Global Expansion. Agenda. Distribution Services - non Food OECD meeting Antoine de Riedmatten, Deloitte. Page. Opening remarks 3-4

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1 1 Agenda Global Expansion Page Opening remarks years of Global Power of Retailing 5 Distribution Services - non Food OECD meeting Antoine de Riedmatten, Deloitte Franchising: an interesting way of going abroad 6 China: our views on retail new Eldorado 7 Example: US fast food international strategy 8-9 Use of international gateways to go global 10 November 17 th, 2010 Information is available now from everywhere!!! 11 2

2 2 Opening remarks 1/2 Opening remarks 2/2 Shopping Tourism: Shopping tourism is replacing cultural tourism: Mall of Americas in Minneapolis, french luxury stores in Paris, men apparel and shoes in London or Milan, alcool from UK citizens in France Tourism impact on apparel and luxury retail: country of origin, countries of destination, original culture of the brand. Is it a good thing for Abercombie to have a store in Paris? Deloitte 2010 holliday survey show that consumers will go abroad to benefit from promotions in countries with a weaker economy Internet vs store location : What were the 3 main reasons for success in retail for years: store location, store location and store location. This was clearly a disavantadge for foreigners coming to a new country. Internet changed this world But retail density differs between countries: Amsterdam has a city center with 90 small islands, 160 canals, small roads used by bycicles. You will find a lot of small shops in the various parts of the city Paris department stores were created more than a century ago and their retail area has gradually increased since the begining In the US where space is available, huge malls where created with a lot of parking slots What about China and India? Why going abroad when implementation costs and failure rate are high? Go where superior growth exist For listed companies: analysts, medias and financial markets request growth and development in emerging countries Follow competitors Reduce risk from specific local market conditions Tax? 3 4

3 3 10 years of Global Power of Retailing Why this study? A way to measure globalization but also to evaluate alternative strategies for our consultants A way for a glocal business services organization like Deloitte to talk to our clients Key findings: Global trends need time to be measured To stay in the top 25 you need superior annual growth (10% or more) in the long term is requested: diversification, multiple formats, multiple countries Big players get bigger and are often more profitable Size in your local market and profitability is necessary for financing abroad presence and succeed in globalization Specialization of the retailers explain the increase of the number of countries Franchising: an interesting way of going abroad Key levers for the retailer going abroad: pace of expansion and level of control? They are often inversely correlated Criterias of a retailer in favor of franchise strategy: Strong brand image and «plug and play» concept store Limited investment budget available Limited internal ressources Specificities of the market and risk associated Requisite of rapid expansion Diversity of franchise arrangements: level of operational control (merchandising, marketing, inventory, site selection ) required by the retailer. Financial and legal usually do follow Main Franchise structures: Area development: exclusivity for a new country Master Franchise: can be sub franchised Individual Franchise 5 6

4 4 China: our views on retail new Eldorado 2009 was announced as very difficult due to the high reduction of world trade. Government support left growth almost as impressive as prior to the crisis. Government now see growth engine in local consumption Emerging middle class in numerous big cities Yuan appreciation vs USD will reduce chinese exports and imports Member of WTO since 2004 with improved regulation. India is clearly behind (stores ownership by foreigners) Western lifestyle is attractive Hot markets: Apparel, perfumes, luxury and home related (electronics + home improvement) Example: US fast food international strategy 1/2 McDonald s, Starbucks and KFC have been able to earn a significant portion of their revenue and profit overseas. Chain Total locations ( 08) locations CAGR Market capitalization Number of countries ( 08) % of revenue in foreign countries ( 08) % of operating profit in foreign countries ( 08) 31, % $70.5B % 71% 15, % $17.5B (Yum! total) % 59% (Yum! total) Source: Annual reports, Subway.com About Us; Dunkindonuts.com About Dunkin Donuts, 2009; KFC.com About Us 7 8 Deloitte & Touche LLP and affiliated entities.

5 5 Example: US fast food international strategy 2/2 Starbucks and McDonalds have followed a similar pattern of global expansion Starbucks and McDonald s took very similar expansion strategies Use of international gateways to go global Successful global expansion necessitates a strategic approach to entering new regions and countries. Identifying culturally, economically and geographically proximate regions and then building beachheads in lead countries within each region can serve as a strategic platform to be leveraged to facilitate entry throughout the rest of the region. China 3 5 India USA Demographic attractiveness 1 Russia 6 6 South Africa Brazil Mexico Indonesia Philippines South Korea Argentina Poland UAE France 1 1 Japan Germany 5 2 Italy Spain 2 4 UK Canada Australia 4 3 D Egypt Netherlands / Belgium Taiwan Jamaica Scandinavia Chile Singapore Zimbabwe Czech Republic Hungary Iceland 9 Business environment attractiveness 2 # Order in which the company entered the country after the U.S. 1 Demographic attractiveness is a measure primarily and Canada based on relative population size and also takes into account some demographic factors such as Sources: Starbucks, McDonald s, Deloitte analysis urbanization and literacy. 2 Business environment is a measure based on metrics such as corruption, political volatility and intellectual property protection. Legend Low income economies Middle income economies High income economies Deloitte & Touche LLP and affiliated entities. 10 Note: Concept adapted and expanded upon by Deloitte from P. Maisonneuve Deloitte & Touche LLP and affiliated entities.

6 6 Information is available now from everywhere!!! Country analysis Industry Information Company / Competition Economic intelligence unit: Euromonitor (overviews and very targeted research): Data tool: International Monetary Fund (IMF) World economic outlook database: ata/index.aspx World Bank Group: Doing Business Report: Transparency International: Corruption Perceptions Index: ndices/cpi/2009 World Economic Forum: The Global Competitiveness Report: ompetitiveness%20report/index.htm United Nations Demographic and Social Statistics: Human development reports: Barnes Reports Ex. Worldwide fast food restaurants industry, 2010 o Found through searching on: Rich s Internal company data source (check to see if they subscribe to this or a similar data source) Euromonitor (overviews and very targeted research): Datamonitor (case studies, industry overviews, competitor profiles): First Research (Industry overviews): Provided by BIS Deutsche bank (industry overview): Provided by BIS NPD Group (industry overview): Internal company data Planet retail: Competitor websites Global Markets Direct (Competitor profiles): Provided by BIS Onesource (analyst reports): Accessed through Intellinet Datamonitor (case studies, industry overviews, competitor profiles): Capital IQ: 11 Developing international growth strategies Deloitte & Touche and affiliated entities