries for COSTCO Corporation’s international expansion. After selecting the candidates, we analyzed their market appeal using Porter’s Five Forces, cultural & entry barriers and financials. We then compared all the countries and selected the top priority ones. We then recommend market entry strategies to the countries that we have selected.
CEI FrameworkCOSTCO ExpansionIndicator is an indicator that includes both grocery retail factors and COSTCO factors. It ranks countries based on their suitability to expand internationally. The inputs for our framework include the top 50 global countries by grocery retail size. Then, we give each country a score between 0 and 100% based upon market size. Each of these factors was given a weighting of 25%, 30% 15% 10% 20%. The COSTCO factors were based on the following: house size (including the number of rooms), cultural distance (including the distance between cultures), geographical distance (distance from the company), operational feasibility as well industry attractiveness. These factors are based on the CAGE as also ADDING Frameworks for Internationalization Strategies. Each factor was given a weight of 10%, 20 %, 5%, 20%, 25%, and 20%. The scores for each of the factors were relative, and we then ranked countries according to the weighted total average score. We plotted the industry-specific weighted score vs. the COSTCO-specific weighted score.
MethodologyThe data from our framework not only confirms that COSTCO has a presence in the right markets, but it also helps us to identify new ones. COSTCO & Industry have rated the Nordic countries highly attractive. The developing countries of Africa, however, are located at the opposite extreme of the chart. The result is not biased towards developed markets, but shows the potential for emerging markets such as Hong Kong and China. We split the chart into zones of high industry and high COSTCO. New Zealand, Chile and Denmark are included in this zone, as well as Iceland, Finland, France Hong Kong, India, China, China, Norway, Sweden, Iceland and Denmark. These countries are not the same. India and China have a very different market from New Zealand or France. COSTCO, we think, should have two strategies – one for Quick Wins and another for Long-Term Markets. Quick Wins is a category of countries that COSTCO can easily adapt to existing markets and do not have to reinvent the wheel. New Zealand shares very similar culture and values with Australia. They share similar PPPs, consumer tastes and foreign brands. COSTCO is able to build a new market on the basis of its huge success in Australia. It will take three to four years for COSTCO to make a mark in Australia, but the challenges and effort will be much lower than other countries. Accordingly, New Zealand is categorized as a Quick Win Market, along with Chile, Hong Kong, France, and Hong Kong. India, China, Nordic, and Scandinavia are all categorized as Long Term Markets, given the uncertainty around consumer preferences, politics, and economic stability.
Quick Win MarketsChileChile has the largest market for consumer products based in the US. It is the most advanced and developed economy in Latin America. Chileans are now able to buy more goods and services thanks to the sustained growth following the 2008 crisis. The low copper prices in 2013-16 resulted in a sluggish growth in the economy, which led to a lower level of domestic consumption. However, retailing channels have seen an increase in expenditure and foreign investors are more confident. The Chilean average GDP is $15,346, much higher than Latin American’s. The retail grocery market reached a market value of $16. In 2017, the total grocery retail market was worth $4 billion. Growth is forecast to average 3% in the next 5 years. The grocery retail sector in Chile has grown rapidly, with hypermarkets especially. There are also grocery retail chains like Falabella, Cencosud and other major retail chains. Walmart Chile has the largest grocery retail market share in Chile, at 42%. It also offers multi-format stores that cater to different consumer types. Cencosud is also home to two different types supermarkets. The first caters to the quality conscious consumer, while the second targets customers who are price sensitive.
Chileans’ consumption habits are changing. They prefer imported goods and high-quality products, particularly from the United States. A Nielson report shows that 8 of 10 Chileans will pay more for imported premium products.
COSTCO will face many challenges, even though Chile is a highly attractive market. The retail market in Chile is saturated, dominated by just four major players. While warehouse clubs do not exist, many hypermarkets are located in the major metropolitan areas of Santiago and Chile. According to CERET research, 81% Chileans chose a grocery store based upon its location. COSTCO would have to pay a large amount of land for the first COSTCO store. COSTCO can set up 2 stores in Santiago de Chile’s prime locations within 3 years and achieve a marketshare of about 1. COSTCO’s target customer would be upper middle class consumers who are not price sensitive and look for an experience based shopping of premium products. COSTCO targets upper middle-class customers who don’t care about prices and are looking for a premium shopping experience.
FranceWith its gross domestic products (GDP) at approximately $2. In 2017, France was the sixth-largest industrialized country in the world and the third-largest economy in the European Union, after Germany and United Kingdom. In 2018, France’s grocery market accounted for $275billion. New entrants will find it very profitable. A high percentage of the population lives in large cities and has high incomes. COSTCO’s demand is high because hypermarkets are the most popular stores in the country. COSTCO also has an advantage due to its geographic proximity to United Kingdom, Spain and other countries. France has its own challenges. Carrefour & Auchan dominate the space of hypermarkets. Both players have a large share of the French market and are dominant in this industry. COSTCO doesn’t have any particular advantage on the ecommerce front. Foreign companies are not allowed to choose their own products or prices due to the heavy regulation on pricing and product specifications. The right partner can help overcome these challenges. The goal of achieving 0. Market share of 26%. This would translate to $765 million of revenue annually and an $8. 94 million.
Hong KongHong Kong occupies a prominent position in global trade and finance. COSTCO, a major retailer in Taiwan, shares values and cultures with Hong Kong. Hong Kongers love and buy western products. Hong Kong has attracted huge investments to its markets.
According to Hong Kong Government stats, “there is 1,328 subsidiaries from U. S. parent company in Hong Kong. This makes the United States the biggest source of subsidiary in Hong Kong”. Hong Kong ranks 4th worldwide in Ease to Do Business. It is therefore a very attractive destination for foreign investors. Retail sales are also large, with an average of $62 per transaction. 2Bn. This is an 8% increase over last year. Tax rates, which are 16. The maximum value of a corporation is 5%. Hong Kong, with its cultural and geographic similarities to Taiwan, is an attractive option.
The challenges, however, are also worth noting. Hong Kong residents are largely carless and prefer to shop in small quantities rather than bulk. COSTCO’s success in Taiwan suggests that it can also be accomplished in Hong Kong. Coscto will need to establish an internet presence, and work with third parties for delivery. This scenario will allow us to achieve 0. In 3 years, we will reach 500 million dollars in revenue and a net profit of 4, 4 million.
New ZealandNew Zealand’s market is very similar to that of Australia, where COSTCO had great success. COSTCO can apply the “Six Sigma approach” (measure & analyze) in its Australian entry/operations and also improve & control the entry into New Zealand.
New Zealand’s macroeconomic climate is also quite promising, especially when you consider an 18. New Zealand’s macroeconomic climate is quite promising considering that the country has an 18.
The main challenge is the high concentration of offshore merchants online, as well as the high costs associated with real estate. These challenges could be reduced by: (1) having a presence online during construction, and shipping from Australia. 2) entering the leasing model to lower CAPEX.
Auckland, Wellington, Christchurch, and Hamilton all have median incomes that are high enough to make them ideal target markets. They could be a host for a new warehouse through a subsidiary owned by the company, like they did in Australia. Or, a partnership can be formed with a local shipping courier.
COSTCO can reach 523 million USD in revenue and 8.34 billion dollars in net profit if they consider the four locations above.
Long-Term MarketsChinaChina will soon overtake the US as the largest market. By 2022, the grocery retail sector is expected to grow from $1,637 million11 to more than India and Japan combined. In the next five-year period, it is predicted that this market will grow at a CAGR 5.8%. China is the world’s largest online retailer, accounting for 35.3%. Online retail will grow at double-digit nominal rates. This expansion is bringing in benefits for retailers who have a national network such as Sun Art Yonghui Walmart CRV Carrefour. Tencent, Baidu and other e-commerce giants have bought stakes at Carrefour China as they look to expand into the retail sector. Walmart China formed a partnership JD.com. JD.com is the second-largest online retailer, after Alibaba. Walmart Sam?s clubs business model is similar to COSTCO. The company has recently changed its strategy due to the shifting trends away from traditional stores.
The rapid economic growth in China means that a growing middle class can afford to buy imported and high-end products. The Chinese market is a huge opportunity, but it also presents a number of challenges. Chinese consumers tend to prefer low-priced products, small volumes and frequent purchases. International retailers are forced to localize their products and business models due to nationalist regulations. In light of the failures experienced by many American retailers entering the Chinese marketplace, and the high degree of uncertainty resulting from regulations and politics, we think that entering China would be an extremely high-risk strategy with high rewards. COSTCO might partner with Alibaba to develop the online-to offline platform, and to provide high-quality imports to wealthy Chinese clients as well B2B convenience store. COSTCO’s online store would be further strengthened by the offline presence.
IndiaIndia is currently one of the world’s most attractive markets, with a market worth over $600Bn and a projected growth to $1trillion by 2020. India’s rural FMCG industry is projected to grow by a CAGR between 14 and 16 percent. By 2025, the rural FMCG market in India is expected to grow at a CAGR of 14. Foreign Direct Investment equity inflows totaled US$ 1.59 million. By 2020, consumption is expected to rise from US$ 1,824 in 201713, to US$ 3,600 by 2020. This represents over 10% of the country’s gross domestic product (GDP). The Department for Promotion of Industry and Internal Trade has reported that Indian retail trading received Foreign Direct Investments of US$1.6billion from April 2000 until December 2018. The Walmart Investment Co-Op A invested Rs 2.75 Billion (US$ 37.68 Million) in WalMart India Pvt Ltd. Even though this was a golden opportunity for Western brands, they have been unable to enter the Indian marketplace. Carrefour, Auchan and other companies tried the Indian market but abandoned it. The struggle is largely due to the fact that the market cannot be catered to by local stores. 80% of market share belongs to mom-and-pop stores. COSTCO faces challenges due to the cultural differences and geographic distances between its existing markets. The right GTM strategy can overcome these challenges.
Nordic CountriesWith more than USD 75 billion in grocery sales and almost 5 million inhabitants, Stockholm and Copenhagen are among the most attractive markets.
COSTCO will be the first to move into this market as an international supermarket, but it will still have to compete with a value-conscious customer that is not forgiving of mistakes.
A JV is suggested due to cultural differences and market complexity. Stockholm is also the largest and most complex market.
If the Stockholm store proves a hit, it is sensible to expand with warehouses in Copenhagen, Helsinki and Reykjavik and, in parallel, enter other Baltic countries including Russia and Estonia.
RecommendationsHaving analyzed the top 11 countries according to the COSTCO Expansion Indicator, it is possible to conclude that New Zealand and India should be COSTCO’s next destinations.
New Zealand’s success is most similar to that of COSTCO. Because it is so close to Australia both culturally and physically, New Zealand could prove to be a “Quick Win”, boosting the profitability of the company and decreasing its dependence on the US Market.
The Indian people have welcomed the arrival of Ikea and other international companies.
But the cultural distance is so great that it makes sense to look for a local business partner to assist in the establishment of new shops and to share the Indian market’s knowledge. Aditya Birla Group, India’s largest private conglomerate, owns More supermarket.
Bangalore in India, a city with an IT hub that is populated by upper middle-class and young households, may host COSTCO’s brick and mortar store. The company will also launch its online site and partner with local couriers.
IKEA, India’s largest retailer, has also selected Hyderabad as its entry city.
This would provide enough data to determine the other Tier 1, 2 cities that could be expanded into.
