Ahold In The Czech Republic Essay, Research Paper

AHOLD IN THE CZECH REPUBLIC

with special thanks to

Ing. Ivan Kopriva, Managing Director of the SESAM Formula

Table of Contents

Introduction. p. 3

The Czech economy p. 3

Euronova p. 4

Brief profile of Euronova s retail store chains p. 5

The Marketing Concept p. 6

Conclusion p. 8

Appendix I: Division of FDI in the Czech Republic p. 10

References p. 11

Introduction

Royal Ahold N.V. is one of the biggest players on the food and beverage retail markets as it owns or franchises about 3,200 supermarkets, hypermarkets, and discount stores in 17 countries. Royal Ahold (hereafter referred to as Ahold ) is a leading supermarket operator in the US (mainly on the East Coast under the BI-LO, Giant, Tops, and Stop & Shop names). It will grow even bigger in the US with its purchase of Giant Food Inc. (unrelated to its existing Giant stores). Ahold also has liquor and confectionery stores, an institutional food supply company (GVA), and a majority share in a leading Dutch wholesale food distributor (Schuitema).

The holding company is rapidly expanding in Asia and Latin America. Besides in these countries, Ahold is recently also active in Central Europe and Russia. Since the economies in Central European countries have just become more open and freer, Ahold has seen a promising business opportunity over there. One of the countries in Central Europe to which Ahold has already expanded business activities is the Czech Republic. Nowadays, Euronova, Ahold’s subsidiary in the Czech Republic that specializes in food retailing, is the largest foreign investor in this country. Since the Czech Republic has a merging economy, many competitors are looking for capturing the Czech market. The thesis statement that will be elaborated on in this paper is the following: In order to gain and maintain considerable market share Ahold s subsidiary Euronova has to develop and adopt a good marketing strategy.

Before analyzing the right marketing strategy for capturing the Czech market, an overview of the Czech economy and a profile of the four Euronova retail formulas will be given.

The Czech economy

On January 1st 1993, the former communist country Czechoslovakia was separated into the Czech Republic and Slovakia. Ever since, the government has stimulated cooperation with all other European countries both in economical and political ways. The Czech Republic possesses a strategic location right in the center of Europe with very good access to both established western and emerging eastern markets. It accommodates 10 million residents, and prospects for the future are that this number will hardly change, so the market potential is limited. The year 1997 was a year that ended the approximately three-year period of relatively dynamic growth of the Czech economy. This economic growth, however, was accompanied by certain economic imbalances. In the years 1994, 1995 and 1996 it was connected with a growth of domestic demand that exceeded growth of domestic supply. This disproportion resulted in a deficit of trade balance and deficit on the current account of the balance of payments. Accordingly, the Czech Republic is welcomes FDI and since the early 1990s it has been actively promoting inward foreign direct investment. International comparisons reveal that it has been among the most attractive countries for foreign direct investment in Central and Eastern Europe with the total of US$8 billion of FDI attracted from 1990 to September 1997. Data available suggest that foreign companies have been performing well in the Czech Republic. Many foreign-owned Czech companies have indicated to CzechInvest( ) their desire to expand their operations in the Czech Republic, to hire more staff and build new plants.

Most foreign direct investment since 1990 has come from Germany, the Czech Republic s largest neighbor. The Netherlands and the USA ranked second and third followed by

Switzerland, France and Austria (see also Appendix I). The year of 1997 saw a growing interest among Asian companies to invest in the Czech Republic.

Euronova

Euronova began its operations in the Czech Republic in 1991 when the first MANA supermarket was opened in Jihlava. In addition to the MANA supermarket chain, other formats have gradually been introduced: Cash&Carry MEGA (1992), SESAM discount stores (1994) and PRIMA megamarkets (1995). A new chain HYPERNOVA hypermarkets is being prepared for 1998. Euronova presently has a network of nearly 130 stores throughout the Czech Republic. A turnover of 8.41 billion CZK made it the largest food retailing company and the second largest retail company in general in the Czech Republic in 1997. The company owns and rents a large number of estates that are managed and maintained with top expertise. The ultimate aim of Euronova is to provide customers with first-class services and high-quality goods at reasonable prices in pleasant and friendly atmosphere. As it wants to remain number one in the Czech retail market and in order to meet its strategic plans and customer s needs, Euronova never stops extending its qualified staff or introducing state-of-the-art information technology, logistics and distribution methods in their work.

Brief profile of Euronova s retail store chains

MANA is the largest Euronova chain. Their primary assortment includes more than 6,000

foodstuffs (including fresh vegetables, fruit, bread and meat products), toiletries, cosmetics and other products. The MANA range, offering high quality at low prices, is constantly enlarged. Having a selling space of 800-1,500 m2, MANA supermarkets are found in cities with a population of more than 20,000.

Intended for weekly family shopping, SESAM offers 1,000 articles in basic foodstuffs, toiletries, cosmetics and stationery at discount prices (95% of the goods originate in the Czech Republic). The assortment is often completed by meat and meat products sold by concessionaires. Having a selling space of 600-800 m2, SESAM stores are found in natural shopping centers with a catchment area of more than 10,000.

PRIMA mega-range stores offer an assortment of more than 20,000 articles. These megamarkets combine the advantages of buying foodstuffs (more than 4,000 articles) at

discount prices with the availability of a wide range of nonfood: industrial goods, consumer electronics, household and gardening equipment, shoes, clothes, toys and stationery. Providing the lowest average prices in the region, PRIMA shops are open seven days a week for weekly family shopping. Hire-purchase sale and credit-card payment are available as extra services. PRIMA megamarkets serve as regional shopping centers in areas with a population of more than 30,000. They have a selling space of 2,000-3,500 m2.

The HYPERNOVA hypermarket is basically just a huge supermarket. The first hypermarket and the only one yet has been opened in august 1998 with a shopping area of 8000 m2 and an assortment of 60,000 articles (of which 25 % is foodstuffs). For the further development of the hypermarket chain in the Czech Republic, Ahold has founded a joint venture together with the British developer Stannifer.

The Marketing Concept

As stated in the thesis statement, Euronova should have a good marketing strategy to differentiate itself from competitors. Before adopting the strategy, the company should know their customers for example. This is the point where the marketing concept should be used.

According to Dibb et al the marketing concept is the philosophy that an organization should try to provide products that satisfy customers needs through a coordinated set of activities that also allows the organization to achieve its goals .

To use the marketing concept, a business should:

1) Determine the needs of their customers (marketing research).

2) Develop their competitive advantages (market strategy).

3) Select specific markets to serve (target marketing).

4) Determine how to satisfy those needs (marketing mix).

5) Analyze how well they’ve served their customers, and then return to step 1

(marketing performance).

In the case of Ahold expanding business activities to the Czech Republic, it is very important to take into account demographic characteristics of the country. As already mentioned, the small Czech population is scattered over a relatively large land area. The population is mainly concentrated around the only eight cities with more than 100,000 residents, including Prague, Brno, Ostrava, and Plzen. It are these areas that have enough market potential to set up the bigger stores like the HYPERNOVA hypermarket and the PRIMA shops. The two other supermarket formulas are situated also in the less dense areas. Market research should give you more information, however, than just who your customers are. It should also investigate the customer needs, that is why all store managers are selected from the local population. Another very important aspect of market research is knowing your competitors in the distinct regions: by analyzing their strengths you can improve your own formula.

With the research information gathered, the next step is to develop a market strategy. The market research information helps determining areas where the competition does not adequately fill consumer demand or areas where a new product or different product promotion would capture part of the market. A new business may capture a significant market share by aiming their market strategy on areas not focused on by the competition. Some examples of the various areas of emphasis include offering a better or wider distribution, lower prices, better value for the customer s money, and more dependable product or service. As a new business can enter an industry and capture a share of the market, an established business can use the same strategies to increase their market share as well. Thus relating the points mentioned above to a large retailer such as Ahold, the strategy they should adopt is dependent on the type of store formula. The MANA supermarkets differentiate themselves from Czech competitors by offering high quality foodstuffs in a broad assortment at lower prices, and provide good customer service too. MANA is comparable to the Dutch Albert Heijn supermarkets since they offer more or less the same service to their customers by awarding loyal customers with a special bonus card . Furthermore, MENU a magazine on cooking and foodstuffs published every two months is available free of charge in all the stores. The SESAM discount stores, however, offer a basic assortment of convenience goods at discount prices and with less emphasis on customer service. The PRIMA stores are also a discounters , but they offer both food and nonfood products and provide extra service by being opened seven days a week and the possibility of credit-card payment which is not that common in the Czech Republic (yet). The HYPERNOVA formula is a new phenomenon on the Czech market, but market research showed that there was a strong need for such a hypermarket. Providing a diverse set of services to the customers is the key element of this formula: The shopping capacity is extended to include a shopping mall offering sports goods, a travel agency, a pharmacy and other services.

Furthermore, a very important part of the marketing mix is the type of distribution channel that is being used. On the more mature markets of the Netherlands and the US, most of Ahold s retail formulas are being franchised. Franchising is an arrangement whereby a supplier (franchisor) grants a dealer (franchisee) the right to sell products in exchange for some type of consideration. In the case of Ahold franchising the Albert Heijn supermarkets it means that the franchisee supplies labor and capital, and operates the business conform the franchise agreement. This agreement often dictates many aspects of the business such as the decor of the store and the design of the employees uniforms. Franchising has advantages for both parties involved. The franchisor gains fast and selective distribution without incurring the (high) cost of constructing and operating its own outlets. As the franchisor, Ahold receives a certain percentage of total sales generated by each franchisee. The franchisee benefits by making use of the business experience of others and an outlet with a nationally advertised or established name is often assured of customers as soon as it opens. Nevertheless, a store formula is only franchisable if it has been proven to be successful and profitable. First of all, no entrepreneur is willing to run the risk of franchising thus investing money if he is not sure he will gain from it. The MANA and SESAM chains are now beginning to be profitable, but the two other retail formulas have just been set up and will probably not generate profits within the next five years. Secondly, potential franchisees in the young Czech market are relatively weak and do not possess the required financial basis. Hence Euronova conducts all its retail activities through branches.

Conclusion

When the Czech Republic became a democratic country with an open economy at the beginning of 1993, the Czech economy has seen rapid growth, including periods in which demand exceeded supply. For a large retailer like Royal Ahold that is continuously looking for new markets, the Czech Republic is an attractive option to expand business activities to. In 1991 Ahold set up its Czech subsidiary Euronova that now operates four retail formulas in the Czech Republic. Supposing there is always a number of competitors lying in wait, Euronova should differentiate itself from them by developing and adopting a good marketing strategy in order to gain market share. However, every retail formula should be operated in accordance with its own strategy, meaning that the marketing concept is being used correctly. First, a company should know its customers and their needs. It is also very important that the company knows its competitors and analyzes their strengths. The next step is developing a market strategy for each retail formula. Some areas of emphasis that need extra attention are the ones not covered by competition, for example high quality products at low prices. A very important aspect of the marketing mix that needs attention is the type of distribution channel to be used. Both characteristics of the local market and profitability of the retail formula are key elements before there is the possibility of franchising the retail outlets. In the case of Ahold franchising is often used in their more mature home markets (the Netherlands and the US).

APPENDIX I

Division of FDI in the Czech Republic

(Source: Internet http://alex.mpo.cz/english/g/gb/frame.htm)

References

LITERATURE:

 Dibb, S. , Simkin, L. , Pride, W.M. , Ferell, O.C. , Marketing, Concepts and Strategies

(Third European Edition), Boston, Houghton Mifflin Company, 1997 (pp. 15 / 410-12).

 Ahold Market Research (1996), The Czech Republic; The Food Retail Market, Ahold, Zaandam, 1996.

INTERNET SOURCES:

 Havelka, J.A., General Director of CzechInvest, 1997, Internet: http://alex.mpo.cz/english/g/gb/frame.htm.

 Euronova, Internet http://www.euronova.cz/efhistorie.html

 Euronova, Internet http://www.euronova.cz/ehhyper.html