The Kroger Company – International Expansion

Into the United Kingdom

Group Name: Globetrotters

Alejandrina Guajardo

Karen Hathorn

Catalina Jimenez

Alfred Lyon

Tyler Popick

Southern New Hampshire University

Abstract

According with Kroger.com “The Kroger Co. is one of the largest retailers in the United States based on annual sales, holding the #20 ranking on the Fortune 100 list published in June 2015. Kroger® was founded in 1883 and incorporated in 1902. At the end of fiscal 2015, Kroger operated (either directly or through its subsidiaries) 2,778 supermarkets, 1,387 of which had fuel centers. Approximately 42% of these supermarkets were operated in Company-owned facilities, including some Company owned buildings on leased land. The Company employs about 431,000 full-time and part-time associates”

            The retail grocery sector in United States is a very competitive industry. The Kroger Company’s more important competitors are Wal-Mart, Whole Foods, and Winn Dixie.

The Kroger Company will start its international expansion and its first country will be the United Kingdom.

The Kroger Company Overview

Mr. Bernard Kroger founded The Kroger Company in 1883 in Cincinnati, Ohio where the main offices remain. Currently, Kroger is the largest supermarket chain in US (The Kroger Company, n.d.). Additionally Kroger is listed as number 20 in the 2015 Fortune 500 (Time. inc, n.d.). According to Kroger Financial Report in 2015 Kroger has revenue of $109.83 billion (The Kroger Company, n.d.). In addition, Kroger was the second largest general retailer market after Wal-Mart in 2015 (Wikipedia, n.d.). The Kroger Company operates in 35 states especially in the Midwest and Southern states in the US Territory (The Kroger Company, n.d.).

            Kroger is ranked third within the retail market around the world even without any current international operation (Coolidge, 2016). As of December 2015, Kroger has operations in 2,778 supermarkets and multi-department stores, 786 convenience stores, and 326 jewelry stores. In order to satisfy its own demand with cheaper prices, Kroger has 37 food-manufacturing facilities, 1,360 supermarket fuel centers and 2,122 pharmacies (The Kroger Company, n.d.). One way in which The Kroger Company stands out from its competitors is it utilizes economical three-tier distribution system, which are private selection, banner brands, and value. Each of these tiers allows them to satisfy all of their customers’ needs within the markets they operate (The Kroger Company, n.d.).

The Kroger Company United Kingdom Expansion

The Kroger Company overseas expansion into the UK will be very important for the company since it’s one of the leading powers in the financial world and the third largest economy in Europe after Germany and France (The World Factbook: UNITED KINGDOM, n.d.). If we take Wal-Mart as a benchmarking case, the UK expansion has been very victorious. According with Market Realist in UK, The United Kingdom has been one of the most successful overseas forays for Wal-Mart. The company has operations in 576 stores in the country, and is Wal-Mart’s second largest overseas operations in the world after Mexico (Soni, 2015).

The UK grocery market is dominated by 4 big groceries chains, such as: Tesco, Sainsbury, Morrison and ASDA, where Kroger can have a portion of the market share without any problems (Soni, 2015). Kroger and Wal-Mart’s format is very well received from the UK population, where shoppers live in small towns and suburban areas shop and find everything in one place according with their needs for very low prices (Walmart, n.d.).

West London is the most popular location for US companies to base their UK and European Union operations; Starbucks and Wal-Mart have their UK headquarters in Chiswick. The Kroger Company could have the same city for its operation (Chesters, 2011). What makes the United Kingdom more appealing is its lands rich in greenery, about 25% of being arable, agriculture is highly mechanized and productive being able to provide vegetables, cattle, potatoes, and fish (United Kingdom Facts, n.d.).

Another reason the UK is a great place to expand The Kroger Company is there is many cultural similarities between the UK and the US.  One of the major similarities is the official language is English which is spoken by more than 70% of the population (Commisceo Global Consultancy LTD, n.d.). This will allow us to communicate with business professionals well and market our products with the same labeling as we currently use.  Their business etiquette and protocols are also very similar to the US. These include a firm handshake when greeting professionals, eye contact, and exchanging of business cards. In addition, business meetings are formal and punctuality is very important (Commisceo Global Consultancy LTD, n.d.).

We look forward to expanding The Kroger Company into the UK. This will help us to continue our growth in revenues and compete with larger stores such as Wal-Mart

Socioeconomic Factors to Consider

With expansion into a new market several factors have to be taken into consideration; factors such as economic class, potential impact on local economy, and exchange rate. Helena Horton describes seven social classes from elite to precariat. Elite are considered part of the wealthiest individuals spending more money on everyday living, and the precariat are the poorest and most deprived group spending and watching every penny (Horton, 2015). Kroger’s makes its products readily available to consumers at such a price that everyone benefits. For example, with organic foods on the rise the elite can have products tailored to their interests and the precariat can have the option to purchase what may seem like a delicacy to them (Lutz, 2015).

The UK’s economy is dependent on foreign trade and has had a trade deficit, as it has imported more goods and services than it has exported. Foreign companies are attracted to the British region because of property tax exemptions and reimbursement costs. Also the British pound is gaining investors due to its growing strength as well as providing incentives (Nations Encyclopedia, n.d.). If Kroger’s were to look at expansion they could take advantage of all these incentives and be confident in knowing that with the trade already established their enterprise will flourish.

Cultural Factors to Consider

When dealing with business matters within different countries it is important to look at the cultural differences and similarities. Business etiquette and protocols within the US and UK are very similar to each but there are some major differences. One major difference between the UK and the US is the building of relationships. The UK, with the exception of the younger generations, tends to look to build long-term relationships within business while the US is more concerned with getting contracts signed than they are with building relationships. However, for long term business success within  the UK networking and relationship building are important (Commisceo Global Consultancy LTD, n.d.). Communication style is also important to note. The British tend to be more formal than Americans with communication style. When communicating through E-mail British do not use slang or abbreviations and if the communication appears too familiar they may think negatively of the person.  Another difference is small talk between the UK and Us. Within the UK small talk generally consist of world news and global concerns while in the US small talk tends to be more about their families and US concerns and happenings. The British tend to be much more reserved than Americans (Elzaibak, 2015). In addition, within regards to time the British appear to engage in slightly more small talk than Americans (Commisceo Global Consultancy LTD, n.d.).

The UK and the US have many more similarities than they do differences. One of the most important similarities is the official language for both countries is English. More than 70% of the UK population speaks English (Commisceo Global Consultancy LTD, n.d.). This will allow us to communicate and understand each other better. In addition, The Kroger Company can continue to use the same labeling they currently use within the US.  Business etiquette and protocols between the UK and US are also generally more similar. Within the US and UK, a firm handshake upon greeting professionals, eye contact, exchanging of business cards, and use of titles and courtesy titles (until invited to use first name) are common practices. In addition, business meetings in the US and UK tend to be more formal with a clearly defined purpose in which agendas may be included. Punctuality is also very important to both Americans and British (Commisceo Global Consultancy LTD, n.d.)

Barriers to Conducting Business

With Britain’s exit from the European Union there are significant changes that are taking place in the UK that could greatly affect the ability to expand into their markets. With the move to exit the EU, many researchers are expecting this to lead to higher labor costs and a significant decrease in profit margins on businesses in the country. In addition to this, Britain’s exit will likely also lead to greater challenges in importing and exporting goods into the UK (Taylor, 2016).

The process for starting up a business operation in the UK can be very time intensive. One of the more challenging aspects of starting up is the process for registering property. In order to get the property registered it takes 6 separate procedures and takes around 29 days to complete (TMF Group, n.d.).

Given the legal system that is in place the tax process can be notoriously difficult for businesses. Even with accountants that are familiar with the legal system it takes approximately 110 hours to complete a company’s tax work in the UK (TMF Group, n.d.).

It is also important to consider cultural barriers when dealing with business matters in the UK. The British are known for being very reserved in their business meetings at first. Additionally, the many layers of bureaucracy that are common in the UK will lead to a slower decision making process for companies (TMF Group, n.d.).

SWOT Analysis

Strengths

• Efficient supply chain management: Kroger Co. has a very well developed chain supply inside its distribution network (Bells, 2015). It will be a strong penetration strategy in UK.
• Costumer Services innovation:  “Costumer First” Policy: Kroger Co. developed a loyalty cards that is the No 1 in the industry (Hayley Peterson, 2015). This product will apply to UK population.
• Technology and Economic of Scale: Kroger Co. stores’ technology and innovation for consumer food safety and its economies of scale can be transferred to UK (Ahearn, 2015).
• Product improvements: Kroger’s private label product at lower prices will differentiate the company from the UK competitors within its high quality and low cost strategy.

Weakness

• Intense competition in UK market: The market is already a mature market with very strong competitors and loyal clients (Retail Economics, 2016).
• No knowledge about regulations (corporations, labor, taxes): Kroger does not have knowledge or experience in international laws, currencies as well as border treaties, taxes, etc.
• Financial Status: The company has a credit agreement for a $2.750 billion limit until 2019. (The Kroger Co., 2014). An expansion to UK will be very expensive and big investment.

Opportunities

• Dominant corporation: The first fiscal quarter in 2016, Kroger Corporation had 2,778 supermarket locations that were all within the United States (The Kroger Company, n.d.).
• Keep the same business: To keep the same ideologies and ideals that it keeps within the United States, it will definitely be more profitable, and give them the opportunity to compete with competitors like Wal-Mart.
• Acquiring smaller markets:  Kroger Corporation tends to have a knack for acquiring smaller markets to bring them into the Kroger brand (Wikipedia, n.d.). Even if the corporation were to acquire foreign supermarkets, and have them work under the Kroger name that is another opportunity for them to expand into foreign markets.

Threats

• Ø  Headquarters location: Kroger Corporation is located only in the United States meaning they know the United States customs and norms very well (The Kroger Company, n.d.). However, going overseas, this changes drastically.
• Strong Competition: Kroger will be competing with supermarkets that have been native to those other countries for years. It would take a lot for customers to go from their favorite supermarket, to a new American one. The customer base would pose as a threat because if they don’t get enough customers, then the move would just not be profitable. They would also have to carry brands that they don’t currently sell now to be able to compete better in the country in which they are.

There are definitely outside threats in which they can’t control, but it’s when the opportunities outweigh the threats is when the decision can be made.

References

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Bells, S. (2015, October 30). Efficient Supply Chain: Vital to Managing a Vast Store Network. Retrieved from Market Realist: http://marketrealist.com/2015/10/efficient-supply-chain-vital-managing-vast-store-network/

Chesters, L. (2011, May 21). Walmart sets up London team to lead European drive. Retrieved from The Independent: http://www.independent.co.uk/news/business/news/walmart-sets-up-london-team-to-lead-european-drive-2287374.html

Commisceo Global Consultancy LTD. (n.d.). Award Winning Culture Guides. Retrieved August 25, 2016, from UK: http://www.commisceo-global.com/country-guides/uk-guide

Coolidge, A. (2016, January 20). Kroger named the world’s third-largest retailer. Retrieved from Cincinnati.com: http://www.cincinnati.com/story/money/2016/01/20/kroger-named-worlds-third-largest-retailer/79072302/

Elzaibak, M. (2015, July 28). Differences Between U.K. and U.S. Business Culture. Retrieved September 1, 2016, from Linked in: https://www.linkedin.com/pulse/differences-between-uk-us-business-culture-mohamad-khalil

Hayley Peterson, A. L. (2015, March 6). Why Kroger is America’s most underrated grocery store. Retrieved from Business Insider: http://www.businessinsider.com/why-people-love-kroger-2015-3

Horton, H. (2015, December 07). The seven social classes of 21st century Britain – where do you fit in? Retrieved August 31, 2016, from The Telegraph: http://www.telegraph.co.uk/news/uknews/12037247/the-seven-social-classes-of-21st-century-britain-where-do-you-fit-in.html

Lutz, A. (2015, June 19). American grocery shopping reveals the hidden strength of the US economy. Retrieved August 31, 2016, from Business Insider: http://www.businessinsider.com/krogers-ceo-reveals-americans-are-spending-2015-6

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Soni, P. (2015, Febuary 18). Walmart: Price Wars In The United Kingdom’s Grocery Market. Retrieved from Market Realist: http://marketrealist.com/2015/02/walmart-price-wars-united-kingdoms-grocery-market/

Taylor, H. (2016, June 24). Brexit will complicate Amazon’s UK expansion plans. Retrieved August 31, 2016, from CNBC: http://www.cnbc.com/2016/06/24/brexit-will-complicate-amazons-uk-expansion-plans.html

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United Kingdom Facts. (n.d.). Retrieved August 23, 2016, from National Geographic: http://travel.nationalgeographic.com/travel/countries/united-kingdom-facts/

Walmart. (n.d.). Our stores. Retrieved August 2016, from Walmart International: http://corporate.walmart.com/our-story/our-business/international/uk

Wikipedia. (n.d.). Kroger. Retrieved August 2016, from Wikipedia: https://en.wikipedia.org/wiki/Kroger

 

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