Gretchen Wojciechowski Project Outline In this paper we are discussing a potential international expansion of Walmart to a new market. Our plan is to have Walmart enter the Central/Eastern European market, more specifically Hungary. We believe that this market offers great potential for our company. Many large foreign owned retailers whom have significant market share seem to be very profitable within this market. It seems to us that there is a large number of very price sensitive consumers in this country. If Walmart is able to offer lower prices than current competitors, we are convinced that a significant number of customers could be gained, thus leading to a profitable investment. Due to the large number of foreign competitors and current events of government regulations we believe that forming a joint venture with a smaller Hungarian owned retailer would be the best option for Walmart. This form of business can reduce potential risk and provide major benefits for our company. In this paper we will be analyzing the culture, the economy, and the market. We will also provide a marketing plan that outlines the key factors that will lead to a successful expansion into the Hungarian market. We believe that Walmart forming a successful joint venture with a locally owned company and with the right marketing plan the company will be able to gain significant profit within this new market.
In this section we analyzed the history, geography, social institutions, religions, and languages of Hungary. Of these sections language, social institutions, and living conditions are among the most important aspects when considering establishing a Walmart in Hungary. Ninety-eight percent of the population speaks Hungarian and will be important when making packaging decisions and adaptations. Families are an important part of Hungarian culture, serving multiple functions from financial to emotional support, and often have extended families living under one roof. Most of the country are urbanized and the average income is around $650 per month per person. These things will affect the household income of families and the types of lifestyles people are living. When considering what products to carry it’s important to note common dishes, such as goulash, stew, and potatoes, as well as typical clothing, such as t-shirts, jeans, and sweatshirts. Business etiquette will be taken into account when entering the country as well as working with other businesses. Hungarians, in their free time enjoy reading, watching, TV, playing sports, the most popular sports being soccer and water polo. This may be important when considering advertising or which products to promote or how to promote those products.
Brief Discussion of Relevant History
In 1914, Hungary was involved in World War I on the German side. In 1918, they realized that the war was lost. During World War II, Hungary joined the Anti-Comintern and withdrew from the League of Nations. In 1939, Hungary regained some of the land that was lost from the first World War. Hungary remained neutral at the outbreak of World War II. In 1941, Germany invaded the Soviet Union and Hungary allied itself with Germany. While the war continued to proceed, Hungarian Jews are gypsies were sought and brought to death camps. In 1945, Germany is driven out of Hungary by Soviet forces. There was also a new land reform bill that redistributed the land from large landowners to peasants. There was an uprising in Hungary in 1956; this uprising was against Soviet domination. In the 1960’s, the leader of Hungary, Janos Kadar, created limited liberalizing reforms. During this time, political prisoners and church leaders were freed and industrial and farm workers were granted increased rights. In 1989, the border with Austria was opened and thousands of East Germans left for the West. Hungary was also transitioning to a multi-party democracy. In 1990-1991, Hungary had withdrawn from the Warsaw Pact, which later on was dissolved, and the Soviet forces evacuate out of Hungary.
The year of 1994 created a period that was considered the new era for Hungary. Not long ago, in 2001, parliament created a law entitling, “Hungarians living in Romania, Slovakia, Ukraine, Serbia, Croatia and Slovenia to a special identity document allowing them to work, study and claim health care in Hungary temporarily” (Hungary Profile). Hungary decided to join the European Union in 2004 and is one of ten new states that joined. Hungary was very badly affected by the global financial crisis in 2008.
Hungary is located in central Europe just northwest of Romania. The area of the country if it was compared to a state from the United States is slightly smaller than the size of Indiana. The countries that border Hungary are Austria, Croatia, Romania, Serbia, Slovakia, Slovenia, and Ukraine. Hungary is completely landlocked and has no coastline. The climate in Hungary is cold and cloudy but has mild winters and warm summers. The country is mostly flat to rolling plains and has low mountains near the border of Slovakia (C.I.A. World Factbook).
Traditionally most Hungarian families serve multiple functions. According to countrystudies.us most families provide security and indetity to individuals and they reinforce social values. Families provide a financial and emotional support to its members. Many times depending on the family, multiple generations often live together. Grandparents also have an important role in raising the grandchildren (2014, “Hungary - Language, Culture, Customs and Etiquette”). The relationship between family members even within the extended families tend to be stronger in the Hungarian culture. The parents’ roles have changed overtime. It used to be male dominant for the most part. The father used to be responsible for providing finances for the family and the mother was responsible for raising the children. In the past few decades the roles have changed a slightly. Nowadays in most families both parents have jobs, however the father tends to have the higher salary and the mother is still the caretaker for the children.
The role of education in society is significant. In Hungary it is difficult to find a well-paid job without investing in education. Children after the age of five attend pre-primary school which is similar to kindergartens in the US. Then after graduating from pre-primary school their parents usually choose a primary school for them, which usually consist of 8 grades. Children are required to be enrolled in school until the age of 14. After primary school students can apply for secondary school, which is equivalent to high school in the States. Most secondary schools require an entrance exam, which the candidate students have to pass in order to be accepted to the school. Secondary school is usually for 4 years with a final concluding exam where students have to prove their knowledge and understanding in five different subjects. The higher educations system is fairly similar to the States. Students first have to get their bachelor's degree before pursuing a master’s degree. The biggest difference is however that colleges are tax funded by the government for students who achieved high academic standards in secondary school.
The political system of Hungary is parliamentary republic, which means the prime minister is in power, and the president is the head of the state and only holds ceremonial position. Since 2004 Viktor Orban has been the prime minister of Hungary with the Fidesz (Hungarian Civic Alliance) as the governing party. The Fidesz during the last two elections was able to get two-thirds of the seats in the parliament having an anonymous favor of the Hungarian citizens. Although statistics may show that country is politically stable it might not reflect the complete truth. Viktor Orban and his politics have been greatly criticized by the EU parliament and other countries. Orban adopted new taxes on foreign owned banks and have made other political actions against large, mostly foreign corporations in order to gain more tax revenues. As a result the Hungarian currency, the Forint has lost value and decreased on the currency market. Hungary is also known to have the highest sales tax within the EU, which is about 25-27%.
The legal system in Hungary is the same as in most of the EU countries. Hungary follows civil law, which is significantly different from the USA, where the legal system is common law. In common law countries juries are the fact finders and the process to resolve a case is longer and more costly. In civil law countries there is no jury. It is an inquisitorial system, which means the law is a law code, a systematic collection of interrelated articles. In the civil law court system the judges have more power and make the decisions based on the law code. This makes the case resolution more effective, but on the other hand gives more power to judges, which could potentially lead to more corruption.
There are some business etiquette differences that need to be considered when foreigners come to Hungary. According to businsses.org punctuality is very important to Hungarians. However business meetings do not always start on time. It is always good to arrive to a meeting 5 or 10 minutes early. Gift giving does not have an important role when it comes to business but it is appreciated and it is considered a nice gesture. Formal dressing for business meetings is a necessity, but during normal office hours Hungarians dress less formally. Corporate social responsibility hasn’t been very important to businesses in Hungary until 2004, when the country has joined the European Union. There are certain regulations and laws of the EU as far at CSR that member countries must follow. Following the EU standards is required and it is a challenge today for many businesses in Hungary to fulfill these regulations. As far as corruption goes, Hungary ranks among the least corrupt third of the world. However there are some issues with bribery that exist among government officials and in other job involved with politics.
According to C.I.A. the World Factbook Hungary doesn’t consist of many different ethnic groups. 92.3% considered Hungarian, 1.9% Roma or Gypsy and 5.8% is other or unknown. The distribution of family income ranks Hungary on the 138 places out of 141 countries. This means the income of most families is fairly equivalent for the most part (2014, Hungary). The average income is around $650 per month per person. This may seem a bit low compared to Western standards. However there are some factors we must consider. Hungary is not part of the Eurozone but they use their own currency, the Hungarian Forint. Cost of living, groceries, and utilities are significantly cheaper in Hungary. With the combine income of two parents, Hungary's biggest social class is the middle class, with intermediate purchasing power. The lower and higher social classes of Hungary are significantly smaller. This also affects general buyer behavior. Hungarians tend to be more priced concerned than their Western neighbors due to their individual lower purchasing power. This is definitely something that needs to be considered when entering this foreign market.
Religion and Aesthetics
The predominant religion of Hungary is Roman Catholic with 67.5%, followed by Calvinist with 20%, Lutheran with 5%, and atheist and other with 7.5% (CIA World Factbook). Hungary has no official religion and guarantees religious freedom. In general Hungarians are not deeply religious people. Their main religion has changed several times with the change of different rulers over the years and thus has made Hungary more tolerant about religion that many of their neighbors (2014, Berend).
Hungary has various folk traditions including making embroideries, pottery, decorated buildings, and carvings. Hungarian music is varied from rhapsodies of Franz Liszt to Roma and folk music. Hungary also has great literature (much of it politically inspired), poets, and writers. Some of these authors include Sándor Márai, Imre Kertész, Péter Esterházy, and Magda Szabó. Hungary is also known for its folk art and fine art. Famous painters include Mihály Munkácsy and Szinyei Merse (2014, “Hungarians”) .
Hungarian cuisine would not be what it is today without its synthesis of various styles added to the traditional cuisine from the Magyar people. From their nomadic past Hungarians basic dishes were meats and dishes cooked over an opened fire such as: goulash, stew, and soup. Around the 15th century new ingredients and spices were added such as garlic and onions, which are now a major part of their cuisine. After this adoption many different cultures settled in the area bringing their own addition to the Hungarian cuisine. This melting pot of cuisine has formed into what is the now the variety of Hungarian cuisine. Some of the now favorite dishes of the Hungarian are Goulash soups, potatoes and noodles, Hortobagy pancake, and a crepe filled with veal. (2014, Traditional Hungarian Cuisine)
Of the 11 million people in Hungary about 68% live in an urban area. While the total population is decrease the urban population is increasing. Hungary has a country has a high homeownership rate of about 92% which is above the European average of 68.2%. Newly married couples will try to find their own place close to one set of parents, but if they cannot find anything they might move in with one side’s parents. (2014, OECD Better Life Index)
The clothing style in Hungary is very close to western-style clothes for casual wear like jeans, t-shirts, and sweatshirts. Pantsuits are popular for both men and women for casual or formal situations. In the more rural areas you can still find some of the more traditional dress. When conducting business dress should be formal and conservative. Men should wear dark suits with white shirts and tie. Women should wear a suit or an elegant dress with accessories. (2014, Countries and Their Cultures)
Hungarians like to relax in their free time by reading, watching TV, and playing sports. The two big sporting events in Hungary are soccer and water polo. They also enjoy tennis, skiing, and horse racing. Another popular activity they enjoy is taking vacations on weekends or extended holidays to summer cottages.
Their Social security covers employed persons, including employed pensioners, members of cooperatives, self-employed persons, and certain social insurance beneficiaries. The major sources of these funds are insured person’s earnings (10%), self-employed people, employers, and then the Government. The healthcare system is covered by health insurance contributions and is then free to those insured. The funding is less than adequate, and sometimes patients may be required to make payments to their cost. It is also tradition to pay a gratitude to the doctors and nurses after a procedure due to the low wage paid to the doctors and nurses. (2014, OECD Better Life Index)
Hungarian is the official language, spoken by 98% of population. Other minority languages include German, Croatian, Romani, Slovak, Romanian, Serbian, and Slovene. These languages have become more prominent in the last couple years (2014, “Hungary-Language, Culture, Customs, Etiquette”).
Section II: Economic Analysis Executive Summary
We have gone in depth in the section below on Hungary and the current economic standing of the country. Hungary is currently getting out of a recession, which tends to negatively affect the overall purchasing. When we bring Walmart to Hungary, the lower prices will be very appealing to the customers. This will increase purchases countrywide, helping Hungary create a strong economic standing after the recession. We have a general idea of the market that we want to target and are going to focus mainly on the average income information. In Hungary, the yearly income is generally below average, which we can use to our advantage. Since Walmart targets customers with lower than average income, this will be a perfect target market to place stores in Hungary. We will want to provide a low cost, one-stop-shop for these customers. Since Hungary is landlocked and surrounded by several countries, this could potentially make transport easier for local products such as locally grown fruits and vegetables. In the following section, the topic of media will be discussed in great detail. We are very well informed on the different types of media offered in Hungary. This will help us effectively advertise the Walmart brand.
The population of Hungary is about 9,919,128 people. The population is currently decreasing in Hungary at a rate of .21%. The age distribution among the population is 14.8% are ages 0-14, 11.7% are ages 15-24, 41.6% are ages 25-54, 14% are ages 55-64, and 17.5% are 65 and older. The median age in Hungary is 41.1 years with women typically living longer than men. The gender ratio in Hungary is weighted more toward women, as a percentage of total population. But ages 54 and under is more male dominated. As of 2001 census, the ethnic breakdown is: 92.3% Hungarian, 1.9% Roma, and 5.8% unknown. The net migration rate is 1.34/1000 population which ranks 55th compared to the rest of the world. Out of the total population, 69.5% live in an urban area. (2014, The World Factbook)
Hungary has just currently exited a recession in early 2013 and is still trying to recover. Low employment, low investment, and other factors are making the growth potential difficult. The current economy of Hungary is a medium sized, upper-middle-income. The per capita income is nearly two-thirds that of the EU-28 average. In the 1990’s, Hungary experienced market liberalization when they transformed from a socialist economy to a market economy. Hungary is a member of the European Union, the World Trade Organization, and the Organization for Economic Cooperation and Development; all of these were joined in the 1990’s.
One US dollar is equal to 248.94 Hungarian Forints. The Hungarian exchange rate is on the decline compared to the US dollar and the euro. The labor force is made up of 4,274,000 people and the official unemployment rate of 2013 was 10.2% (a decrease from 10.9% in 2012) (2014, “Data Set”).
According to the Index Mundi, the GDP in Hungary was $196.6 billion, which is from the year 2013. Over 80% of Hungary’s GDP is brought in by private sectors. The GDP per capita is $19,800, which is also from the year 2013. The growth rate in the population from 2013 was 0.2%. Hungary’s gross national saving was 17.1% of the GDP. The GDP consumption by end use was 55.5% household consumption, 20.4% government consumption, 16.4% investment in fixed capital, -0.7% investment in inventories, 97.2% exports of goods and services, and -88.8% imports of goods and services. The GDP composition by sector in 2013 was 3.4% agriculture, 28% industry, and 68.7% services (2014, Hungary Economy Profile).
According to OECD (Organization for Economic Co-operation and Development) Better Life Index, the average household net-adjusted disposable income per capita is $15,240 U.S. dollars per year. This is less than the OECD average. In Hungary, there is a large gap between the richest and the poorest people. Hungary seems to be similar to the U.S. where money cannot buy happiness but it is essential to have enough money for good education, healthcare, and housing. In Hungary, people earn $20,514 dollars a year on average which is about half of the OECD average yearly income. Housing costs make up a large amount of the household spending. When it comes to electricity, gas, repairs etc. 21% of their gross adjusted disposable income is spent on keeping a roof over Hungarian’s heads. The employment rate for ages 15-64 is 57% in Hungary. Like the U.S. workers, Hungarian workers spend a lot of time at their workplace so they want to have adequate working conditions. In 2010, 23% of Hungarian workers reported that they felt like they were in a poor working environment which is a little bit above the average in the European countries (2014, Hungary).
The main natural resource in Hungary is its fertile black soil for farming. The soil in this area of the world is mostly fertile, but especially in the area of Hungary. There is a special type of soil in the country, it is a loose type called loess. Bauxite, coal, oil, natural gas, manganese, uranium lignite and iron ore are some of the mineral resources that Hungary has. Most of the mineral reserves in Hungary are small and are often low quality (2014, About Hungary).
Hungary has many exports and imports; the top five products that are exported by Hungary are cars, broadcasting equipment, video displays, vehicle parts and spark-ignition engines. The top five products that are imported by Hungary are crude petroleum, petroleum gas, packaged medicaments, vehicle parts and telephones. The top five places that Hungary exports to are Germany, Romania, Austria, Italy and France. The top five countries that Hungary gets products from are Germany, Russia, China, Austria and Slovakia. Most of the countries that Hungary gets products from as well as exports are near the general area of the country (2014, The Observatory of Economic Complexity).
The price of gas in Hungary is much more expensive than it is in the United States. Currently in Budapest, gas is priced at $1.65 for one liter, which is the same as one-fourth of a gallon. This comes out to $6.60 U.S. dollars per gallon, which is around double what it is currently per gallon in the United States. Since gas is so expensive in Hungary, they tend to buy more gas efficient cars and try to use their cars as little as possible. Many Hungarians make use of the public transportation that is available because of the high gas prices. They use trains and busses to get around in the country and only use the metro and trolley busses in big cities.
In October 2014 the CPI inflation rate was -.44% and the HICP inflation rate was -.30% (2014, “Inflation Hungary”). The annual inflation rates are driven by the cost of electricity, gas, clothing and footwear, motor fuels, and consumer durable goods. On a monthly basis, according to tradingeconomics.com, “Prices grew 0.1 percent. Upward pressures came from the cost of food (0.3 percent) and clothing and footwear (2.3 percent). In contrast, prices of services did not change and cost of alcoholic beverages and tobacco as well as electricity, gas and other fuels fell 0.3 percent each.”
The surplus/deficit as a percentage of GDP for Hungary is reflected in the following
Percentage of GDP
Hungary’s government has been committed to a deficit reduction for several years, especially after their high debt to GDP ratio reached 73.9% in 2012. Many outsiders have criticized their efforts to this because of their lack of sustainability—most often they involved short-term tax increases and one-off measures. Other criticized actions include suspending payments into the private pillar of the pension system and eliminating the Fiscal Council budget watchdog agency (2014, “Doing Business in Hungary”). According to buyusinfo.com, in 2013, the three major credit rating agencies (Moody’s, S&P and Fitch) changed their long-term ratings on Hungarian bonds to BB/Ba1, one of the lowest investment grade ratings. This rating reflects a low to moderate level of risk to investors and generally shows that the entities possess adequate reserves and are reasonably stable, but not as solid as higher rated entities (2014, “BB/Ba1”).
Hungary joined the European Union in 2004. Since then all the tariffs, duties and import taxes that apply for the country is the same as the European Custom Union requires for all the members (2011,The history of Hungarian EU membership). Since we are not importing one single product to the country but a whole retailer company is entering with many different products, the taxes on each good may be different. Fortunately there are little trade restrictions between the U.S. and the E.U. and generally the payments on imported goods are fairly low. There are some differences that must be considered such as different safety standards that apply for some products. Otherwise there are no special embargoes or quotas between Hungary and the U.S.
We also must consider some current events that can affect the business. The Transatlantic Trade and Investment Partnership (TTIP) agreement is currently being negotiated between the U.S. and the E.U. If this agreement is passed, it would a result in an elimination of all import and export taxes on all goods between the two members. This would have a great advantage for Walmart because it would be decreasing tariff barriers between the U.S. and our target market (2014, European Commission Directorate-General for Trade). Since Walmart is carrying many different products it is beneficial for our company to find local suppliers. This way tariff expenses will be reduced.
Developments in Science and Technology
Some of Hungary’s main industries include automotive, electronics (22% of its manufacturing production), pharmaceuticals and medical technology, ICT (10% of total GDP)—which includes software and hardware production, IT services, and telecommunications—and the food industry (2013, “Hungary: Point of Single Contact”). Hungary also has highly developed road, railway, air, and water transport systems. There are five international airports located in Hungary (2014, “Hungary”).
According to Euromonitor, social media has a major impact on the demand of consumer electronics, “A vast majority of smartphone users use phones to maintain a constant presence on social media.” There has also recently been a major increase in tablets and portable computers since 2012; it nearly doubled within a year. This was also due in part to the increasing availability of lower-priced brands. Hungary’s electronic market is expected to grow with the overall market in the future.
Another event to note is that Hungary has recently undergone a digital switchover. On October 31, 2013 Hungary turned off its analogue television signal. All television services are now fully digital (2013, “Digital TV switchover”).
Transportation/Channels of Distribution
When looking at how goods in Hungary are distributed, supermarkets and hypermarkets are at the top or near the top in many major areas of spending. This is beneficial for us as Walmart because we have great distribution network that we can use so long as there are supplier to get us our goods. This means that we can complete the one stop shop for them as they could get fruits, meats, and beverages all at the same place because they have suppliers already in place. (2009, CONSUMER SATISFACTION WITH THE RETAIL DISTRIBUTION OF GOODS)
Hungary’s media coverage seems to be very well developed. Just like in Western European countries there are multiple media channels to communicate a company’s advertising message. Outdoor advertisements such as billboards are commonly used by major companies and mainly located next to the major freeways close to or inside the capital city. Print, magazine or newspaper advertising, personal mail is also very popular and it is an effective way to reach a large segment of target audience. According to our findings we believe this is type of media channel is still one of the most commonly used one in Hungary, especially for large retailers and grocery stores. Today Internet access is growing within the country. According to Brodynt.com over 60% of the population is using Internet, thus providing a large segment of the target audience that can be reached through this media channel (2014, Internet Access Hungary).
Broadcasting and TV advertising is also an effective tool for marketing within the country. The two largest and most watched TV channels are TV2 and RTL. It is important to point out that the Hungarian Government recently passed a new advertising tax. Some says it is a direct attack against RTL and the ruling party wants to control media press more with this new form of tax. The purpose of the new regulation is to tax TV channels that make a certain amount of revenue on advertising. The TV channels might pass on the expenses to their advertising client thus resulting a higher advertising cost through this channel.
Another recent government action that might affect advertising is the new Internet tax that was proposed a couple months ago. According to BBC.com the new tax would levy a fee on each gigabyte of Internet data transferred. The government aimed to tax Internet companies with the new regulations, however the general public believes that the cost will be passed on to them. As a result Hungarians started a mass protest against the proposed plan causing the tax proposal to be cancelled, although it will be revisited next year by the government. From a marketing and media availability perspective this current event must be considered since if it is passed it may limit the potential target audience that can be reached through the Internet. The country also has many in-country advertising agencies. Due to the countries Central European location, unique language and culture there are many advertising agencies available for foreign firms who are planning to enter this market (2014, BBC News).
Section III: Market Audit and Competitive Market Analysis Executive Summary
According to a European study of twelve countries, Hungarian customers were the most cost-aware compared to their surrounding neighbors. This is a strong advantage for us as Walmart prides itself on being able to offer customers the lowest prices around. Walmart’s slogan is “everyday low pricing” and we have a price match policy, which allows customers to buy goods at the lowest price possible at our stores. Although companies like Tesco have been in the area longer and have similar strategies to Walmart, we believe we can use our current price reduction knowledge with price match guarantee, along with joint venturing with a current well-known supermarket that Hungarians already trust, to gain customers.
If Walmart is successful Potential expansion to other Central/Eastern European countries
Hungarian government, taxation on foreign owned retailers
The best way to describe how Walmart tries to create value for its customers is best put by their founder Sam Walton,
"The secret of successful retailing is to give your customers what they want. And really, if you think about it from your point of view as a customer, you want everything: a wide assortment of good-quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience." This statement points out many positive advantages Walmart creates for its customers. They are a low price, satisfaction-guaranteed company. Walmart sets themselves apart from other Hungarian companies by focusing on their low prices and carrying a wide variety of goods. This creates a one-stop shop where a family can buy all of their goods at the best prices, ranging from groceries to home goods to office supplies. While most Hungarian consumers value the best deals and the lowest prices, sometimes a low price may reflect low quality. However, after profiling the typical Hungarian consumer we don’t feel that this will be a major issue.
Consumers in Hungary tend to be very price sensitive (2014, “Welcome to US Commercial Service at Budapest”). Most consumers prefer to spend their money where they believe they are getting the best value for their money (Euromonitor). There are very few impulse purchases. In a 2010 shopping habit study, results found that over two thirds of the people surveyed compare similar products and look for the lowest prices to purchase (2010, “Study Finds Hungarian Shoppers”). Many consumers are willing to shop at multiple stores in order to acquire the best deals (2013, “The Hungarian Consumer”). However, because of rising oil prices, consumers don’t really want to travel very far. US exporters who have a flexible pricing strategy are likely to experience success, while also working with Hungarian representatives to keep import costs low.
Hungarians have a desire for convenience food products due to their busy lifestyles and growing number of urban/suburban population. The demand for fast food, frozen food, chilled-processed food, and ready-made meals has increased over the years. However, consumers are starting to become interested in health and wellness foods as well such as seafood, fish, and organic foods. (2013, “The Hungarian Consumer”).
Grocery retail saw an 11% increase between 2006 and 2011. Store-based retail value sales in Hungary were $29 billion US dollars. $16.4 billion of that were grocery retailers. Convenience stores make up the largest part of the grocery market. This is partly due to the high number of outlets in this channel and the location of those stores. Consumers want to shop closer to home. (2013, “The Hungarian Consumer”).
Hypermarkets, very large stores with a wide range of goods and a large parking lot, typically situated outside a town, have the second largest grocery market share. Consumers like hypermarkets because they offer a wide-range of products and are able to offer consumers sales and deals. Consumers mostly visit these stores on weekends. Hypermarkets are expected to have a slower growth in the future because their locations are not convenient.
Discounters also experienced growth. They offer necessary, high-quality products at low prices and shorter waiting times at checkouts. Consumers who visit these stores for discount products often end up purchasing other items as well, such as fresh fruit (which are actually priced considerably higher than other retail channels) (2013, “The Hungarian Consumer”).
Nowadays in Hungary, just like in other Westernized countries, there is a larger emphasis on internet and social media advertisement. Through this media channel a large number of potential target audience can be reached effectively. TV advertisements and commercials are also a popular channel for marketing, however, there are some significant differences that must be considered. According to the Hungarian Advertising Law there are a lot more regulations on advertising tobacco, medicine, and children related or involved marketing. Another big difference is comparative advertisement. There are a lot more restrictions on using competitors and other company’s names in advertising. All of these laws can found on at http://www.nt.hu/_userfiles/Advertisement_Law_in_Hungary.pdf. We believe these laws are important because our company will be selling a wide variety of different products which may be regulated under different laws (2012, Advertising Law ). Current advertising trends seem to be more straight forward or informative advertising. Creative and humor advertising is currently not as popular in Hungary as it is in the States, but it could be a new and effective tool to reach customers. Sampling and discounts are also commonly used in Hungary by retailers, although sampling is more popular than discounts. Many major retailers like to send out catalogs, brochures, and personal mail to customers. This way they can keep their customer updated about their sales and deals. Billboards are mostly used for informative advertising such as where the location of the business to be found.
Some of the main hypermarket competitors that Walmart has to face once it enters Hungary is Auchen, Interspar and Teco. These are major retailers that carry similar products with different departments just like Walmart. Auchen is a retailer headquartered in France and Interspar is from Austria. They will not be the primary competitors of our company since they follow a more differentiated strategy. Since they do not follow an overall low cost strategy, their products are sold at a higher price, carrying higher quality. Our main competitor in this market will be the United Kingdom headquartered Tesco. Tesco’s strategy is an overall low cost strategy and they have been extremely successful in Hungary. According to Tesco’s former CEO Philip Clarke, even when sales fell in all markets where Tesco operates, Hungary was one of the few countries where it continued to grow (2013, Just-food).
There are a few smaller discount supermarkets which may not be primary competitors of Walmart but could provide a potential threat for our company in Hungary. These are Aldi, CBA, Coop, Lidl, Penny Market and Spar. These are stores that are not as big size-wise and they are located around the countryside, even in smaller towns. They mainly focus on food and although some of them carry more departments, these are not as big, and their main profit comes from their food departments. Aldi, Lidl, Penny Market are headquartered in Germany and even though they try to focus on low cost strategy their prices can be outperformed by Walmart. Spar is a smaller chain of Interspar, and just like Interspar their strategy is more differentiation, similarly to Target in the United States. CBA is a Hungarian food retailer. They will be not be a competition due to Walmart’s market entry strategy. This will be discussed under the last section of this paper.
In the competitor analysis it is also important to include the major home improvement companies that have the largest market share since these companies could be potential competitors of certain departments of Walmart. These are Praktiker, Ikea, Jysk, Baumax and Kika (2014, List of supermarket chains in Hungary). We also believe that due to Walmart’s overall low prices in all departments, we can gain a significant portion of the market in the home improvement industry from these competitors. Some of the main advertising techniques our main competitor, Tesco, is using is a lot print and broadcast advertising. As a type of print advertising they send out a lot of personal mail and other brochures to inform customers about their low prices and latest deals or discounts. They also use some radio and TV channel advertisements, which are straightforward and informative advertising. Billboards are used by Tesco mainly in cities where they have retail stores. These billboards usually serve as informative and locational advertisement and educate customers where the closest store is to them. One of Tesco’s most effective marketing techniques is their Clubcard program. This is a customer loyalty program that enables customers to earn points after spending a certain amount of money at any Tesco store. These points are stored and built up. At least four times a year the holder receives a statement and vouchers to the value of points they have saved.
Vouchers can be spent in store on shopping or online shopping (2014,Tesco Clubcard). Tesco has a powerful marketing slogan or jingle that is very similar to Walmart’s Save Money, Live Better mission statement. In Hungarian it stated like this: “A legkisebb is számít!” If translated it means, every little helps or every little matters, meaning that even the smallest savings or discount on products make a difference. In other words they try to encourage customers to chose their stores for shopping since their prices most likely will be lower than their competitors and this will make a difference at the end of their purchase, since they will spend less money.
As far as competitor distribution there are currently almost one hundred and twenty Tesco stores around the countryside. Out of these approximately fifteen stores are located in the capital city, Budapest. There are a large number of potential customers that can be reached in this area since the population is around two million and many tourists visit the capital. The rest of the stores are spread out around the countryside at bigger cities where the demand and population is also high enough to make profit for Tesco. Tesco operates in some smaller cities as well but these stores are called “Kis Tesco” or “Small Tesco” in English. These smaller stores only carry groceries. One factor that made Tesco very successful in Hungary was their close connection with Hungarian food suppliers. Since Hungary is a big agricultural country Tesco works closely with local suppliers and carry many of their products on their shelves. This helps the local economy and fulfills demand as well since Hungarians tends to prefer home made food products over foreign brands.
Hungary’s GDP is currently at 195.6 billion USD with ten million people in the country. The Retail Market in Hungary is about a 40 billion dollar industry and growing in Hungary. With the GDP rising it is only expected that retail spending will increase as some of these purchases are related to status. Our expected sales in the first year is projected around 63.96 million USD. (2014, The World Factbook) Government participation in the marketplace
The American Embassy in Budapest and the Department of Commerce, State, and Agriculture is available to help support US firms who plan on or are doing business in Hungary. The American Embassy promotes a healthy business environment and advocates on behalf of US companies, bidding on major government tenders, or facing business problems that deal with government policies. The Embassy Commercial Section can help US firms solve commercial problems through cost-effective programs and research.
There are several laws and regulations businesses must follow when doing business in Hungary, dealing with consumer protection, product regulations, and marketing channels.
Consumer protection law states that businesses must tell consumers they are collecting data, what the data is intended for and to whom it will be disclosed. Consumers must also be given the option to object to the processing details. With regards to products, consumers must be informed about prices, quality, instructions for the use of goods and any hazards associated with those uses. They must also be informed of delivery and packaging at the site of the sale. Hungarian law prohibits ads that mislead consumers or endanger the reputation of competitors. (2014, “Doing Business in Hungary”).
There are several regulations for medicinal products, cosmetics, and food products. For example phytosanitary certificates are required for most fresh fruit, vegetable, and plant products. A sanitary certificate is required for animal products or animal by-products. In addition there are several labeling requirements for all food products. The most important part of this is that all labels must be in Hungarian. However, this could be a sticker placed on an existing package. Medicinal products that have not been given market authorization before advertising is against the law (2014, “Doing Business in Hungary”).
There is currently no franchise law in Hungary. The Association of Direct Selling promotes direct selling and works protect consumer interests. Direct marketing agents may not visit potential customers at their home after 7pm and before 9 am without prior notification and consent. The E-commerce Directive imposes specific requirements with direct marketing online; promotional offers must not mislead consumers. Terms to be met to qualify must be made clear. The company must regularly consult national opt-out registers where they exist. When an order is placed the service provider must acknowledge the receipt quickly and electronically. Also vendors or electronically supplied services must collect value-added taxes (2014, “Doing Business in Hungary”).
Section IV: Preliminary Marketing Plan Marketing plan
Walmart is known for having the lowest prices among their competitors. We want to target the lower income, price sensitive shoppers who want an affordable place to get anything and everything they might need at a one-stop-shop. The typical Wal-Mart shoppers in the United States have an income below the average. This is important to consider when Walmart is entering Hungary since the average income in this market is below normal so Walmart is able to target a large segment of local consumers. The target market that we want to go after will be the people who currently shopping at Tesco, which will be the main competitor for Walmart when it enters Hungary. Walmart will need to have lower prices than Tesco and a wider range of products so that Walmart can win over customers. The plan is to first open Walmart stores in the largest city, which is the capital city, Budapest. The population of Budapest is just under 2 million and holds almost 20% of the country’s population. This city is the main area of tourism and the most populated city so it would be the best place to start due to expected higher demand. The largest segment of the population is over 40% and within the age group of 25-54 year olds. The male and female ratio within this segment is fairly equal. This segment will be the most targeted and some advertisement will directly focus on reaching the female consumers since it seems that females tend to do most of the shopping in many households. The next largest segment of population is 65 years and older with over 17% of the population that belongs to this group (2014, CIA World Factbook). This segment will be a focus of our target as well since these are mostly retired people living on social security. Their income depends on their government support which is similar to the minimum wage which is below the average within the area. This also seems to be a very price sensitive consumer segment that we will be targeting specifically (2012, Social Security Programs Throughout the World: Europe).
We expect our highest sales from the retail stores around or within the capital city since the population and demand seem to be the highest in this area. After entering the capital city we are also planning to expand into the bigger cities around the countryside with populations over 100,000. Some of the cities that meet this requirement are Debrecen, Miskolc, Szeged ,Pécs, Győr, Nyíregyháza, Kecskemét,and Székesfehérvár just to name a few. Eventually, we are planning to gain customers not just in the big cities, but also in other areas around the countryside where we will be opening smaller Walmart stores in smaller towns. Due to the expected lower demands in these areas, the smaller Walmarts will be only selling groceries and other household necessities.
Walmart’s mission statement describes the company’s long term goal: to help people save money so they can live better. The overall low cost strategy Walmart follows in the US and in other countries where they operate, seem to be very effective, thus leading the company to become the world’s largest retailer. When the company enters Hungary the same strategy will be followed since the country has an ideal price sensitive target market. To reach our potential customers we will use the most common media channels within the country. TV advertisements through the three most viewed channels, RTL, TV 2 and M1 will be launched once we enter the country. These commercials will be very informative, straightforward selling commercials and educational commercials for customers. They will focus on communicating Walmart’s mission statement, creating an awareness of the company’s presence in the country and they will present the low price strategy the company follows. Other advertisement will be aired through radio channels. We will mainly use Class FM, which is the country's largest radio channel with the largest coverage. Billboards will also be used to create store location awareness. One of the strength that Walmart has is their store availability in the United States. We will try to take an advantage of this in this new market as well. We will set up the larger Walmart stores around highly populated areas, mainly in the capital city and some other larger cities around the countryside. These larger stores will have all departments that Walmart has in the United States.
In smaller cities where the demand might not be as high, we will set up smaller retailer stores with fewer departments. For example these stores will not carry home improvement department. Our stores will have longer hours unlike the small competitors. For example Spar, Aldi or Lidl usually only operate from Monday to Saturday from approximately 8am-8pm. Our stores will be open all days of the week with longer hours, thus providing an easier availability and convenience for customers. We will also be using different kinds of sales promotions as part of our marketing strategy. Some of the new products that Walmart offers such as Great Value products will be available as samples in-store to enable customers to try and adapt to these new products. Coupons are not a common promotion technique that is currently used by competitors. However we believe this a a great opportunity to reach customers and keep them more involved with our current deals. We will send out coupons as personal mail monthly. Similarly brochures will be sent out as personal mail to educate customers about current deals. Finally one of the most powerful advertising technique we will use it Walmart’s price match service. This service will let customers to match competitors’ prices to Walmart’s and will enable them to purchase the same product for the same price if the competitor offers it for cheaper. This technique has been very successful tool against competitors in the United States and we believe that it will have a powerful effect in the new market as well.
Market Entry Strategy
We believe that the best option for Walmart to enter this new market is forming a joint venture with the CBA, a Hungarian supermarket chain. CBA is a smaller retailer and operates in many countries. There are multiple reasons why we believe this entry strategy is the best for Walmart. First of all the risk of failure will be reduced. Walmart entered Germany a few years ago and did not succeed. They had to leave the country because the German customers valued quality more than low prices and did not like the fact that an enormous foreign retailer entering their country trying to take over the market. Even though the market is a lot different in Hungary and customers are more price sensitive, generally Hungarians tend to be a very patriotic nation. This is also true when it comes to government decisions. Recently the Hungarian prime minister, Viktor Orban approved new taxes to be levied on mainly foreign owned banks and retailers who take the profit made on Hungarian consumers out of the country (2014, Politcshu). The biggest advantage of Walmart forming a joint venture with CBA would be the fact that instead of a foreign retailer entering the country, people would associate with Walmart as an allie and partially Hungarian owned business. We believe CBA is the right partner for this partnership. They already established a strong presence in Hungary and they also operate in many other Central and Eastern European countries. This local company could offer a big potential advantage for Walmart, supplying our business with cultural know-how and might be helpful with resolving government related conflicts. CBA already has a strong network of suppliers whom Walmart can benefit from. It is also important to point out that Walmart just like CBA or Tesco has to find Hungarian suppliers and do not focus on exporting food products. Hungary is a large agricultural country and Hungarian consumers prefer Hungarian made food over foreign brands. Walmart has to find many Hungarian suppliers and CBA could provide a great potential help. Lastly since CBA is already present in many other Central and Eastern European countries, if Walmart plans to expand in this region CBA could also serve as a great advantage. Some of the disadvantages that this joint venture may have is profit sharing. The success would be shared between the two companies, thus the profits will not be as high for Walmart as they potentially could be. There is also a chance of conflict that may arise due to different management styles and cultural differences between the two companies. Resolving these conflict situations effectively are crucial to success for Walmart. As a conclusion we believe that despite all the disadvantages, forming a joint venture with CBA is the best option for Walmart in order to succeed in this market and offers the greatest potential for expansion in the region as well.
Even though we plan to joint venture with CBA, we want to introduce our Great Value brand. We offer a variety of goods in this brand at low prices, as the name suggests and will emphasize our low prices. To comply with local laws we will change the language on all packages to Hungarian so consumers will be informed about the nutritional facts of our products. We will also try to create a greater online presence, as online grocery shopping is becoming more and more popular among Hungarians.
For our First year we have the following Projections in USD:
These projections are a combination of sales by similar companies in the country as well as profit margins of similar European companies. While the profit margin is only set at 1.905%, which is lower than Walmart in the US, we feel this fits as it is a new market that will only get stronger.
For our first five years we have the following projections. These are based on average growth rates in Hungary’s retail market as well as decreasing cost. We feel as the years go on Walmart will consistently get better at distribution and reducing its cost.
Walmart is the world’s largest company by revenue and the largest retailer in the world. Net sales were $473 billion for January 31, 2014 and they employ over 2.2million associates worldwide. Because of this, we have plenty of resources to enter the country of Hungary. We may want to incorporate a current Walmart manager, one who knows the business already and company goals. This will make for an easier transition into Hungary. Bringing Walmart to Hungary will also create several new jobs for locals and boost local economy.
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