Coles Market Entry Plan

Executive Summary

Coles does not have experience in the Indian retail market , making business dissertation help essential for navigating its complexities properly. It can choose a majority joint venture. This offers maximum advantage in terms of managing non-tariff trade barriers as well as diverse regulatory compliances across the states in India. It offers tighter control over the Indian operation and design of the operation to meet local demands. It offers direct participation in the Indian market. To achieve this, it needs to have a tight distribution of strategies and burden sharing and financial and management resources.

India offers a diverse range of target market segments with the increase in young population with greater disposable income; increase in disposable income among middle class households; and penetration of e-commerce even to the rural areas. Coles can use a composite market segment to appeal to selected target segments by adopting differentiate marketing approach and tiered products. Given the concentration of major retailer in metros and high sale volume of ecommerce, Coles can open the joint venture in the metros and with equal business focus on ecommerce.

Market entry options

Coles began operation in 1914 (Colesgroup, 2021). It is now one of the leading Australian retailers with over 2,500 retail outlets in the country (Coles Group, 2021). Coles understands that India is ranked No. 2 in Global Retail Development Index (GRDI) in 2019. It understands that the retail sector contributed over $800 billions to India’s GDP in FY20. The size of the retail market is expected to reach over 1.5 trillion by 2030. The government has allowed 100% FDI under the automatic route for single-brand retail trading (Invest India, 2021). This report provides a marketing plan for Coles to enter the Indian retail market. This report provides three market entry options. The first is through the contractual mode of market entry, which with respect to Coles will be indirect and direct export. The second is the hierarchical mode of market entry via the foreign direct investment, which with respect to Coles will be through establishing a wholly owned subsidiary. The third is the cooperative mode of market entry, which with respect to Coles will be through a joint venture.

Indirect and direct export

Export will involve Cole selling its goods and services out Australia where its major value-added activities take place. It will allow Coles fast and relatively lesser risk foreign market entry. The major risk will be the financial risk where one way to reduce it could be securing pre-payment before delivery, letter of credit or export credit insurance (Glowik, 2020). In export, Coles will be able to develop or manufacture the products locally and export them to India. Doing so it could realise a substantial economy for scale effects as it would have expanded its sales volume via its export to India (Hitt, Ireland, & Hoskisson, 2015). At the same time, the export mode of entry will enhance Coles’ business competence and innovative capabilities as it would have access to market and product information located in India (Glowik, 2020).

Coles does not have experience in the Indian retail market. Thus, it could initiate its entry through an indirect export involving an intermediary. The intermediary will cut its commission, which may be between 2 – 15% based on negotiation and it will search for potential customers in India (Glowik, 2020). This saves Coles from the challenges of socio-cultural conditions, including unfamiliar negotiation behaviours. However, Coles must ensure to have a tight contract as such intermediaries tend to work for competing firms and have divided loyalties (Hill, 2012).

If Coles does not desire to have an intermediary, it can opt direct export. In this case, Coles will need to build personal relationships with the customers in India (Glowik, 2020). Thus, Coles will require more resources than indirect export as it will need travelling and actively and directly managing contracts and negotiations. At the same time, it will gain more knowledge in the new market in terms of customers and market behaviours. The direct relationship with customers and other partners such as logistics will ensure on-time delivery of cargo and timely payment (Glowik, 2020).

As the trade is cross-border, Coles must expect certain trade barriers. It may include non-tariff barriers, such as bureaucratic import documentation, quotas, and preferences of Indian government authorities to accommodate domestic industry lobbies (Glowik, 2020). In addition, if the products are bulky, the costs of transportation increase that may be detrimental to the supply flexibility and management of changes in demand. This impacts the competitive advantages (Vollmann, Berry, & Jacobs, 2005). Coles must also consider the factor that its domestic manufacturing may not be appropriate if the manufacturing in India is low in cost or India has higher skilled staff (Hill, 2012).

Wholly owned subsidiary

Coles can establish a wholly owned subsidiary in India. This will allow Coles to combine its specific advantages developed in Australia with the assets available in India (Hennart & Park, 1993). This wholly owned subsidiary will own all the capital that Coles will invest in India. For example, Coles’ subsidiary will own the research and development, sales and manufacturing facilities. Establishing a wholly owned subsidiary will enable Coles to have a hierarchical control over the decision making, including quality assurance, protection of IP rights and other business decisions. It will allow Coles to build closeness with the Indian market and the customers. This will improve its product development in the Indian marker and will increase cultural sensitivity in its market communication. Major advantage will be that Coles can integrate the subsidiary with the overall strategy of Coles (Deresky, 2000). With a wholly owned subsidiary, Coles can have access to tax benefits and incentives provided by the Indian government. It can also have access to cost savings arising from cheaper labour expenses in India (Glowik, 2020).

The barrier in entering the Indian market through a wholly owned subsidiary will be from the increased complexity in the planning and coordination of Coles with the operation in India. Coles may underestimate culturally biased differences as in work ethics, quality consciousness of the employees and loyalty towards Coles in general. Coles may not effectively operate the Indian subsidiary if the subsidiary could not accept centrally determined decisions regarding production outputs, service mission, product portfolio, price policy and human resources (Hill, 2012). Thus, there is a potential high uncertainty and investment risk associated with a wholly owned subsidiary in a foreign country (Hitt, Ireland, & Hoskisson, 2015).

Joint venture

Through a joint venture, Coles can form a partnership with an Indian company to run a common business. The joint venture will be a legally independent entity. The parties in this venture will contribute assets and share revenue and risks based on the agreed understanding between them (Rugman & Collinson, 2012). Thus, Coles and its Indian partner can either form an equal joint venture or a majority joint venture (Glowik, 2020). Joint venture is the second in popularity following foreign direct investment. A joint venture allows a ‘screw-driver’ production, which means that Coles can bring the components into India and with its partner, it can assemble the product in India. This will save Coles from high-finished goods tariffs. It will help Coles meet the local content concerns and can help Coles also win government orders (Chandra, Rau, & Ryans, 2002). Further, a joint venture entry will enable Coles to escape the barriers in multiple rules and regulations that are varied across the states in India. This is particularly important considering the distribution issues that may arise due to such diverse rules and regulations. Thus, Coles can form a joint venture with a strong partner in India to have access to a sizable retail market that it desires to target (Chandra, Rau, & Ryans, 2002).

The equity share of Coles can vary from 10% to 90%. It is generally 25% to 75%. It can also be 51/49% where Coles has the 51% allowing it to have more control over the operation of the business in India (Levi, Grünig, & Guptara, 2007). The advantage of a joint venture is that it can give Coles greater return from equity participation. It will allow Coles more control over production, operation and marketing. It will reduce economic and political risks because of the Indian partner. It facilitates market entry and allows direct participation and sounder decision making. At the same time, a joint venture also faces the risk of losing its technology to the Indian partner. There is possibly a risk of conflict between the partners over strategies and burden sharing. It can cause more financial and management resources than expected (Levi, Grünig, & Guptara, 2007).

Among the three market entry modes, a majority joint venture seems the better option. It will allow Coles to exercise tighter control over the Indian operation, production and marketing and direct participation. At the same time, it will allow access to local market knowledge based through the Indian partner. It can have direct dealings with customers and businesses. It will allow efficient management of business in terms of economic, political and cultural trade barriers. All these advantages may not be possible through the other two entry options.

Potential market segments and target markets within the segment(s)

The segmentation of the retail market in India will need to understand the base variables and a specific procedure to be followed. Coles must understand the market segment structure as it will bring managerial utility considering targeting and positioning. Coles needs to identify underserved segments that could outperform competition by developing certain uniquely appealing products and services (Fonseca, 2011).

Generally, there are four basic types of market segmentation: Demographic; Psychographic; Geographic; and Behavioral Segmentation. Geographic is based on where the customers live or work. It considers population density and growth and climate. Demographic segmentation focuses on population characteristics, including age, gender, education, income and marital status. The relevant information is easier to locate and measure. The characteristics can be considered individually or in multiple ways. Psychographic segmentation focuses on lifestyles of consumers, including interests and opinions of consumers. Behavioural segmentation focuses on consumers’ behaviour, which is why consumers buy. It may be the benefits from the products to satisfy their needs and desired benefits (Crane, 2021).

KPMG (2014) identified a few areas of opportunities considering the market segmentation. In terms of demographic segmentation, it has identified the growing consumer base in rural markets, which is still untapped (KPMG, 2014). The rural market is 70% of the total population based, but only 40% accounts for the total consumption in India. KPMG has also identified the growing consumer base of the working population within the age group of 15 to 54. Over more than 50% of the total population falls in this group. India has 500 million Indians under the 25 years of age according to the 2011 census (KPMG, 2011). They derive purchases across all retails (mobile, fashion, food, beverages, etc.) and they strive to experiment and change habits. They have more spending power and are independent. KPMG has also identified the increasing middle-income households (300 million individuals/75 million households). They have increasing income disposable capabilities. India has an increasing number of millionaires driving luxury consumerism. In the year 2014, India reported a growth of 51%, the 2nd fastest in APAC region (KPMG, 2011).

In terms of geographic distribution, the retail clusters in India are based on a large and concentrated consumer base. India’s top 10 markets are in metro cities like Mumbai, Delhi-NCR, Hyderabad, and Bengaluru with tier-I cities such as Jaipur, Surat and Ahmedabad. The metro cities have expanded due to development of sub-urban areas, and it has driven the organised retail segment (KPMG, 2011). Such sub-urban areas offer lower rental, larger spaces, and better planned development, which suit organized retailers. Due to the development in technology, there has been a phenomenon of growth in online retail space. It has enabled better penetration in all areas, including rural and sub-urban areas. The online trade was worth USD552 million in 2012. India is also seeing the fast rise in the luxury market. In 2012, the luxury market was worth USD7.7 billion. There has been a rise in disposable income. There are several luxury brands in India, such as Ducati, Porsche, Jimmy Choo and Canali. India is also seeing an increasing acceptance of private labels. The rapid socio-economic and technological changes have impacted the habits of Indian consumers, which in turn impacts the innovation and price points of retailers (KPMG, 2014).

Considering the wider range of target segments, Coles must take measures to select the appropriate target segments. The target segment must not be too narrow as it may fail to reach the sales volume and profit. It must also not be too broad as it might spread the marketing efforts too thin, incurring greater expenses and offsetting sales and profits. Thus, Coles may adopt a composite target segment. A composite approach is often adopted (Crane, 2021). Coles may start with geographic and demographic segmentation to understand the insight in the location and market sizes of the market segments for a range of its product categories. It may also start with behavioural to understand the details and values that drive consumers’ behaviour. Then, Coles can relate this segment to other segments and their variables (Crane, 2021). It is preferably the geographic and demographic segmentation. Coles can accordingly adopt the differentiated marketing approach. It can target more than one segment and design specific marketing mixes for each segment (Crane, 2021). For example, it can target the rural market in combination with the young consumer base. The rural market is untapped and has high potential. Young consumers now have higher disposable income. Coles can appeal to these two segments with the use of e-commerce. Adopting the differentiated marketing approach, Coles may develop unique products or services for this consumer base. Coles will need to use different distribution or marketing communication strategies. This helps account for differences between the segment and cater to such differences (Crane, 2021).

As a composite approach, Coles can also adopt a concentrated marketing approach to target specific segments (Crane, 2021). It will need to combine the psychographic segmentation and behavioural segmentation mixing the focus on lifestyles of consumers and their behaviour. For example, as KPMG reported, the rise in use of luxury products provides a good opportunity for Coles. This is due to the increase in disposable income found across the categories of middle-income households and young working professionals. Thus, Coles can specifically design the marketing elements to appeal to the selected target segment. It can allocate a specific budget to develop a niche strategy allowing a stronger market positioning (Crane, 2021).

As Coles will be entering a foreign market, identifying the geographic target markets is critical to its success. As it is the time of global market convergence, Coles must consider cross-national consumer segmentation. Coles can group consumers in different countries (Australia and India) based on their similarities in needs (Hofstede, Wedel, & Steenkamp, 2002). This may involve the identification of spatial segments based on information on the location of consumers and their needs. In this approach, Coles will need to identify segments of consumers that demonstrate spatial patterns. It can develop a hierarchical approach to designate several types of spatial dependence. Thus, Coles will need to have predefined regions with spatial segments (Hofstede, Wedel, & Steenkamp, 2002).

Based on the approach of spatial segmentation, Coles may establish its physical presence in the metros in India where the clusters of retailers are mostly located due to higher concentration of consumers. This will enable Coles to build a knowledge based products and service delivery combining its local experience with the new market knowledge in India. As India has shown a great increase in online retailing, Coles will need to focus on this aspect considering the high untapped potential in the rural and suburban market. In India, e-commerce players, like Amazon, have brought easier and faster online shop experience posing great challenges to traditional retailers. Because of that, it has penetrated the suburban markets delivering losses of brands and job losses. The fact that there is a strong growth in non-store retail in India, which is posed to be the future retail model for India (Sebastian & Gupta, 2018). This is supported by the observation that organised retail supported a low share of 8% in FY2016. However, the rising household income and increasing aspirations of people has also increased the demand for modern retail formats (Sebastian & Gupta, 2018).

Coles will need to focus on delivering its organised retail trade in combination with a stronger, smarter ecommerce strategy, which is the best modern form of retail to drive growth in the retail sector. The retailing opportunities in India for Coles can, thus, be summed up in the formed of the rising emerging market, as KPMG pointed out, with access to new marketing online and social media channels that will enable Coles to stay connected with the consumers; new demographic changes bringing along increase in specific target segment such as older population or niche market; increased loyalty to private label that will allow Coles introduced tiered brands; constant innovation and opportunities to introduce new products to meet the changing taste of consumers; global urbanisation that will allow Coles aces locations with higher consumer incomes and concentration such as in the metros; and increasing integration with local sourcing of products enabling Coles appeal to local tastes and cultures (Sarulatha & Premila, 2019).

Conclusion

Coles has the option of export or establishing a wholly owned subsidiary or a majority joint venture. The best option for Coles will be to proceed with a majority joint venture. This will allow Coles to exercise better control over the Indian operation without incurring higher costs and risk. The Indian partner will enable Coles to access local market knowledge and maneuver trade barriers effectively.

India has a diverse range of market segments that offer good opportunities to foreign companies in terms of a wide range of consumers, based on the age, location and their tastes and needs. Coles can thus use a composite approach targeting these diverse segments. It can preferably open stores in metros where a major concentration of consumers and other retailers are and focus on online trade to penetrate suburban, rural and also urban markets. It can adopt a niche strategy with a designated budget and well-planned marketing strategy. The spatial segmentation will help Coles work its strategies effectively to target a larger range of consumer segments with specific differentiated strategies.

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