Walmart in Brazil: A Case Study
Walmart’s internationalization to Brazil is a great example of a non-optimal penetration, and we have made an exclusive case study to give you a clear picture of what we mean by local adaptation, paying attention to culture and the already established market structures within the country. By far, the most important lesson learned is:
Understanding local consumers before setting the market position is decisive for local business success.
Walmart started out in Brazil in 1995, right about the time when Plano Real was implemented. The Real Plan was an economic plan to stabilize the country’s currency and it brought forth a great deal of economic stability to the country. Walmart could not miss the chance offered by this economic outlook. They started out in the state of São Paulo and expanded to other 18 states and the Federal District. By 2010, the expansion was followed by the blunder of not having a fine-tuned consolidation within the local markets. The majority of Walmart’s assets were sold to a private-equity company and the losses accrued to billions of dollars.
We read many testimonials from Walmart’s clients across the internet, collected them, and organized them in categories. The problem most clients mentioned revolved around issues in Cultural Adaptation, Price, Business Environment, Competition, and Customer Service.
All of the problems mentioned, except for customer service, were due to a lack of awareness about the inner workings of the markets. The local adaptation was the number one problem mentioned by clients, and Brazil is seemingly not the only country where Walmart has failed in local adaptation since they did not grasp the consumer behavior and simply imported their original model.
A strategy to localize a business must have an immense amount of details that, individually considered, might not seem relevant, but this interplay with local factors is precisely what will define the future of the whole business: whether it will be smashed by the local competition, or succeed and conquer the attention and pockets of locals.
We broke down the “Cultural Adaptation” category to evaluate how their internationalization model could be improved:
1. The “mercearia” variable (30.76%)
Cities where Walmart was established in Brazil were generally of big or medium size and, in being so, commute was always a decisive factor for consumers.
Brazilians don’t have the habit of always going to a big supermarket on a daily basis, even though these stores might offer daily promotions. Why? Because of the commute factor.
For immediate needs, due to the distances and commute complexity, they’d rather go to little markets and fairs in their own neighborhoods, called mercearias, which sometimes are more expensive, but are close by and come in very handy during the week. The frequency in which Brazilians go to bigger supermarkets is generally once per month when they receive their monthly salary. It might not make economic sense at first sight, but at the end of the month the mark-up prices in local mercearias would compensate for the expenses they’d have with transportation, as they just walk to the local mercearia or make one short car ride. Another winning aspect in favor of mercearias is the superior food quality and freshness, which bring us to the second point.
2. Fresh vegetables, meats, fruits and others (23.07%)
Brazilians also love to eat fresh from the field to the table. Many mercearias offer such desired aspects and many of them are even owned by local producers. The butcheries are also a tremendous success with their high quality and fresh meat. There are the famous feiras, the farmers’ markets, which are quite common, even in big cities like São Paulo. Furthermore, some people circulate throughout the neighborhoods selling fresh food on trucks and cars.
3. Location, ambience and architecture (17.94%)
Some customers (including a professional architect) complained about the architecture and ambience of Walmart. They mentioned how weird and out of context it was, as it made too much of an allusion to the “American Way of Life,” to which many Brazilians are suspicious. The location was also always in big centers, which made the access difficult due to traffic and distance. As well, the geographic element was not taken into account.
4. Poor local adaptation (28.20%)
Many others did not mention a specific problem of adaptation, but stated clearly that Walmart lacked the understanding of local consumers. Here are a few client comments found online:
“These guys are offering discounts on golf clubs. Who the heck plays golf in Brazil?”
R. Silva, customer
Insightful comments were also given by this customer:
“Let's be honest here. Walmart didn't try to understand our habits, they just tried to apply their American system of shopping and translated it to Portuguese (but other supermarkets already offer what Walmart offered, they just tried to show as if it was something brand new).
Furthermore, while in the USA you can find really cheap items if you compare to other retailers, in Brazil, their prices are quite the same as of Carrefour’s, Barbosa’s, Casino’s, and others’ (…). Walmart failed in Brazil because it is as expensive as any other store.”
A. Paiva, customer
As previously mentioned, localization is full of small details that might seem insignificant in isolation, but can lead to business fail as a whole. International brands cannot afford to ignore that and appropriate strategy must be put into place when it comes to a different location with a different culture.
In addition to that, price was another big variable affecting the decision of consumers. Many reported that the prices in Walmart were simply too high and offered no differential. In many cases, Walmart’s offers were considered “inferior" compared to similar supermarkets. This is closely linked to the competition variable.
When Walmart came to Brazil in 1995, the French supermarket chain Carrefour had already been established for 2 decades, with a good supply chain management, deep understanding of consumer behavior and a great localization process. Another famous French brand currently in the country is the clothing retailer C&A. Both of them adapted so well, that many Brazilians don’t even know they are French, at all!
Filière is a French concept that was used in the French academy and in businesses – and might very well be behind their success. We have mapped a whole production chain in Brazil utilizing the French concept of Filière – it is a great method to get more insight into the inner working of the Brazilian economy and how the links of a chain are intertwined. We leave you with this suggestion for further research, if you need to understand production chains.
We suggest you aim for two main things: local or regional partnerships and pockets of growth – corners here and there that might be profitable. Looking closely, almost every region in Brazil has its “supermarket set.” Every town has a household supermarket chain; frequently, their brand names become as popular as to be used as a synonym to the word “supermarket” itself and become part of the local lexicon. This is actually another cultural characteristic of incorporating new words to the language and using publicity-designed vocabulary. That means it is hard to tap all of the regional opportunities, as there are always brands specializing in each region.
In South Brazil, in the city of Itajaí, Santa Catarina, a big supermarket brand and chain called Comper was founded. The expansion of the chain was marvelous and reached Midwest Brazil in one of its biggest cities: Campo Grande, Mato Grosso do Sul. The chain grew exponentially in the city and was able to beat Walmart, which was established much later in Campo Grande. Walmart eventually had to close three stores, while Comper kept on expanding.
The strategy used by Comper was to find “pockets” inside the city where they could find a lot of commuting consumers. These pockets are traffic intersections, confluence of neighborhoods and big avenues people tend to use to get back home after work. As mentioned, people might not go to the supermarket due to transportation issues, but if the supermarket is located on the work-home route, then why not stop by? Walmart did not grasp the inner workings of the market in the city and remained in the central areas, never
exploring those pockets.
This is only one example, but Brazil is filled with similar opportunities. There are many untapped possibilities if you find the right partners or are able to try it out by yourself. The problem in these big chains and other brands trying to penetrate new international markets is that many are still using more of a causal logic, instead of a direct and crude perception of the market. They are based on well-informed reports that state, “the market has x% middle class consumers with a high purchasing power.” And an executive thinks that this is enough information: there’s availability of money and consumers. Entering the market without having learned about it firsthand is a deadly mistake. Not having the scouts that will go out there and verify with their own wits what really happens in that market is fatal. You may read all the reports you like, but if you are penetrating a new market, you better test your product out there, evaluate how things go and do not automatically transpose a model that works in your country to another one just as you transfer money between bank accounts.
At Quote we are always striving to design the right strategies and form advantageous partnerships just as offering a wide range of services that will allow a smooth and successful market penetration. Give us a call down the line and we can give you an initial free consult. Good luck with your international business!