TED Case Studies
WALMART Goes to Argentina
1. The Issue
Wal-Mart, one of America's chain hypermarkets, entered Argentina, along with other nations across the globe, in an attempt to capture shares of a lucrative market. By exporting their "Main Street USA"-type shop all over the world, Wal-Mart sought to bring a different shopping experience to other cultures and to make a lot of money in the process. However, because of the nature of the supermarket industry in Argentina and cultural influences, Argentinians are not embracing American supermarkets, as Wal-Mart is not seeing the profits the company had hoped at the beginning of its venture.
2. Description
Wal-Mart had its sights set high on foreign markets. At regional meetings with store executives, Wal-mart President and CEO David Glass told those in attendence that "if they didn't think internationally, they were working for the wrong company." Its worldwide ambitions were taking the company down south to Latin American markets.
Who knew it would start with a store in Rogers, Arkansas by a small-town merchant less than forty years ago. Sam Whalton, founder of the Wal-Mart chain, opened the first Wal-Mart store in 1962. He was convinced that consumers would enjoy a discount store that a wide selection of merchandise and individual, friendly service. Along with the Sam's warehouse clubs, Wal-Mart has grown tremendously in the US market and has ventured to international markets. The company boasts at having stores in all 50 states, Puerto Rico, Canada, China, Mexico, Brazil, Germany, Argentina, and South Korea. Wal-Mart reported an operating profit of $262 million from international stores for the fiscal year ended Jan. 31, 1998.
As the first US retailer to enter Argentina in November 1995, Wal-Mart had optimistic hopes of capturing the Argentine consumers by showing them the benefits of hypermarket shopping and adding much revenue for good fortune. By offering lower prices than local merchants and other European chains and American-style service and convenience, Wal-Mart was sure to capture the hearts and wallets of Argentinians.
Unlike its entry into Mexico and Brazil, though, Wal-Mart was facing obstacles alone in Argentina without the luxury of local parterships. When opening its first supercenter, Wal-Mart had to fight protests from suppliers for selling at prices below costs, a strategy that is not accepted nor regulated in Argentina.
The retail trade market in Argentina could be characterized by small, specialized, owner-operated shops. However, the 1990s have seen an incredible influx of supermarket chains. By far, the increased concentration of major retail chains is heavily felt in the Argentine metropolitan capital of Buenos Aires, while other large urban centers such as Rosario, Cordoba and Mendoza are also seeing an increase in supermarket chains. Major supermarket chains were projected to control 85% of total food sales in large urban centers by 1997. This was an increase from the 65% share of total food sales they controlled in 1996.
So, Wal-Mart would surely gain a considerable share of the market in Argentina, one of the largest consumer markets in South America, right? The company has made some impact on the market, but not nearly the degree it had hoped.
At first, hypermarkets were finding success in the changing Argentinian economy. By December 1996, Wal-Mart operated three supercenters with plans for as many as 40 supercenters in the future. Also, by the end of 1996, there were 35 operating megamarket shopping centers in the country, selling close to US $3.8 million and were visited by approximately 150 million people annually. Projected numbers saw the number of supercenters double within three years if the trend for discount supershopping continued.
However, that trend is steadily decreasing. Competition from other European hypermarket chains has hindered Wal-Mart's success in Latin markets. Carrefour, a French hypermarket operator, and Dutch-owned Makro operate combined about 15 hypermarkets in Argentina. These European competitors are accustomed to dealing with cultural influences of foreign markets.
"It was a dumb thing for Wal-Mart to do," said Kurt Barnard, publisher of the Barnard Retail Marketing newsletter, describing the interests of Wal-Mart to penetrate foreign markets. By not understanding cross-cultural influences and not changing the format of their stores to fit cultural differences, Wal-Mart will be unable to compete in foreign markets, according to Barnard.
By 1998, it was evident that the hypermarket mania was subsiding and that Argentinians were returning to the corner tiendas, escaping the supercenters for comfort in small shops.
Additionally, Argentina's consumers spend about 33% of their income on food. Wal-Mart only controls 2.5% of Argentina's food expenditures but 16.5% of non-food expenditures, leading many to believe that Argentinians are tired of making a separate trip to Wal-Mart for non-food items, even those being sold at a lower price.
European retailers in Argentina are heeding the call from consumers for neighborhood shops instead of big megamarkets. These companies have plans to reformat their stores into smaller discount chains and convenience stores in order to appeal to Argentinian taste.
If Wal-Mart would like to survive in foreign markets, it must be willing to lose its "Hometown USA" image and start listening to cultural concerns. Doing things "the Wal-Mart way" just won't cut it.
3. Related Cases
ARGBEEF: Argentina Beef Exports
ARGMINE: Argentina Mine Exports
ARGRICE: Argentina Rice Exports
4. Draft Author:
Maryanna Silverman
last updated April 19, 1999
5. Discourse and Status:
Disagree and In Progress
6. Forum and Scope:
Argentina and Unilateral
7. Decision Breadth:
1
8. Legal Standing:
Law
9. Geographic Locations
a. Geographic Domain: South America
b. Geographic Site:Eastern South America
c. Geographic Impact: Argentina
10. Sub-National Factors:
No
11. Type of Habitat:
Temperate
12. Type of Measure:
Regulatory Standard
13. Direct v. Indirect Impacts:
Indirect
14. Relation of Trade Measure to Environmental Impact
a. Directly Related to Product: Yes Many
b. Indirectly Related to Product: No
c. Not Related to Product: No
d. Related to Process: Yes
15. Trade Product Identification:
Many
16. Economic Data
17. Impact of Trade Restriction:
High
18. Industry Sector:
Services
19. Exporters and Importers:
USA and Argentina
20. Environmental Problem Type:
21. Name, Type, and Diversity of Species
22. Resource Impact and Effect:
Low and Regulatory
23. Urgency and Lifetime:
Low and 100s of years
24. Substitutes:
25. Culture:
Yes
By neglecting cultural differences and the changing of consumer preferences, Wal-Mart is losing valuable money and potential market share in Argentina. A lesson to be learned from this case is that companies should first become acquainted with consumer behavior before investing much capital in a new market.
26. Trans-Boundary Issues:
No
27. Rights:
No
28. Relevant Literature
"Argentina's consumer market modifies." World Trade Feb. 1999: 18.
"Argentina: Wal-Mart reworks its concepts." Crossborder Monitor 25 Nov. 1998: 12.
Economist Intelligence Unit Country Profile: Argentina (1st quarter 1999). London: The Economist Intelligence Unit Limited, 1999.
Economist Intelligence Unit Country Profile: Argentina (1998-1999). London: The Economist Intelligence Unit Limited, 1998.
Friedland, Jonathan and Louise Lee. "Foreign Aisles: The Wal-Mart Way
Sometimes Gets Lost In Translation Overseas -- Chain Changes Some Tactics To Meet Local Tastes." The Wall Street Journal
8 Oct. 1997: A1.
Grant, Lorrie. "Global reach rings up earnings boost for U.S. retailers." USA Today 23 Mar.1998, final ed.:
7B.
Halverson, Richard. "Successful Mexican venture paves way for entry into South America."Discount Store News 20 June
1994: 71.
Mammarella, James. "International's grade at year 6: B plus." Discount Store News 3 Mar.1997: 59-60+.
Mammarella, James and Pete Hisey. "Wal-Mart gaining ground in Argentina." Discount Store News 20 Jan. 1997: 26.
Ortega,
Bob. "Wal-Mart looks beyond North America, plans to expand in Argentina, Brazil." The Wall Street Journal 6 June 1994: A8.
Patlis, Marcela Martinez. "Argentina." Chain Store Age Dec. 1996: 22B-23B.
Wal-Mart web site 12 Apr. 1999.
I. Identification