Kaufland Company in the Australian Market Case Study

Executive Summary

Kaufland is a leading retail chain in the EU with a primary focus on eastern and central European countries. It has over 1,300 stores and 150,000 employees. The company is part of Schwarz Gruppe, with significant material resources to rely upon. In March 2019, Kaufland made ventures to enter the Australian market, which is a Red Sea market with high levels of competition. Despite that, the company has a specific set of qualities that would enable it to compete for customer favor and market share. To be successful, Kaufland is required to promote its brand name, establish a reliable supply chain and focus on providing the most value for customers, at affordable prices.

Introduction

Globalization allows many enterprises to expand and reach out to different external markets, thus extending their influence, potential, and market share. However, for every chance to succeed in the global market there is a chance to fail. Preparation and understanding of one’s internal and external environments, as well as strengths and weaknesses of the enterprise, would make the critical difference between failure and success. Kaufland is a large international market chain with many assets scattered across different countries in the world. Since March 2019, the company has received permission to open up multiple shops in Australia, signifying the coming of the multinational giant into the local market.¹ The purpose of this study is to analyze various internal, external, and market factors surrounding the company’s arrival at the new market and provide recommendations to ensure success.

Historical Background

Kaufland is a private retail brand, operating hypermarket chains in different countries of the world. The company originated in Germany, established by Joseph Schwarz in 1984, and has since expanded to the majority of countries in eastern Europe. It is a part of the greater Schwarz Gruppe of retail brands, with the possession of over 1,300 stores and properties to its name and employing over 150,000 individuals in various trades in its main operations and supporting endeavors, such as supplying, packaging, recycling, and disposal.² Kaufland has been reporting steady growth rates for the past few years as part of the Schwarz Gruppe, with 7.4% in annual sales and revenue growth, its yearly sales for 2018 amounting to 98.6 billion dollars.³ The company’s primary markets are located in Germany, the Czech Republic, Poland, Slovakia, Romania, Croatia, and Bulgaria. The company is planning to make a big push into Australia, with the initial offering of 6 mixed shops set up in Melbourne, Brisbane, Sidney, and Adelaide. Three of these shops are currently in construction while the other three are ready and pending permission to open.

Vision and Mission

Despite being a large multinational corporation, Kaufland does not have an explicit vision and mission statement presented anywhere on its site. However, the descriptions of their aims and goals, found on the Kaufland Australia webpage are as follows:

“We pride ourselves on being a one-stop-shop destination retailer, covering people’s everyday needs. Our aim is to provide the widest variety of local, regional and international produce and products, including mixed retail space that can be used by other businesses.” ⁴

As it is possible to see, the main purpose of Kaufland’s existence is to serve people and cover their everyday needs. They pride themselves on providing a variety of products for customers and businesses, across the entire price range, starting from economy-class products and ending with premium brands.

External Analysis

PESTEL

PESTEL is a useful tool to analyze the external situation surrounding Kaufland’s introduction to the Australian market.⁵ The current conditions for the company are as follows:

• Political: Kaufland’s arrival has sent ripples in the political fabric of the Australian market. Some of the future competitors and local retail chains, such as Coles and Woolworths, have attempted to object to the expansion and stall Kaufland’s efforts. These notions have failed, however, as the Australian administrative bodies eventually provided the company with all the necessary permissions. Still, the political climate in Australia is relatively aggressive towards the expansion of foreign companies.
• Economic: From the economic side of things, Australia is a promising and very large market for Kaufland to expand into. If Kaufland succeeds in doing so, it will have access to 24.6 million potential customers. Australia is a relatively rich first-world country, ensuring high purchasing power, especially in large cities.
• Socio-Cultural: Australian population has a connection with its domestic brands, though not to the extent it used to have 20-30 years ago. As such, the main focus will be on prices, quality, and location, rather than the socio-cultural nuances of the Australian market.
• Technological: There are no specific advantages or disadvantages to Kaufland in regards to technology outside of standard practices already utilized by the company and its competitors.
• Environmental: Some Australian retail stores and companies have been accused of controversy in regards to the utilization of plastic bags. Kaufland traditionally uses recyclable packaging materials, which they could capitalize on to gain favor with the public.
• Legal: Kaufland faced some legal difficulties when receiving the permit for construction and opening of their facilities due to competitor intervention. However, all legal issues have been settled, and Kaufland is unlikely to face any legal repercussions in the future.

As it is possible to see from this analysis, Kaufland has a moderately positive picture in the Australian market.

Porter’s Five Forces

Porter’s Five Forces analysis is an excellent tool for analyzing the Australian competitive market about Kaufland’s expansion.⁶ The results are as follows:

• Buyer Power: High. Australian retail market is booming, with numerous one-stop shops from international and local chains available to the purchaser. Thus, the buyer can always choose, and the company would be required to cater to their demands rather than impose authority.
• Supplier Power: Moderate. Kaufland is an international retail brand, which is familiar with the concept of global supply chains. However, its experience is largely limited to Eastern Europe, which is a large territory with a developed supply and logistics chain. Ferrying goods from Europe or Asia to Australia may be economically unproductive. Thus, Kaufland would need to establish new supply chains and connections with the local producers, increasing the power of suppliers.
• The threat of New Entry: Moderate. Although it takes time and effort to open a large one-stop shop to directly compete with Kaufland, the company would also need to face opposition from smaller, dedicated shops located in the area around their major distribution centers.
• The threat of Substitution: High. One-stop shops rarely offer any unique products, as their specialty lies in retail rather than production. Kaufland and its competitors would likely sell a similar array of products, making it easy for customers to substitute one shop with another.
• Competitive Rivalry: High. Australia has a multitude of international and domestic brands already operating in its territory. They have already made a move to prevent Kaufland from entering. This indicates a potential rivalry between the company and the existing players, as Kaufland’s success depends on claiming market share away from them.

As it is possible to see, the market Kaufland wishes to enter is the Red Sea market, with high levels of rivalry, customers and suppliers in the position of power, and high levels of product substitution.

Internal Analysis

Resources

The company has significant material, technological and human resources at its disposal. Being part of the Schwarz Gruppe, Kaufland can use not only its resources and experience but also the experience of adjacent retail brands to establish itself in the Australian market.⁷ It is well-versed in adopting and optimizing the technologies used in retail brands to provide a world-standard class of customer experiences. Lastly, it has a cadre of experienced middle and top-tier managers that could be sent overseas to oversee the establishment of the Australian retail branch.

Capabilities

Kaufland is fully capable of constructing brick-and-mortar shops, establishing working long-term supply chains, utilizing electronic management systems, conducting retail operations, and evaluating the surrounding environment.⁸ Although the Australian market has its differences when compared to Europe and the US, it shares the majority of its marketing traditions, creating a familiar environment for Kaufland. Lastly, the company has a well-established training routine that allows it to recruit and employ the local populace as its workforce, which is likely to be useful in Australia, as it is unlikely for the company to be able to ferry large numbers of its employees from overseas.

Value Chain (Core Competencies)

Kaufland’s value chain will be evaluated using the five primary areas of competence, namely quality, customer service, value, innovation, and marketing.⁹ In terms of quality, the company offers products of varied quality ranges. Economy-class goods are cheap and are of lesser quality than premium-class products. Customer service in Kaufland varies from one shop to another, though there is a standard the company uses. Overall, it could not be stated that Kaufland’s service is better or worse than that of its direct competitors.

Value is Kaufland’s strong suit, as the retail brand operates largely in Eastern Europe, which is less economically advanced when compared to western Europe. Thus, the company has experience in providing the best products within particular price ranges, increasing customer value. In terms of innovation, Kaufland is on part with its competitors, if not slightly ahead. Its primary innovative efforts revolve around adopting eco-friendly products and packaging services, reducing the company’s dependence on plastic. Lastly, in terms of marketing, Kaufland does not have a strong position in Australia due to being a newcomer to the market. Nevertheless, the company is dedicating over 60 million dollars to improve brand recognition.¹⁰ Overall, it could be concluded that in terms of core competencies, Kaufland has satisfactory parameters in all areas, with the value provided to the customer as its strong suit.

VRIO Analysis

SWOT

SWOT analysis is a tried and true method of evaluating a company’s internal strengths and weaknesses, as well as potential negative outcomes and opportunities for improvement.¹¹ For Kaufland, the evaluation is as follows:

• Strengths. The company has plenty of experience in opening new retail stores. Kaufland is part of a powerful financial group and has plenty of financial resources to rely upon. The goods provided by the shop have an impressive value for the customers, for their price. Lastly, the company has a strong cadre base for top management staff.
• Weaknesses. The company is new to the Australian market. Strong competition will limit its market share. Lastly, Kaufman shops will be limited to their locations, thus limiting market penetration.
• Opportunities. Claiming market share from Australian companies and establishing oneself as a cost-effective eco-brand. Exploiting the potential of becoming a known brand to over 24 million customers.
• Threats. Establishing new supply chains not connected with Europe may prove difficult. The company will be required to maintain low price margins to remain competitive.

Evaluation and Recommendations

Establishing a business in Australia would force Kaufland to reinvent its brand from scratch. The strong sides of the company to support such an endeavor include superior managerial experience and significant financial resources dedicated to the project. However, everything else, including brand name, supply chain, HRM, and other important aspects of retail must be built up from nothing. Doing so is associated with significant expenses. However, Kaufland should play to its primary business-defining strength, which is providing customer value. The suggested strategy for the company is as follows:

• Research the local supplier base and make deals to receive high-quality goods at low prices by buying in bulk.
• Make arrangements with local farmers, communities, and suppliers to always have fresh products on shelves.
• Advertise the company as the best value for a dollar in Australia.
• Heavily recruit from the local population.

Following these recommendations would help Kaufland establish itself as a retail chain different from its direct competitors and ensure continuous growth in a difficult Red Sea market.

Reference List

Bloomberg, ‘Company Overview of Kaufland Stiftung & Co. KG’, Bloomberg, 2019, Web.

Harper, J., ‘German Retailer Kaufland Moves into Australia Market’, DW, 2019, Web.

Kaufland AU, ‘About Kaufland’, Kaufland, 2019, Web.

Maylor, H., Blackmon, K., and Huemann, M., Researching Business and Management, New York, NY, Macmillan, 2016.

Footnotes

1. J. Harper, ‘German Retailer Kaufland Moves into Australia Market’, DW, Web.
2. Bloomberg, ‘Company Overview of Kaufland Stiftung & Co. KG’, Bloomberg, 2019, Web.
3. Bloomberg.
4. Kaufland AU, ‘About Kaufland’, Kaufland, 2019, Web.
5. H. Maylor, K. Blackmon, and M. Huemann Researching Business and Management, New York, NY, Macmillan, 2016, p. 32.
6. H. Maylor, K. Blackmon, and M. Huemann Researching Business and Management, p. 64.
7. Bloomberg, ‘Company Overview of Kaufland Stiftung & Co. KG’.
8. Bloomberg.
9. Bloomberg.
10. J. Harper, ‘German Retailer Kaufland Moves into Australia Market’.
11. H. Maylor, K. Blackmon, and M. Huemann Researching Business and Management, p. 72.