EUROPEAN CHALLENGES TO THE BULGARIAN RETAIL INDUSTRY
AND KOREA’S EXPERIENCE IN INTERNATIONAL RETAILING
Assoc.Prof. PhD. Septemvrina Kostova
University of National and World Economy– Sofia, Bulgaria
1.The review of the global retail market
The purpose of this study was to examine the evolution of retail institution types in South Korea and Bulgaria with a proposed model. To examine the evolution of retail institution types in South Korea and to develop a more universal research model to explain this evolution, a qualitative research design was used. Specifically, a modified grounded theory type of design, with a historical/ comparative analysis method, was used in this study. First, the grounded theory process was used to develop a graphical representation or model using information from previous research. Second, the researcher collected publicly available data in South Korea’s trade and industry associations, websites on the Internet. Through comparative analysis, data from the South Korean retail industry were examined and compared to the working model to help Bulgarian’s retail companies in their transition to the global market. Four spiral endings were found: (1) upgrade, (2) stay and eventually go out of business, (3) downgrade, and (4) change types of retail institution. In the conflict part, a new retail institution type started competing with its own type, other traditional retail institution types, and a new retail institution type. Environmental influences affected not only the emergence of a new retail institution type but also the conflict among retail institution types and the evolution process. In addition, a new reciprocal relationship was found between environmental influences and a new retail institution type and between consumer preference of store/product attributes and a new retail institution type.
For future research, the CRM could be the base of research in many types of retail institution and in any countries that have unique retail environments. Using the CRM from this study of retail evolution in South Korea, current and future retail institutions could predict both consumers’ changes depending on environmental influences and what competitive advantages they must achieve to provide benefits to these consumers. In addition, researchers, both academic and retail, could use the final CRM to study the emergence and characteristics of a new retail institution type by analyzing current retail institution types
The process which have been taking place in the retail sector for years, and will continue to develop until it acquires a structure in keeping with global trends, have been developing under the sign of Bulgaria’s accession to the European Union. A growing body of business expertise opinion suggests that the entrepreneurial behavior is essential for retail companies’ survival and growth as well as for the enforcement of their global competitiveness, particularly in the transition period. In order to face the intensifying competition in the global market, Bulgarian firms have to adequately adjust their business practices actively searching for means in reinforcing flexibility, increasing innovation capacity and, as a result, showing more competition. Contemporary enterprises are not seemed to be able to survive in the period of “rapid mutation and innovation” if they do not maintain the proficiency and competence of entrepreneurs (P.Drucker, 1985). The strengthening of entrepreneurship considers as a crucial key to Bulgarian retailing practices convergence to EU standards, becomes an important objective for Bulgarian retailing in the transition period. It is most relevant to all Bulgarian retail companies that need to increase the level of their competitiveness in the global and changing environment. Indeed, because of the relatively small size of 60% of Bulgarian retail firms, most of them do not have the capabilities, market power. And other important resources possessed by large companies. The success depends almost entirely on the quality of the human capital, of the new modern distribution channels and the formulation and implementation of the competitive retail strategies (M.Porter, 1980). The development of the entrepreneurial potential and orientation in transition countries is considered as a main instrument that is expected to provide their global competitiveness. In other words, the entrepreneurs’ capability to seize new business opportunities will act as major determinant of the establishment of a nation’s retailing competitive position on the European market (S.Zahra, 1999).
The market share of the modern retail formats in Bulgaria increased in the last years as it is shown in Figure 1. The trends are in positive direction but there are more opportunities (free market place) for hypermarkets and discount stores.
Figure 1 Market shares of the retail formats
Format / 2003 / 2004 / 2005 / 2006Hypermarkets / - / - / 0,2% / 0,3%
Supermarkets / 10% / 13,9% / 17,4% / 18,4%
Discount stores / - / - / 0,1% / 0,1%
Cash & Carry Stores / 3,5% / 3,8% / 3,9% / 3,4%
Neighborhood Stores / 61% / 59,3% / 60,8% / 61,7%
Forecourt / 2,0% / 1,6% / 1,4% / 1,3%
…. / … / … / … / …
Other Stores / 23,6% / 21,6% / 16,2% / 14,8%
The main strategies of the Bulgarian retail companies in the light of Bulgarian EU accession and EU retailing standards adoption are presented by new formats, new market distribution channels, concentration of trade locations, developing of e-commerce, straightening the scientific and technological base and encouraging the international competitiveness. The local dimensions of the buyer behavior are penetration, frequency and loyalty, which are investigated further, show the household’s wants and wishes during the shopping.
There is a very interesting study made by A.Kearney (2006). On a regional level, Bulgaria is besides from the maturing markets of Eastern Europe. The rest of the world is in different condition. As part of Asia, South Korea posted the highest retail sales growth globally, after China and Vietnam. The Mediterranean held steady with mixed results, while Latin America recovered from its economic crises and enjoyed a strong return on the Index. Finally, Africa remains outside the game, but that is not stopping retailers from entering this populous region. Figure 2 maps out the relative market attractiveness of all countries on the Index (GRDI). A closer look at each region follows:
2.The Korean’s experience in international retailing
First some data about South Korea: population 48 ml, GDP $951, purchasing power per capita 19,515, consumption growth 5,4. South Korea’s market ranks relatively as the twelfth largest market in the world. The average sales per store are $120,290,4. The relative retail market size is third after Chine and Japan. The first hypermarket was built in 1993 by a domestic chain, E-mart and it is still the largest company operating the format today. In 1996 after liberalization of its market South Korea has attracted numerous overseas chains and Carrefour entered soon after. It was then followed by Makro in a joint venture, and has since been joined by Costco, Wal-Mart and Tesco. The entry of Carrefour added the concept of low price and reasonable quality to Korean consumers and this has now become standard in the market. In 2004 Lotte Mart overtook Carrefour in terms of store numbers, pushing it to number three. Carrefour was criticized by Korean press for being global company and for not taking enough account of differing Korean consumer culture.
Korea remains a difficult market for imported food products to penetrate. The private label brand gives a foreign company an inside track into the market, since most of the work is done by the customer and not the manufacturer. In some of the comments on the interim report there seemed to be some confusion as to whether a private label brand produced in one country could carry over into another country. While at first sight a Walmart or Carrefour private label product might appear to be available to be sold in many markets, packaging regulations and taste may make a product produced for say the USA, less attractive in Korea. This is a matter of negotiation between the manufacturer and the commissioning customer, and Canadian companies are urged to prompt their customers to see if this is an option.
Koreas retail food sector rides a tidal wave of change. Picture retail food outlets -hypermarkets - that claim daily visitor counts ranging from 10,000 to 300,000, and you have an idea of the humongous opportunities in Korean food retailing today. Add to this an increasing taste for imported food and an affluent consumer base, and that is the reason why U.S. firms are coming down with Korean export ecstasy. Things there were not always this rosy in retailing. Until the early ‘90s, the only places to buy groceries in Korea were "mom & pop" stores, open-air wholesale markets or the so-called supermarkets at department stores. But now that discount stores and membership-warehouse outlets are on the scene, food retailing will never be the same. And that spells opportunity for U.S. exporters. Not only is the national appetite for imported foods larger than ever--it keeps on growing. In 1996, Korea became the fourth-largest market for U.S. agricultural exports. Meanwhile, what’s become of the traditional leaders in food retailing like Lotte, Samsung and Lucky Star? All have developed their own discount spin-offs, as have lesser known Korean groups. Foreign groups are taking advantage of recently liberalized investment policies to muscle into the market. Price Club, Carrefour and Makro have established Korean discount stores, all reportedly profitable. Most strikingly, virtually all these stores plan to expand, increasing both volume and percentage of imported food and beverages. Many firms with only a few outlets today aspire to opening dozens across the country by the year 2000, pushing the entrepreneurial envelope and increasing competitiveness. Thus, Koreans can buy in increasing high volume and, more often than ever these days, in bulk. Vast shelves invite customers to partake of many options, including multiple brands of similar products. Now that, for the first time in history, Korean retailing is a buyer’s rather than a seller’s market, the rush is on to improve infrastructure. And improvement is certainly needed. Everything from clogged ports and bumper-to-bumper traffic to acute shortages of refrigerated and frozen storage serves to limit sales volume and increase the costs of imports at this time. Stores are taking such steps as building or renting their own storage. Some are large enough to act as their own warehouses. Many are seriously considering direct imports, although this is still in limited practice--a hesitation that may be due to inexperience in international trade. Like other importers, hypermarkets that import directly are subject to both transparent and nontransparent anti-import policies that, despite reform, still beset Korea.
Until now, most hypermarkets have required that importers take all risks--from goods clearing customs right up through sale--while others have insisted the importer or manufacturer pay to place products in the store. A few even require the importer to supply personnel to help sell--personnel who may be used as store-wide sales clerks. Although they are making strides, Korean merchants remain frustratingly unfamiliar with the practice of placing advance orders for products that sell well. Some stores continue to expect to sell imported food products on a consignment basis only. And in-store promotion is a concept that is not yet universally understood. Many Korean purchasing managers openly worry about the risks and hassles of customs clearance and shelf-life, as well as the risk of failing to please customers. But the pressure is on Korean retailers to produce. As a result, old practices are giving way, though at times grudgingly, as growth-obsessed hypermarkets continue to turn the tide of Korean retailing.
Korea’s large, affluent, educated consumer base is packed into a country the size of Indiana. With a population of 46 million, Korea has the world’s tenth-largest economy. Increasingly Westernized tastes contribute to a falling consumer resistance to imported food products. Koreans are among the most traveled people in the world; many have eaten foreign food for years. Aggressive marketing by exporters and importers coincides with increased demand for high-quality foods that are a good value. And trade barriers are coming down. A member of the World Trade Organization and the Organization of Economic Cooperation and Development, Korea is committed to reducing or eliminating import restrictions on a wide range of foods and beverages.
Tips for Exporting to Korea are different. It’s difficult to overemphasize the importance of establishing good relationships with importers and retailers in Korea. Having a strong product line is, of course, important. But equally so are your hard work and patience. Even if you are not selling directly to retailers, visit them anyway. The time may come when you will. Double-check the credentials and capacity of an exporter. Because so much in Korea depends on the importer’s relationships--from clearing products through customs to securing adequate storage space--you’ll want to ask questions such as how much experience the importer has had with products like yours and who will be targeted as a customer. Most exporters agree to exclusive distribution contracts with a single importer for a specified length of time. In return, the importer works to develop and tap a market. The Korean diet is very different from the western diet, and many of the processed foods eaten by a Korean are not currently produced in the west. The report covers the full scope of the Korean processed food and beverage market, since to concentrate on purely western foods would give a misleading view of the range of products involved. Processed foods are taken to mean dried vegetables, frozen products as well as other packaged food or beverages. Private Brands are defined as products produced by third parties which are branded by stores with their own store name or store brand name. Thus Hanwha Shopping a leading supermarket chain markets the "Good and Cheap" range of products involved. Carrefour markets under the Carrefour brands. In Korea these are known to the trade and to some consumers as "Private Label Brands". Most brands are also used for other fast moving consumer products. In conclusition, with these limitations, the historic evolution and current structures of retail institution types in South Korea, on the surface, appear to be very different from the evolution and structure of retailing in the Western hemisphere. Several reasons for this difference appear to involve the unique features of South Korea and its culture: retailing types were imported to South Korea within a very compressed time period, unique geography includes small land size and high population concentration in South Korea, the government control and the political insulation of South Korea are different from Western cultures.