Retail is Tough to Translate Abroad

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“Whether it’s the restaurant or the supermarket or the kitchen supply shop, it’s hard to think of sector that is more commercialized and more replete with entrepreneurship and innovation.  It is all monetized. … Quality customers are often more important to a restaurant than a quality chef.”

Professor Tyler Cowen’s recent book, An Economist Gets Lunch, is his latest success at illustrating “markets in everything” – and like his wildly popular blog, Marginal Revolution, the engaging read’s ideas and insights are also directly applicable to making discerning choices in stocks, partnerships, and other investments.

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Slepko:  With the exception of maybe Giant (owned by Amsterdam-based Ahold (NASDAQOTH:AHONY), why have large grocers like the UK’s Tesco, Germany’s Metro, or France’s Carrefour (NASDAQOTH: CRERY) not been able to penetrate the US market?

Cowen: Well, what comparative advantage to do they have?  Carrefour is a good company that has done well in a lot countries, including in Latin America, but why should they be able to beat Wal-mart (NYSE: WMT) here?  Wal-mart is an awesome company – “always lower prices” as they say.  What do you beat them on?

Slepko:  Costco (NASDAQ: COST), Wal-mart, and PriceSmart (NASDAQ: PSMT) have been successful (though cautiously so, especially in the case of Costco) in penetrating Europe, Asia, and the rest of the Americas.  Why are they so successful outside the US?

Cowen: I would want to take some time and carefully look at where they have done well.  In a lot of regions, they haven’t done well.  Wal-mart does well in Mexico, which in a lot of funny ways is like the US, but it hasn’t penetrated that much in a lot of other places.  I would to some extent challenge the premise.  Retail is tough to translate abroad.

Slepko:  You write, “I think of Mexico as a country that straddles two food worlds in a very advantageous manner.  They have technology and enough modernity to manage modern food supply networks, run good restaurants, and send a fair amount of diversity to the every day foodie.  At the same time, Mexico still is in close touch with more artisanal methods of food production.  The country has agribusiness, but it doesn’t only have agribusiness.  At its best it is a unique combination of the best of the new and old worlds of food.  Take advantage of it while you still can.”  Then you go into a fascinating section comparing Wal-mart with Wal-mart Mexico and how they differ in states adjacent to the national border.  What do you think Wal-mart has to say about the future development of the US and Mexico?

Cowen:  I think US and Mexican economies are better integrated than people think, and well geared to work together.  I’ve been a Mexico bull for a long time and there are a lot of sectors with high productivity.  Americans unjustly think of it as a poor country, but it is strongly middle income and rising.  I know all about the drug war, but I think they’ll work around that.  The success of Walmart in Mexico is a big testament to Mexico, and we’ll see the difference as Walmart tries to do more in India at the retail level.  I don’t think they’ll manage that very well – not through any fault of their own.  India is a very different, very foreign environment.  Why should we think they would be the ones that could master how to deal with all that broken infrastructure.  Walmart is good at perfecting infrastructure.  Again, the fact they do well in Mexico is a big testament to Mexico.

Slepko:  I’m inclined to think Wal-mart might do well in India by operating through their recent Massmart acquisition since that successful group has done well in Africa (beyond just the overhyped South Africa).  Although, India is a different brand of crazy, and infrastructure is a major headache in Africa as well.  I think it might hinge on if Bentonville will let Johannesburg take the lead and give them the support where needed. 

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Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale and PriceSmart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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