How To Seize a Window of Opportunity: The Entry Strategy of Retail Firms into Transition Economies

In most western countries, grocery retailers are faced with maturing domestic markets with a year-to-year sales growth close to zero. Moreover, most Western-European markets are characterized by a high concentration rate, with a combined market share of the top five players easily exceeding 70%. One important outcome of this evolution has been a growing interest in cross-border initiatives. However, even though the industry gained importance, retailers are still struggling to develop the competencies to compete and survive in this new, more global, arena. In this paper, we study entry investments into Central and Eastern-European transition economies to unveil when, to what extent, and to which retailer the strategic window in these different markets opens. We develop and empirically test a set of hypotheses on factors that affect (1) the speed (timing) and (2) size of retailers’ decisions to enter Central and Eastern European markets. A conceptual framework is proposed which looks at strategic decisions through the option lens. This perspective offers an economic rationale for the behavioral process of major resource allocations. The resulting hypotheses are tested, using a joint hazard/poisson-regression framework, on a data set covering all entry decisions of the top 75 European grocery retailers towards Central and Eastern Europe. We find that in these transition economies important legitimization effects can be derived from rivals’ actions. Especially the moves, made and anticipated, by home rivals are carefully monitored. This reflects the idea that retailers are motivated not only by the chance of creating value in these new markets, but also by the fear of being left out

Intra- and Interformat Competition Among Discounters and Supermarkets

The price-aggressive discount format, popularized by chains such as Aldi and Lidl, is very successful in most Western economies. Its success is a major source of concern for traditional supermarkets. Discounters not only have a direct effect on supermarkets’ market shares, they also exert considerable pressure to improve operational efficiency and/or to decrease prices. We use an empirical entry model to study the degree of intra- and inter-format competition between discounters and supermarkets. Information on the competitive impact of new entrants is derived from the observed entry decisions of supermarkets and discounters in a large cross-section of local markets, after controlling for a number of local market characteristics. In our modeling framework, we endogenize the retailers’ entry decisions, and allow for asymmetric intra- and inter-format competitive effects in a flexible way. We apply our modeling approach to the German grocery industry, where the discount format has stabilized after two decades of continued growth. We find evidence of intense competition within both the supermarket and discounter format, although competition between supermarkets is found to be more severe. Most importantly, discounters only start to affect the profitability of conventional supermarkets from the third entrant onwards. This may explain why many retailers rush to add a discount chain to their portfolio: early entrants may benefit from the growth of the discount-prone segment without cannibalizing the profits of their more conventional supermarket stores

Dancing with a Giant: The Effect of Wal-Mart's Entry into the United Kingdom on the Performance of European Retailers

The authors examine the value-destroying and value-enhancing effects of a giant player's foreign entry on incumbents operating in that region. They use Wal-Mart's entry into the United Kingdom, through its acquisition of Asda, as the empirical context. Drawing on the marketing, strategy, and finance literature streams, the authors develop hypotheses as to why some incumbents are negatively affected whereas others actually may benefit from the entry of a giant competitor. Their measure of performance impact is the change in shareholder value around the announcement date, which has recently been recognized as an important metric to evaluate the effectiveness of marketing actions. The authors find strong support for the conceptual model, which distinguishes between the seriousness of the threat to the incumbents and their capacity to withstand the threat. The authors validate their findings using three alternative measures of company performance: percentage growth in the incumbent retailer's sales, earnings before interest and taxes, and return on assets between 1998 (the year before the Asda takeover) and 2002 (three years after the takeover). The authors discuss various managerial implications of their results. By acting proactively, incumbents can mitigate the negative performance consequences, while maximally benefiting from the positive implications of a giant competitor's entry

Entry decisions in the international expansion process of retail chains: do they matter in the long run ?

The retailing industry, in the United States and Europe alike, faces maturing markets and stiffening domestic competition. In response, many of the industry's main players have shown a growing interest in cross-border initiatives. The success of such foreign entries obviously depends on the appropriateness of the firm's post-entry decisions, but may also depend on the strategic choices made at the time of entry, as they shape the platform from which competitive advantages can be gained. Little empirical evidence is available, however, on the relative impact of these time-of-entry choices, especially in the longer run. In this paper, we simultaneously consider five strategic entry decisions: order,size of entry, mode of entry, the level of format adaptation and the extent of format diversification. We assess their relative impact on the foreign operations' long-run performance, while controlling for both the parent firm's resources and the host-market's intrinsic attractiveness. Formally, the strategic choices and control variables are linked to the asymptotic performance level in a pooled Gompertz growth model, that is calibrated on a unique data set covering the post-entry performance of over 160 foreign entries made by Europe's top 75 food retailers. The empirical findings suggest that several of the decisions made at entry continue to influence the foreign entry's future performance, both in terms of sales performance and in terms of efficiency. Especially the timing of entry and the novelty of the retailing format to the host market are found to be critical long-run success factors. The choice of retail format could be dictated by demand considerations (adaptation to host-market conditions) or by supply considerations (expertise in the home market). Ideally, both will suggest the same format; if not, our findings indicate a greater importance of the former, irrespective of the performance dimension considered.status: publishe

The entry strategy of retail firms into transition economies

International entries into transition economies occur infrequently and involve considerable uncertainty. This raises the question whether managers, who have limited own experience, take their competitors’ prior decisions into account when deciding on their own entry timing and size and whether there is value in doing so. To address these questions, the authors estimate a sequential hazard/Poisson regression model on the top 75 European grocery retailers’ decisions to enter the Eastern European market. Indeed, firms pay close attention to prevailing practices in their industry. Prior entries first serve as legitimation but eventually become a deterring factor. Moreover, rather than just imitating the most popular or modal decision when determining the own entry timing and size, managers pay closer attention to the actions of their home competitors, react to prior entries of same-format competitors differently from those of different-format competitors, and adjust the observed industry practice for the specificity of their own resources. The authors show that managers are justified in taking the combined industry wisdom into account; deviations from prevailing industry practice, in terms of both timing and size, hurt the efficiency of their operations in subsequent years. Thus, attempts to develop own, distinct entry rules tend to be dysfunctional. Moreover, corrective actions are easier to implement along the size than along the time dimension; the detrimental effects of entering at a different time from the industry norm persist and even become amplified over time, whereas the negative impact of size deviations is temporary.status: publishe