PESTLE Analysis of WALMART

1. Global Expansion: WalMart in Spain
International Trade and Commerce

2. Agenda
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Status Quo • Current business model
• Lessons from the past
The Spanish
retail market
• The environment: PESTEL
• The company: SWOT
• The market: Porter’s 5
Forces
Entering the
Spanish
market
• Mode of entry
• The adapted business
model
• Strategy

3. Status Quo
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4. Current Business Model
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Decisions
Policies
Low wage,
non-union
workers
Customer
priority,
friendliness
Assets
Information
systems
Specialty and
regular formats
Governance
Autonomous
store operation
Bulk purchase,
power over
suppliers
Consequences
Flexible
Low costs, low
prices
Rigid
A fast and
efficient system
Supplier
relationships,
brand equity

5.  The virtuous cycle of Wal-Mart’s success stories
 Lack of adaptability and foresight in new markets?
Large Sales
Supplier
Relationships
Information
Exchange
Low Cost
Attractiveness
to Customer
and Brand
Value
Successes and Failures
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+
Good Logistics
+
Compliant Labour
Customer Service
+Local Culture
Available
Infrastructure
Laws of the Land
International
Expansion
Contingent
success may
not
materialize

6. Case in Point: Failure in Germany
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 Labour issues
 Non-strategic acquisitions (Wertkauf & Interspar)

7. Case in Point: Failure in Germany
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 Global expansion driven by country’s market size
alone
 Little attention to required business model
adaptations
 No real market penetration:
 Lack of strong buyer / supplier relationships
 Huge competition in a “price-sensitive market”
 No cultural adaptation:
 English the official language
 Oblivious of shopping habits, work habits
 Problems with German authorities (pricing, wages
etc.)
 Efficient centralized distribution system but hard to

8. Spanish retail market
International Trade and Commerce

9. PESTEL analysis
Political Economic
• Government wants to deepen relationships
with USA
• Moderate political risk
• VAT recently hiked (18% to 21%)
• 5% lower income tax than neighbours
• Economic crisis
• High unemployment rate (24.6%)
• Entrenched market, few global players
• Expected downturn till at least 2013
• Retail spending down 11% y-o-y in Q3-12
Social Technological
• Price sensitive market
• Easy terms, post-sales services important
• Food & beverage: 2nd highest family
expense
• Fastest population growth during 2005-10
• Closely controlled family based companies
• Spanish language: different languages
• The adoption of Electronic Point of Sale
(EPoS), Electronic Funds Transfer Systems
(EFTPoS) and electronic scanners have
greatly improved the efficiency of
distribution and stocking activities, with
needs being communicated almost in real
time to the supplier
Ecological Legal
• Important in the country : the energy
consumption decreased by 5.2% in 2012
• Hypermarket size > 4000 m2
• Competition and anti-trust laws strict
• Selling below cost forbidden
• Minimum salary: 748 €
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10. Strengths
• Automated distribution system
• Low prices
• Wide range of products
• Growth/ Global Expansion
Weaknesses
• Customer concern due to low prices
• Low wages
• Large inventories
Opportunities
• Growth, global expansion (+ Mercadona’s own
expansion plans)
• Drive down costs by combining own
technological expertise and local partner’s
knowledge
• Government wants to deepen relationship to USA
Threats
• Currency risks for profit expatriation
• Political and Economic risks amid EuroZone
crisis
• Antitrust regulations against big-tickets joint
ventures
• Unemployment rate 24.6% (2012)
• Declining economy due to crisis 2011
• Bureaucracy
SWOT
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11. Porter’s 5 Forces (Spanish retail industry)
INDUSTRY
RIVALRY
(1) Medium-sized
supermarkets
(2) Mercadona
(3) Wide range of
supermarkets
ENTRANTS
(1) Governmental
framework,
decentralization
(2) Entry barriers: retail
regulations
(3) EU Service Directive
BUYERS
(1) Unemployment
(2) Tourism
(3) Variation
SUBSTITUTES
(1) Large distribution
chains
(2) Wholesalers
(3) Middle-sized
supermarkets
SUPPLIERS
(1) Walmart may dictate
(2) Mercadona‘s strong
relationship to suppliers
(3) Favoring
infrastructure of
suppliers near cities
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12. Entering Spain
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13. Mode of Entry
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 Organic growth obstacles:
 Need local expertise, established supply chain and
cultural knowledge
 Land regulations make new development expensive and
time-taking
 Barely enough surplus demand to support another big
player
 Motivations for Joint Venture:
 Acquisition may be too expensive, may create hostilities
 Spanish IPOs improbable due to increasingly illiquid
markets
 Twin benefits: combine own technological advances and
supply chain expertise with local knowledge and
relationships
 Avoid short term market risks, medium term Eurozone
risks and gain on long term partner expertise and brand

14. Mercadona
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 Turnover: EUR15,267mn, No of stores: 1,311 (in Spain)
 9th most reputable company in the world in 2009 by the
Reputation Institute as listed in Forbes Magazine
 Expansion plans into Italy, France, Belgium, Portugal;
Wal-Mart’s gateway to continental Europe
 Orientation towards Mercadona’s secret to success
 high productivity
 flexible working conditions
 employee training
 performance-linked bonuses
 permanent, full-time working contracts
 above average wages, no mass layoffs
 employees‘ dedication
 watching costs, passing savings to customers
A rare mix,
even among
its Spanish
peers

15. Recommendations
 Leading European retail format = discounters (low priced
stores with limited assortment but good quality for certain
target groups) [Pfohl and Roth, 2008]
 Market stagnant: aim to grab competitors’ market share
 Capitalize on the downturn sentiment
 Participate in social causes for community benefit and visibility
 Crisis => lower ability to pay => prices a critical factor => EDLP
rules
 Population density rising, improved accessibility more
important than new establishments
 Target new formats (eg. neighbourhood stores) at untapped
areas
 Place supermarkets in areas more accessible to tourists
 Experiment with Marcedona‘s employment practices in other
EU markets
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16. The ‘adapted’ Business Model
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Large Sales
Marcedona’s
Supplier
Relationships
Better bargaining
and good quality
Low Cost and Low
Prices
Attractiveness to
Customer
Marcedona’s local
cultural knowledge
WalMart’s innovative supply
and distribution technologies
Marcedona
’s
employme
nt practices
Higher
productivity and
better service
+
expansion
opportunities

17. Features of the Model
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Aligned
• Highest cost savings
realized across
geographies
• Continuous
expansion of the
everyday low price
system
Self-Reinforcing
• Once positive
synergies from the
joint venture, the
growth trajectory
would be steeper
than possible for
either retailer alone
• As also shown by the
feedback loop
Robust
• Imitation would
require huge
resources and
established presence
in the entrenched
market
• The combination of
inimitable
consequence of Wal-
Mart and
Marcedona’s
business model
should be strong
against competitors
• Substitution by small
retailers is a
negligible threat in
Spanish market

18. Case in Point: Tackling the labour issue
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Low compensation
Intangible benefits
Job security
High Productivity Happy Employees

19. Thank You for your Attention
Elodie Lichtenberger
Harshit Krishna
Lara Aschenbrenner
Louise Roche
Marie Nauméa