Wanted: Effective Marketing Recipe for Retail and Consumer Goods in Europe!

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On the current European economic scene, some of the world´s largest consumer goods companies and retailers are finding themselves at a serious point of inflection. With sales declining in the most battered Western economies such as in Spain, Unilever PLC (NYSE: UL) has decided to replicate the Indonesian model:  selling products in small packages at affordable prices. Although the saying goes that good things come in small packages, from my standpoint, copying the success of an Asian market is very unlikely to produce the desired effect of constant sales and profit growth.

So, are these companies missing the point? In the retail sector, recent Spanish market losses have led to welcomed market share increases for national companies like Mercadona. This chain of supermarkets has had a remarkable performance, despite its fairly recent debut in the early 80s. Its “proximity supermarket” model has grown across the Spanish geography at a sound rhythm and the company now concentrates 19.8% of the food and household goods sector. It seems that this retail format is highly preferred by Spanish consumers to Carrefour´s (NASDAQOTH: CRRFY.PK) hypermarket model. Under such circumstances, Carrefour was forced to reinvent new spaces such as Carrefour Planet, however, at high costs and questionable performance.

Unlike Carrefour, Mercadona has caught the point: what consumers want – especially in times of crisis – is value for money. It´s been years since the French retailer is boring its customers with the same old 3x2 strategy and sales reports prove that no big changes will occur in this field.  Mercadona, instead, has started to deliver real value for money. The several distributor brands it produces are affordable, come in medium format packages – there are no small packaged products on Mercadona´s shelves – and have the best price on the market.

So, what we have in the equation is an ever better informed public, accustomed to decades of product media exposure and product testing, and who has made his/her choices. This consumer opted for the distributor´s brand, which offers the same quality – since in most cases these brands are produced by first national brands – at a much better price. In comparison to the Asian or other emerging markets consumers, the Europeans have decades of training in buying retailers´ brands. It will thus be fairly easy for them to calculate the opportunity cost of a purchase: although, say, a Unilever shampoo small package will be significantly cheaper than the big format, it will still be less advantageous than the medium packages of Mercadona´s distributor brands.

These aspects lead to the conclusion that it will be extremely difficult for any of these consumer goods or retail giants to seduce this educated, expert consumer with strategies such as Unilever´s.  Of course, there will always be the emerging markets to balance overall performance. This is one strategy for which Procter and Gamble (NYSE: PG) stakes high, given that 38% of its worldwide sales are generated by countries such as Brazil, Russia, India and China. However, it is rather a support strategy and might still not entirely make up for the losses in the old continent, which actually accounts for 70% of the company´s operating profits.

So, one thing consumers’ goods companies and retailers can draw from this is that although at harsh times right now, Spanish consumers will keep buying. The bad news for them is that these expert consumers will keep buying ever smarter. So,  replicating a model that functions well in one market to a totally different one in terms of consumer profile, might be dangerous and, at least, insufficient. 

topcattns has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Procter & Gamble Company and Unilever. 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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