Keith Daniels is a partner at Carl Marks Advisors. He has over 20 years of experience as a financial restructuring advisor and has seen firsthand what is driving change and transforming the supermarket world. Additionally, he has had frequent hands-on involvement in the reorganization of grocery chains and retail, and has supported them with financial/operational advisory on restructurings and with the combination of their business.
New market entrants can become victims of their own hype, anticipating a successful, easy launch of their “well-known” brand in new territories. Brands such as Aldi, which entered the U.S. market over three decades ago, have done it right and as a result enjoy lasting success and strong name recognition. Oftentimes, however, brands expect to succeed by simply replicating what’s worked in their home market, ignoring what makes the U.S. market unique. Plenty of examples illustrate that it takes time to build brand recognition in new markets — irrespective of the size of the company — and that overconfidence as well as making assumptions about new markets can easily derail the successful rollout of a brand.
2. Insufficient market analysis
The foundation for fully understanding new target markets comes with performing a thorough market analysis well ahead of entering a new market. It involves looking at everything from market saturation to regional demographics and the competitive environment, among several other factors. While a certain “novelty effect” may drive initial interest in a new retail or grocery chain opening in the neighborhood, traffic will quickly wane if the brand’s value proposition isn’t clearly communicated, and if differentiators are not fully understood by potential customers.
For example, a grocery chain entering the U.S. market will need to closely analyze its closest competitors, including specific offerings and price points. If it fails to do so, the new chain will clearly face an uphill battle attempting to win over new customers. The offerings may not be compelling enough for customers to return to the store.
3. Making assumptions about new customers
Understanding the customer is key to building market share. Surprisingly, it is not uncommon for brands who move into new markets to make assumptions about their “ideal customer.” At times, this is driven by a desire to expand quickly. Making assumptions about demographics, shopping habits or preferred purchasing channels is likely to backfire if not supported by sound analysis and data. For example, a grocery chain expanding into the southern U.S. will want to ensure that regional specialty products (such as grits) are part of their offering. Likewise, brands will want to invest time upfront to see which channels they can use to best reach certain demographics, such as millennials or baby boomers, and what their preferred purchasing habits are.
4. Throwing the strategy overboard
No matter how well researched the market opportunity or how thorough due diligence was conducted, any new market entrant’s business strategy will need fine-tuning along the way. Depending on the circumstances, this may mean making swift but effective changes. Other times, gradual changes will suffice. Regardless, new market entrants will want to remain committed to the market and carefully analyze their data, but avoid at all costs overreacting to signs that the strategy isn’t producing results. Throwing the strategy completely overboard for the sake of driving rapid change is unlikely to improve the desired outcome.
5. "We are going to do this our own way"
Simply rolling over familiar management approaches and organizational structures is a recipe for failure when planning to expand into new markets. Any management team lacking that awareness is going to struggle to get the business off the ground. Differing business cultures and knowledge of regional and local markets, regulations and customs matter, as do different approaches to decision making and risk appetites. All of these factors can vary vastly from country to country, and need to be taken into consideration when entering new markets.