Why Walmart Failed in Germany - Lessons from the Retail Giant's Disastrous 9-Year Foray

This Is Not America. Why Wal-Mart left Germany in 2006?
Walmart can boast that it has more than 8,500 stores in 15
countries, under 55 different names, that it's the largest private
employer in the United States, the largest in Mexico (as
Walmex), and the third largest in Canada. In fact, it's the
biggest private employer in the whole world. It has 108 stores
in China alone, and operates another 100 Chinese outlets under
the name of Trust-Mart.
Still, for all of Walmart's conspicuous success, the retailing
giant, after having set up shop in Germany in 1997, was forced
to withdraw from the country in 2006, abandoning Germany's
lucrative $370 billion retail market. Even though this happened
five years ago, the German debacle still reverberates. It's still
being discussed. After all, as anyone who's been paying
attention can tell you, Walmart rarely fails in these endeavors.
Because America and Europe share similar cultural and political
antecedents, one might naturally assume that an American
enterprise would have a better chance of succeeding in Europe
than in Asia. But the German smackdown proved that's not
always the case. Indeed, while the nominal Communist regime
of the People's Republic of China embraced Walmart's corporate
philosophy, the Germans rejected it.
After nine years of trying to make a go of it, Wal-Mart sold its
85 stores to German rival Metro in 2006. Wal-Mart paid dearly
for its about-face. The company took a $1 billion hit to quit the
market, while Metro paid as much as $100 million less for the
Wal-Mart stores than the value of the real estate, unsold
merchandise, and other physical assets.
When Wal-Mart decided to expand in 1996, its managers saw
Germany as a promising market. Europe's largest market is
home to 82 million - far more than in England, France and Italy
which each have a population of 60 million. Germany enjoys a
healthy pro capita income, so consumer spending is robust. The
country has good transport infrastructure, which is good when

stocks need to be replenished. Given these excellent conditions,
Wal-Mart must have thought success was guaranteed.
It wasn't to be. Its German venture ended disastrously, with the
retreat costing the company $1 billion.
Just why did Wal-Mart Germany end so badly in Germany? The
answer is simple but banal, and can be encapsulated by a line
once sung by David Bowie: "This is not America."
Management's mistake was to implement a successful U.S.
business formula in Germany without paying any attention to
local idiosyncrasies.
"The problem was the company's business philosophy, which
had always worked so well," wrote Frankfurt's Börsenzeitung in
what pretty much amounted to an obituary. "It's people-centered
- but that doesn't actually work when the people aren't
American."
The problems added up. The company gave the job of
masterminding Wal-Mart Germany to an American who didn't
speak a word of German. This should surely have been
indispensable to finding out what the German salespersons
would need to know about local shopping habits.
Another problem was that Wal-Mart initially bought up a chain
of 21 stores, then another 74, which included sites previous
owners had failed to make profitable.
The authorities also kept a close eye on Wal-Mart. Anti-trust
lawyers banned its practice of luring consumers with price-
dumping, while Germany's stringent laws governing opening
hours meant stores couldn't stay open too long. German labor
law prevented the easy-come, easy-go hiring and firing common
in the U.S., and the unions and the public alike were outraged
by what Germans saw as an absurd ban on flirting in the
workplace. All in all, Wal-Mart operated what the newspaper
Handelsblatt described as a "bizarre company culture."
The retreat was hardly surprising given Wal-Mart's numerous
missteps in Germany. Perhaps its most glaring was misjudging
the German consumer and business culture. For instance,
German Wal-Marts adopted the U.S. custom of bagging

groceries, which many German consumers find distasteful
because they tend not to like strangers handling their food.
Germans also feared they would have to pay extra for the
service, forcing Wal-Mart to re-assign its bag-packers.
Though no one can say precisely why the venture failed, there's
been no shortage of explanations. One is that Germany was too
"green" for a slash-and-burn outfit like Walmart, with its plastic
bags and plastic junk. Another is that Walmart couldn't hack the
pro-labor union culture of Germany. The company encountered
difficulties in dealing with the union leadership at its German
stores. Another is that Germany is anti-American when it
comes to name-brand retailers (even though Dunkin' Donuts and
Starbucks are popular there). Another is that German consumers
prefer small neighborhood stores rather than impersonal chain
(even though Aldi, a discount supermarket chain, is successful).
Another fatal flaw was that Germany's retail market is already
saturated with discounters such as Aldi and Lidl, meaning that
any new arrival inevitably finds itself in the midst of a cutthroat
price war. Germany has the cheapest groceries in Europe.
Moreover, real incomes have barely grown in recent years,
which has dampened consumer spending. Retailers are vying for
customers by cutting back profit margins. In the foods sector,
the yield returns in Germany are less than 2 percent, often even
only at 1.5 percent. Against this backdrop, presenting German
consumers with unfamiliar U.S. brands was doomed to failure.
With just 95 outlets, Wal-Mart also remained too small.
Originally, it had wanted to build 50 superstores as quickly as
possible, but while Germany has one-third of the population of
the U.S., it doesn't have one-third of its surface area. It is only
about as big as Oregon - and consequently, every square foot is
either developed, or about to be. German planning law therefore
has a lot of obstacles when someone wants to construct stores
on the Wal-Mart scale. So instead of increasing its number of
stores, Wal-Mart actually had to close a few down - some of
which were taken over by Wal-Mart's rivals once its leases ran
out.

But the full extent of Germany's strategic retaliation against
Wal-Mart only became clear when the local competition -
primarily the Metro Group - snatched a number of chains up for
sale from under Wal-Mart's nose. The bottom line: the American
company had to abandon its expansion plans.
Paradoxically, the U.S. giant ended up terminally dwarfed in
Germany. Experts estimated that a turnover of ?8 billion ($10
billion) would have been needed to reduce each store's logistics
costs to a sensible size, but Wal-Mart barely managed to scrape
together a turnover of ?2 billion ($2.5 billion), a result expected
to get even worse. One consequence was less competitive prices
than those of their rivals.
These weren't management's only mistakes. Germany is a
country that loves stability, even on the executive floor. Chaotic
leadership and frequent personnel changes make a frivolous
impression and suggest company problems. "American
management methods are often primitive," said Aldi's former
CEO Dieter Brandes in the weekly magazine Stern. "It's all
about budgets, not customers. When the figures look bad, no
one looks for the roots of the problem; they just replace the
CEO."
And soon enough, Wal-Mart did indeed replace its CEO in
Germany - with a Brit. Unfortunately, cultural differences
between Britain and Germany are even greater than those
between the U.S. and Germany. Based as he was in England, he
too failed to grasp what makes German consumers tick, and
after a few months at the helm, he too had to go. The German
who took over had plenty of experience with kiosks and gas
stations, but not with superstores.
Wal-Mart's German failure could be summed up by a German
proverb - translated, it means: "A nightmarish end is better than
a nightmare that doesn't end."
OUTNUMBERED. It also imported its U.S.-style company
ethic, which includes strongly discouraging interoffice
romances. Many employees found the code intrusive. The

company also had repeated clashes with unions. "Wal-Mart was
not very humble when they went in," says Bryan Roberts, an
analyst at Planet Retail, an industry research firm. "They
wanted to impose their own culture."
Just as important was Wal-Mart's apparent underestimation of
the competition and its miscalculation of the market. Wal-Mart
may be the king of low prices in the U.S., but it was often
undercut in Germany by local rivals such as Aldi and Lidl. One
reason for that may have been that Wal-Mart never had enough
stores in Germany to effectively compete. Aldi has some 4,000
stores, giving it a big advantage in logistics and advertising.
High quality global journalism requires investment. Please
share this article with others using the link below, do not cut &
paste the article. See our Ts&Cs and Copyright Policy for more
detail. Email [email protected] to buy additional rights.
http://www.ft.com/cms/s/0/41c2ecbe-1e14-11db-9877-
0000779e2340.html#ixzz33R3IWL00
Wal-Mart tried to respond with low prices coupled with more
US-style customer service. Used to the most basic of shops,
German shoppers shied away, fearing the US company would
have to cover extra personnel costs by charging higher prices.
At least six other chains were driven out of Germany by slow
sales and low margins in early 2000s. Gap Inc., Laura Ashley
Holdings Plc, Marks & Spencer Group Plc, HMV Group Plc,
Kingfisher Plc and Gruppo Coin SpA all had to fled.
The foreign companies found growth elusive in an economy that
barely expanded during the 2000s. Growth of the retail market,
worth about 390 billion euros ($496 billion), was no more than
1 percent, held back by near-record unemployment and stagnant
wages. One analyst stated, ``German consumers are really
watching their money…The market is all about hard
discounters.''
As well as facing stiff competition from Metro and another
German rival, Aldi, Wal-Mart has been challenged by weak
consumer spending and a rigid labor market.
“Continental European systems are the polar opposite to those

Wal-Mart is used to,” said Maurizio Zollo, an M&A specialist at
French-based business school Insead. “The company’s strategic
formula is based on a very powerful logistics machine, but also
on huge intention to cut workforce and employment costs. The
problem is that the formula works very well in certain contexts,
but it needs to be adapted very strongly in places like Germany
and France.”
Philippe Haspeslagh, director of Insead’s strategic issues in
mergers and acquisitions, said that the position of Wal-Mart in
Germany from the beginning had been too small. “If Wal-Mart
had wanted to really make it in Germany, they would have had
to buy something much bigger,” he said, referring to the two
small retail operations that it bought to gain entry into the
market in 1998. “Taking a German traditional retailer in a weak
position has proven just too hard a nut to crack.”
Wal-Mart's business model, which has been increasingly
criticised even in the US, involves driving down the prices of
groceries and other general merchandise through putting
pressure on suppliers and keeping out unions.
But in Germany, where domestic "value retailers" already
dominate the grocery market, it found customers were turned off
by the early designs of its stores, by a too-narrow range of
produce, and by the famous "greeters", who welcome shoppers
to the store and are instructed to smile when within a certain
distance of a customer. It also became embroiled in labour
disputes that led to strikes.
Robert Buchanan, a retail analyst at the US brokerage AG
Edwards, said he was pleased Wal-Mart had decided to cut its
losses. "They sent a lot of expats over who didn't know the
German market, so it makes sense to focus on countries where
they have had more success," he said.
Wal-Mart bought into Germany in 1998, but its vice-chairman,
Michael Duke, said the German market was already highly
competitive and Wal-Mart had proved unable to generate the
economies of scale it needed to drive prices below those of
competitors. The company also blamed high unemployment and

weak consumer spending in Germany for making the market
even harder to crack.
US Model not effective here
Andreas Knorr and Andreas Arndt of the University of Bremen
didn't mince words in their study called "Why did Wal-Mart
Fail in Germany?"
The authors wrote: "Wal-Mart's attempt to apply the company's
proven US success formula in an unmodified manner to the
German market turned out to be nothing short of a fiasco."
One example of that might be that Wal-Mart's American
managers pressured German executives to enforce American-
style management practices in the workplace. Employees were
forbidden, for instance, from dating colleagues in positions of
influence. Workers were also told not to flirt with one another.
A German court ruled last year against the company's attempt to
introduce a telephone hotline for employees to inform on their
colleagues.
High labor costs may have been a big hurdle for Wal-Mart
Germany, as well as workers who tried to resist management's
demands which they felt were unjust.
One Wal-Mart employee told the newsmagazine Der Spiegel
that management had threatened to close certain stores if staff
did not agree to work to working longer hours than their
contracts foresaw and did not permit video surveillance of their
work.
Wal-Mart Germany has had several run-ins with the trade union
ver.di, which represents retail store workers.
Understanding the locals
Besides running up against German labor law and tradition,
analysts say Wal-Mart also misfired when it came to knowing
the market they were attempting to crack.
American styles don't always translate well
"We made mistakes," said Wal-Mart Germany's CEO David
Wild in an interview with the Welt am Sonntag newspaper.
"Many of our (product) buyers in Germany were Americans.

Some real goof-ups occurred as a result."
"Like, did you know that American pillowcases are a different
size than German ones are?" he asked. Wal-Mart Germany
ended up with a huge pile of pillowcases they couldn't sell to
German customers.
"If you want to be successful in a foreign market, you have to
know what your customers want. That's the most important
lesson," Wild said, who is from England. "It does not good to
force a business model onto another country's market just
because it works well somewhere else."
Germany's discount retail market is turning out to be a tough
one to crack for some of the world's biggest companies.
Homegrown discount retailers offer very low prices. German
shoppers are frugal and demanding. And regulations restrict
store hours and other retailing basics. Wal-Mart's biggest global
competitor, Carrefour SA of France, operates in 29 countries,
but has steered clear of Germany.
Some other companies have begun adjusting their formulas in
an effort to make headway in the German retail market.
Consumer-goods companies such as Unilever, which has
headquarters in Rotterdam and London and makes such brands
as Dove soap and Ben & Jerry's ice cream, have traditionally
been wary of working closely with German discounters. They
worried that the no-frills stores cast a negative light on their
brands.
But over the last several years, Unilever and Nestle have begun
making a concerted effort to work with the discounters. They
have tried to exploit the fact that discounters are searching for
new ways to get shoppers to spend more, a perpetual problem in
Germany, where the economy has struggled because people
aren't spending.
Nestle has repackaged its candy brands and cappuccino flavors
into mixed assortments to meet demand from the retailers for
bigger packs. Consumer-goods companies are also coming up
with less expensive varieties of some of their main brands to
compete with store-brand items.

Wal-Mart Chief Executive Lee Scott warned that the stores it
purchased in Germany "are difficult stores.... It is clearly a very
challenging market for us that we have not figured out."
Behind Rivals
Still, Wal-Mart has fallen behind some of its rivals in expanding
globally. After it completes the sales of its German and South
Korean operations later this year, it will operate in just 11
countries outside the U.S., compared with 29 for Carrefour and
30 for Metro, the world's third-largest retailer by sales.
In addition, Wal-Mart is beginning to face aggressive German-
style discounting on its home turf. Aldi Einkauf GmbH, a
German retailer, has opened more than 700 stores in the U.S.,
and Eden Prairie, Minn.-based SuperValu Inc. SVU -0.40%
now has more than 1,200 small, no-frills Save-A-Lot stores in
the U.S.
After Wal-Mart acquired two small, struggling German retail
chains eight years ago, it ran up against several problems. It
found itself being underpriced by local retailers called hard
discounters, such as Aldi. German shoppers flock to these
stores, which sell a limited selection -- often 850 to 1,000
items, compared with 100,000 at Wal-Mart -- and stock mainly
their own store brands.
Some 80% of German consumers are about 20 minutes from an
Aldi, according to Nestle's research. The hard discounters
account for about 40% of the German retail market, compared
with Wal-Mart's share of less than 2%, analysts say.
German shoppers are accustomed to buying merchandise strictly
based on price, German retail consultants say. They are willing
to buy laundry detergent at one store and then go to another to
get a better price on paper towels. That behavior is called
"basket splitting." It is the antithesis of what American
shoppers like: one-stop shopping. A big plank of Wal-Mart's
strategy in the U.S. and elsewhere is getting shoppers to turn to
it for an increasingly wide array of goods.
Wal-Mart has said it made other mistakes as well. The two

retailers it purchased were headquartered in different cities. It
chose one city for the merged headquarters, prompting many
executives from the other retailer to quit rather than relocate.
Its German unit has had four presidents in eight years. It ran up
against strong unions, as well as laws against selling goods at
below cost, which made it difficult to lure shoppers with so-
called loss leaders. Initially, Germany's stringent operating laws
required it to shutter stores by 6 p.m. on weekdays and 4 p.m.
on Saturdays, although those restrictions eased a bit in recent
years.
While there is probably some validity to all of these
explanations, three additional cross-cultural idiosyncrasies have
been identified as determining factors.
One issue was the chanting. Walmart employees are required to
start their shifts by engaging in group chants and stretching
exercises, a practice intended to build morale and instill loyalty.
Fiendish as it sounds, Walmart employees are required to stand
in formation and chant, "WALMART! WALMART!
WALMART!" while performing synchronized group
calisthenics.
Unfortunately, this form of corporate boosterism didn't go over
particularly well with the Germans. Maybe they found it
embarrassing or silly; maybe they found it too regimented. Or
maybe they found this oddly aggressive, mindless and exuberant
exercise in group-think too reminiscent of other rallies....like
one that occurred in Nuremberg several decades earlier.
Another issue was the smiling. Walmart requires its checkout
people to flash smiles at customers after bagging their
purchases. Plastic bags, plastic junk, plastic smiles. But because
the German people don't usually smile at total strangers, the
spectacle of Walmart employees grinning like jackasses not
only didn't impress consumers, it unnerved them.
The third was the "ethics problem." Back in 1997, Walmart not
only required employees to spy on fellow workers (and report
any misconduct), but prohibited sexual intimacy among its
employees. Apparently, while the folks running the Bentonville,

Arkansas-based company had no problem with screwing the
environment, they couldn't abide employees doing it to each
other (alas, a German court struck down Walmart's "ethics
code" in 2005).
Whatever the specific reasons, the German market is now
verboten to Walmart. Clearly, the failed experiment was a
severe blow to the company's pocketbook and pride. And while
no one can predict where a company as aggressive and
acquisitive as Walmart will turn up next, presumably, they will
pick up the slack by opening a store in Libya.
Sources:
http://www.businessweek.com/stories/2006-07-28/wal-marts-
german-retreatbusinessweek-business-news-stock-market-and-
financial-advice
http://www.huffingtonpost.com/david-macaray/why-did-
walmart-leave-ger_b_940542.html
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a
kz4Hk7vnYTQ
http://www.forbes.com/2006/07/28/walmart-germany-metro-
cx_po_0728walmart.html
http://www.independent.co.uk/news/business/news/mighty-
walmart-admits-defeat-in-germany-409706.html
http://www.dw.de/worlds-biggest-retailer-wal-mart-closes-up-
shop-in-germany/a-2112746-1
http://online.wsj.com/news/articles/SB115407238850420246
http://www.atlantic-
times.com/archive_detail.php?recordID=615
The lengths of pregnancies in number of days are normally
distributed with a mean of 268 days and a standard deviation of
15 days. Answer the following questions and show your work.
a. If a pregnancy length is randomly taken from this
distribution, what is the probability that the length of that

pregnancy is less than 260 days?
b. If a sample of 25 pregnancies is taken from this distribution,
what is the probability that their mean will be less than 260
days?
c. Explain why these two answers (from a and b) are different.
This Is Not America. Why Wal-Mart left Germany in 2006?
Walmart can boast that it has more than 8,500 stores in 15
countries, under 55 different names, that it's the largest private
employer in the United States, the largest in Mexico (as
Walmex), and the third largest in Canada. In fact, it's the
biggest private employer in the whole world. It has 108 stores
in China alone, and operates another 100 Chinese outlets under
the name of Trust-Mart.
Still, for all of Walmart's conspicuous success, the retailing
giant, after having set up shop in Germany in 1997, was forced
to withdraw from the country in 2006, abandoning Germany's
lucrative $370 billion retail market. Even though this happened
five years ago, the German debacle still reverberates. It's still
being discussed. After all, as anyone who's been paying
attention can tell you, Walmart rarely fails in these endeavors.
Because America and Europe share similar cultural and political
antecedents, one might naturally assume that an American
enterprise would have a better chance of succeeding in Europe
than in Asia. But the German smackdown proved that's not
always the case. Indeed, while the nominal Communist regime
of the People's Republic of China embraced Walmart's corporate
philosophy, the Germans rejected it.
After nine years of trying to make a go of it, Wal-Mart sold its
85 stores to German rival Metro in 2006. Wal-Mart paid dearly
for its about-face. The company took a $1 billion hit to quit the
market, while Metro paid as much as $100 million less for the
Wal-Mart stores than the value of the real estate, unsold
merchandise, and other physical assets.

When Wal-Mart decided to expand in 1996, its managers saw
Germany as a promising market. Europe's largest market is
home to 82 million - far more than in England, France and Italy
which each have a population of 60 million. Germany enjoys a
healthy pro capita income, so consumer spending is robust. The
country has good transport infrastructure, which is good when
stocks need to be replenished. Given these excellent conditions,
Wal-Mart must have thought success was guaranteed.
It wasn't to be. Its German venture ended disastrously, with the
retreat costing the company $1 billion.
Just why did Wal-Mart Germany end so badly in Germany? The
answer is simple but banal, and can be encapsulated by a line
once sung by David Bowie: "This is not America."
Management's mistake was to implement a successful U.S.
business formula in Germany without paying any attention to
local idiosyncrasies.
"The problem was the company's business philosophy, which
had always worked so well," wrote Frankfurt's Börsenzeitung in
what pretty much amounted to an obituary. "It's people-centered
- but that doesn't actually work when the people aren't
American."
The problems added up. The company gave the job of
masterminding Wal-Mart Germany to an American who didn't
speak a word of German. This should surely have been
indispensable to finding out what the German salespersons
would need to know about local shopping habits.
Another problem was that Wal-Mart initially bought up a chain
of 21 stores, then another 74, which included sites previous
owners had failed to make profitable.
The authorities also kept a close eye on Wal-Mart. Anti-trust
lawyers banned its practice of luring consumers with price-
dumping, while Germany's stringent laws governing opening
hours meant stores couldn't stay open too long. German labor
law prevented the easy-come, easy-go hiring and firing common
in the U.S., and the unions and the public alike were outraged
by what Germans saw as an absurd ban on flirting in the

workplace. All in all, Wal-Mart operated what the newspaper
Handelsblatt described as a "bizarre company culture."
The retreat was hardly surprising given Wal-Mart's numerous
missteps in Germany. Perhaps its most glaring was misjudging
the German consumer and business culture. For instance,
German Wal-Marts adopted the U.S. custom of bagging
groceries, which many German consumers find distasteful
because they tend not to like strangers handling their food.
Germans also feared they would have to pay extra for the
service, forcing Wal-Mart to re-assign its bag-packers.
Though no one can say precisely why the venture failed, there's
been no shortage of explanations. One is that Germany was too
"green" for a slash-and-burn outfit like Walmart, with its plastic
bags and plastic junk. Another is that Walmart couldn't hack the
pro-labor union culture of Germany. The company encountered
difficulties in dealing with the union leadership at its German
stores. Another is that Germany is anti-American when it
comes to name-brand retailers (even though Dunkin' Donuts and
Starbucks are popular there). Another is that German consumers
prefer small neighborhood stores rather than impersonal chain
(even though Aldi, a discount supermarket chain, is successful).
Another fatal flaw was that Germany's retail market is already
saturated with discounters such as Aldi and Lidl, meaning that
any new arrival inevitably finds itself in the midst of a cutthroat
price war. Germany has the cheapest groceries in Europe.
Moreover, real incomes have barely grown in recent years,
which has dampened consumer spending. Retailers are vying for
customers by cutting back profit margins. In the foods sector,
the yield returns in Germany are less than 2 percent, often even
only at 1.5 percent. Against this backdrop, presenting German
consumers with unfamiliar U.S. brands was doomed to failure.
With just 95 outlets, Wal-Mart also remained too small.
Originally, it had wanted to build 50 superstores as quickly as
possible, but while Germany has one-third of the population of
the U.S., it doesn't have one-third of its surface area. It is only
about as big as Oregon - and consequently, every square foot is

either developed, or about to be. German planning law therefore
has a lot of obstacles when someone wants to construct stores
on the Wal-Mart scale. So instead of increasing its number of
stores, Wal-Mart actually had to close a few down - some of
which were taken over by Wal-Mart's rivals once its leases ran
out.
But the full extent of Germany's strategic retaliation against
Wal-Mart only became clear when the local competition -
primarily the Metro Group - snatched a number of chains up for
sale from under Wal-Mart's nose. The bottom line: the American
company had to abandon its expansion plans.
Paradoxically, the U.S. giant ended up terminally dwarfed in
Germany. Experts estimated that a turnover of ?8 billion ($10
billion) would have been needed to reduce each store's logistics
costs to a sensible size, but Wal-Mart barely managed to scrape
together a turnover of ?2 billion ($2.5 billion), a result expected
to get even worse. One consequence was less competitive prices
than those of their rivals.
These weren't management's only mistakes. Germany is a
country that loves stability, even on the executive floor. Chaotic
leadership and frequent personnel changes make a frivolous
impression and suggest company problems. "American
management methods are often primitive," said Aldi's former
CEO Dieter Brandes in the weekly magazine Stern. "It's all
about budgets, not customers. When the figures look bad, no
one looks for the roots of the problem; they just replace the
CEO."
And soon enough, Wal-Mart did indeed replace its CEO in
Germany - with a Brit. Unfortunately, cultural differences
between Britain and Germany are even greater than those
between the U.S. and Germany. Based as he was in England, he
too failed to grasp what makes German consumers tick, and
after a few months at the helm, he too had to go. The German
who took over had plenty of experience with kiosks and gas
stations, but not with superstores.

Wal-Mart's German failure could be summed up by a German
proverb - translated, it means: "A nightmarish end is better than
a nightmare that doesn't end."
OUTNUMBERED. It also imported its U.S.-style company
ethic, which includes strongly discouraging interoffice
romances. Many employees found the code intrusive. The
company also had repeated clashes with unions. "Wal-Mart was
not very humble when they went in," says Bryan Roberts, an
analyst at Planet Retail, an industry research firm. "They
wanted to impose their own culture."
Just as important was Wal-Mart's apparent underestimation of
the competition and its miscalculation of the market. Wal-Mart
may be the king of low prices in the U.S., but it was often
undercut in Germany by local rivals such as Aldi and Lidl. One
reason for that may have been that Wal-Mart never had enough
stores in Germany to effectively compete. Aldi has some 4,000
stores, giving it a big advantage in logistics and advertising.
High quality global journalism requires investment. Please
share this article with others using the link below, do not cut &
paste the article. See our Ts&Cs and Copyright Policy for more
detail. Email [email protected] to buy additional rights.
http://www.ft.com/cms/s/0/41c2ecbe-1e14-11db-9877-
0000779e2340.html#ixzz33R3IWL00
Wal-Mart tried to respond with low prices coupled with more
US-style customer service. Used to the most basic of shops,
German shoppers shied away, fearing the US company would
have to cover extra personnel costs by charging higher prices.
At least six other chains were driven out of Germany by slow
sales and low margins in early 2000s. Gap Inc., Laura Ashley
Holdings Plc, Marks & Spencer Group Plc, HMV Group Plc,
Kingfisher Plc and Gruppo Coin SpA all had to fled.
The foreign companies found growth elusive in an economy that
barely expanded during the 2000s. Growth of the retail market,
worth about 390 billion euros ($496 billion), was no more than
1 percent, held back by near-record unemployment and stagnant
wages. One analyst stated, ``German consumers are really

watching their money…The market is all about hard
discounters.''
As well as facing stiff competition from Metro and another
German rival, Aldi, Wal-Mart has been challenged by weak
consumer spending and a rigid labor market.
“Continental European systems are the polar opposite to those
Wal-Mart is used to,” said Maurizio Zollo, an M&A specialist at
French-based business school Insead. “The company’s strategic
formula is based on a very powerful logistics machine, but also
on huge intention to cut workforce and employment costs. The
problem is that the formula works very well in certain contexts,
but it needs to be adapted very strongly in places like Germany
and France.”
Philippe Haspeslagh, director of Insead’s strategic issues in
mergers and acquisitions, said that the position of Wal-Mart in
Germany from the beginning had been too small. “If Wal-Mart
had wanted to really make it in Germany, they would have had
to buy something much bigger,” he said, referring to the two
small retail operations that it bought to gain entry into the
market in 1998. “Taking a German traditional retailer in a weak
position has proven just too hard a nut to crack.”
Wal-Mart's business model, which has been increasingly
criticised even in the US, involves driving down the prices of
groceries and other general merchandise through putting
pressure on suppliers and keeping out unions.
But in Germany, where domestic "value retailers" already
dominate the grocery market, it found customers were turned off
by the early designs of its stores, by a too-narrow range of
produce, and by the famous "greeters", who welcome shoppers
to the store and are instructed to smile when within a certain
distance of a customer. It also became embroiled in labour
disputes that led to strikes.
Robert Buchanan, a retail analyst at the US brokerage AG
Edwards, said he was pleased Wal-Mart had decided to cut its
losses. "They sent a lot of expats over who didn't know the
German market, so it makes sense to focus on countries where

they have had more success," he said.
Wal-Mart bought into Germany in 1998, but its vice-chairman,
Michael Duke, said the German market was already highly
competitive and Wal-Mart had proved unable to generate the
economies of scale it needed to drive prices below those of
competitors. The company also blamed high unemployment and
weak consumer spending in Germany for making the market
even harder to crack.
US Model not effective here
Andreas Knorr and Andreas Arndt of the University of Bremen
didn't mince words in their study called "Why did Wal-Mart
Fail in Germany?"
The authors wrote: "Wal-Mart's attempt to apply the company's
proven US success formula in an unmodified manner to the
German market turned out to be nothing short of a fiasco."
One example of that might be that Wal-Mart's American
managers pressured German executives to enforce American-
style management practices in the workplace. Employees were
forbidden, for instance, from dating colleagues in positions of
influence. Workers were also told not to flirt with one another.
A German court ruled last year against the company's attempt to
introduce a telephone hotline for employees to inform on their
colleagues.
High labor costs may have been a big hurdle for Wal-Mart
Germany, as well as workers who tried to resist management's
demands which they felt were unjust.
One Wal-Mart employee told the newsmagazine Der Spiegel
that management had threatened to close certain stores if staff
did not agree to work to working longer hours than their
contracts foresaw and did not permit video surveillance of their
work.
Wal-Mart Germany has had several run-ins with the trade union
ver.di, which represents retail store workers.
Understanding the locals
Besides running up against German labor law and tradition,

analysts say Wal-Mart also misfired when it came to knowing
the market they were attempting to crack.
American styles don't always translate well
"We made mistakes," said Wal-Mart Germany's CEO David
Wild in an interview with the Welt am Sonntag newspaper.
"Many of our (product) buyers in Germany were Americans.
Some real goof-ups occurred as a result."
"Like, did you know that American pillowcases are a different
size than German ones are?" he asked. Wal-Mart Germany
ended up with a huge pile of pillowcases they couldn't sell to
German customers.
"If you want to be successful in a foreign market, you have to
know what your customers want. That's the most important
lesson," Wild said, who is from England. "It does not good to
force a business model onto another country's market just
because it works well somewhere else."
Germany's discount retail market is turning out to be a tough
one to crack for some of the world's biggest companies.
Homegrown discount retailers offer very low prices. German
shoppers are frugal and demanding. And regulations restrict
store hours and other retailing basics. Wal-Mart's biggest global
competitor, Carrefour SA of France, operates in 29 countries,
but has steered clear of Germany.
Some other companies have begun adjusting their formulas in
an effort to make headway in the German retail market.
Consumer-goods companies such as Unilever, which has
headquarters in Rotterdam and London and makes such brands
as Dove soap and Ben & Jerry's ice cream, have traditionally
been wary of working closely with German discounters. They
worried that the no-frills stores cast a negative light on their
brands.
But over the last several years, Unilever and Nestle have begun
making a concerted effort to work with the discounters. They
have tried to exploit the fact that discounters are searching for
new ways to get shoppers to spend more, a perpetual problem in
Germany, where the economy has struggled because people

aren't spending.
Nestle has repackaged its candy brands and cappuccino flavors
into mixed assortments to meet demand from the retailers for
bigger packs. Consumer-goods companies are also coming up
with less expensive varieties of some of their main brands to
compete with store-brand items.
Wal-Mart Chief Executive Lee Scott warned that the stores it
purchased in Germany "are difficult stores.... It is clearly a very
challenging market for us that we have not figured out."
Behind Rivals
Still, Wal-Mart has fallen behind some of its rivals in expanding
globally. After it completes the sales of its German and South
Korean operations later this year, it will operate in just 11
countries outside the U.S., compared with 29 for Carrefour and
30 for Metro, the world's third-largest retailer by sales.
In addition, Wal-Mart is beginning to face aggressive German-
style discounting on its home turf. Aldi Einkauf GmbH, a
German retailer, has opened more than 700 stores in the U.S.,
and Eden Prairie, Minn.-based SuperValu Inc. SVU -0.40%
now has more than 1,200 small, no-frills Save-A-Lot stores in
the U.S.
After Wal-Mart acquired two small, struggling German retail
chains eight years ago, it ran up against several problems. It
found itself being underpriced by local retailers called hard
discounters, such as Aldi. German shoppers flock to these
stores, which sell a limited selection -- often 850 to 1,000
items, compared with 100,000 at Wal-Mart -- and stock mainly
their own store brands.
Some 80% of German consumers are about 20 minutes from an
Aldi, according to Nestle's research. The hard discounters
account for about 40% of the German retail market, compared
with Wal-Mart's share of less than 2%, analysts say.
German shoppers are accustomed to buying merchandise strictly
based on price, German retail consultants say. They are willing
to buy laundry detergent at one store and then go to another to

get a better price on paper towels. That behavior is called
"basket splitting." It is the antithesis of what American
shoppers like: one-stop shopping. A big plank of Wal-Mart's
strategy in the U.S. and elsewhere is getting shoppers to turn to
it for an increasingly wide array of goods.
Wal-Mart has said it made other mistakes as well. The two
retailers it purchased were headquartered in different cities. It
chose one city for the merged headquarters, prompting many
executives from the other retailer to quit rather than relocate.
Its German unit has had four presidents in eight years. It ran up
against strong unions, as well as laws against selling goods at
below cost, which made it difficult to lure shoppers with so-
called loss leaders. Initially, Germany's stringent operating laws
required it to shutter stores by 6 p.m. on weekdays and 4 p.m.
on Saturdays, although those restrictions eased a bit in recent
years.
While there is probably some validity to all of these
explanations, three additional cross-cultural idiosyncrasies have
been identified as determining factors.
One issue was the chanting. Walmart employees are required to
start their shifts by engaging in group chants and stretching
exercises, a practice intended to build morale and instill loyalty.
Fiendish as it sounds, Walmart employees are required to stand
in formation and chant, "WALMART! WALMART!
WALMART!" while performing synchronized group
calisthenics.
Unfortunately, this form of corporate boosterism didn't go over
particularly well with the Germans. Maybe they found it
embarrassing or silly; maybe they found it too regimented. Or
maybe they found this oddly aggressive, mindless and exuberant
exercise in group-think too reminiscent of other rallies....like
one that occurred in Nuremberg several decades earlier.
Another issue was the smiling. Walmart requires its checkout
people to flash smiles at customers after bagging their
purchases. Plastic bags, plastic junk, plastic smiles. But because
the German people don't usually smile at total strangers, the

spectacle of Walmart employees grinning like jackasses not
only didn't impress consumers, it unnerved them.
The third was the "ethics problem." Back in 1997, Walmart not
only required employees to spy on fellow workers (and report
any misconduct), but prohibited sexual intimacy among its
employees. Apparently, while the folks running the Bentonville,
Arkansas-based company had no problem with screwing the
environment, they couldn't abide employees doing it to each
other (alas, a German court struck down Walmart's "ethics
code" in 2005).
Whatever the specific reasons, the German market is now
verboten to Walmart. Clearly, the failed experiment was a
severe blow to the company's pocketbook and pride. And while
no one can predict where a company as aggressive and
acquisitive as Walmart will turn up next, presumably, they will
pick up the slack by opening a store in Libya.
Sources:
http://www.businessweek.com/stories/2006-07-28/wal-marts-
german-retreatbusinessweek-business-news-stock-market-and-
financial-advice
http://www.huffingtonpost.com/david-macaray/why-did-
walmart-leave-ger_b_940542.html
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a
kz4Hk7vnYTQ
http://www.forbes.com/2006/07/28/walmart-germany-metro-
cx_po_0728walmart.html
http://www.independent.co.uk/news/business/news/mighty-
walmart-admits-defeat-in-germany-409706.html
http://www.dw.de/worlds-biggest-retailer-wal-mart-closes-up-
shop-in-germany/a-2112746-1
http://online.wsj.com/news/articles/SB115407238850420246
http://www.atlantic-
times.com/archive_detail.php?recordID=615

Byron Bay Cookie Company: A Local Brand Goes Global
A Case Study produced for the Bord Bia Brand Forum 2012
© Simon Bradley Weekandoo Consulting 2012. The author is
grateful to Gordon Slater, Chairman Byron Bay
Cookie Company and Mark Perrin, Managing Director Byron
Bay Cookie Company Europe with whom he worked
in preparing this case study for purposes of the Bord Bia Brand
Forum, 2012. This case study was developed
solely as the basis for class discussion. Cases are not intended
to serve as endorsement, recordation of fact,
sources of primary data, or illustrations of effective or
ineffective management. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet,
or transmitted in any form or by any means –
electronic mechanical, photocopying, recording or otherwise –
without express written permission of the author.
For Gordon Slater, Chairman and owner of the Byron Bay
Cookie
Company, the period of sustained
growth since 2006 was transforming
his business. Described by Etihad
Airlines in its in-flight magazine as one
of Australia’s iconic brands, the high-
inclusion gourmet cookie business
had successfully built a reputation
for quality and flavour combined
with its heritage. Originating in one
of Australia’s most desirable beach
communities and heartland of

organic farming, Byron Bay, 750 km
north of Sydney; sales had grown
nationally then internationally via
café chains, independents and retail
channels.
Moving from a pure exporting model in 2008, Byron Bay
Cookie Company had invested in a
joint venture, manufacturing under
license in the UK for its European
customers. More recently in 2011,
it had begun test-marketing retail-
oriented franchising agreements,
Byron Bay Bakehouse, in its
domestic Australian market and had
opened a sales office in Texas, USA
to facilitate market development
in North American markets.
Internationally, competition in the
sector was, however, intense. In the
case of the US, Byron Bay Cookie
Company was entering a market
with many established regional and
national cookie brands and coffee
chains necessitating a strategy
that played to its advantages as a
niche gourmet product. Further, in
the UK recently, several cheaper
and lesser quality ‘me-too’ products
added to the challenges of rising
input costs and price pressures
from buyers in coffee shop chains
looking to improve margins during
the economic downturn since 2008.

With sales in 2012 on target for €11 million from 20 different
country
markets, the company continued to
face issues with managing currency
fluctuations, complicated distribution
structures and pricing pressure from
competitors as well as quality control
in the supply chain and marketing
communications. Additionally there
was the pressing need to increase
automation in the baking process
to support scalable growth and
quality control as international
sales continued to grow. These
circumstances compelled Byron
Bay Cookie Company to seek new
sources of competitive advantage
while facing the conundrum of how
to grow the brand without losing sight
of its origins in the face of tougher
market conditions.
Provenance, Quality and Taste
Byron Bay Cookie Company produced a range of 20 products
across 240 stock keeping units
(SKUs) selling in over 20 countries
globally. It sold about 70% of turnover
through food-service channels with
the remainder destined for retail.
International sales relied on systems
of distributors selling via other
distributors to food-service clients,
supported by Byron Bay Cookie
Company’s own sales and marketing

team. Growing at about 17% per
annum and employing 75 people,
the business was on target to sell
about €15 million worth of goods in
its twentieth anniversary year, 2012.
Founded in 1992 by Maggi Miles and Gary Lines, the Byron
Bay
Cookie Company was literally a
cottage industry start-up. Baked
using a regular kitchen stove, the
partners sold their indulgent cookies
through local restaurants and
cafés, which were enthusiastic to
support local enterprise. Situated on
Australia’s most easterly point, Byron
Bay had a magnetic appeal for being
a laid-back idyllic beach-town for
international tourists, backpackers
and Australian people seeking a
slower pace of life. As such its name
travelled far and wide with a cachet
for being a piece of heaven on earth.
Since inception there was a focus on flavour and ingredients in
Byron Bay Cookie Company’s
cookies, based on high-inclusion
rates and high quality ingredients.
But premium pricing had never been
a problem in the friendly business
atmosphere of the Byron Bay
community, giving latitude to Miles
and Lines to perfect their cookie

recipes. Marketing was primarily
by word of mouth and through
product championship, with resellers
relaying the brand’s story supported
by in-store merchandising.
All visual stimuli underscored the quality message, using
packaging, in-store point of sales
materials and electronic marketing,
especially social media, to
communicate the brand’s values.
In cafés for example, cookies were
stacked in traditional glass jars while
retail packaging for boxed goods
and individually wrapped cookies
was elegantly simple. Additionally
in coordination with café clients,
the marketing department produced
branded materials to support special
promotions and point of sale deals
as required. Later it also began
to place emphasis on processes
and standards in display and
merchandising such as how to fill,
present and maintain the cookie
jars, to ensure the first point of
contact with the customer, whether
in a café in UK, USA or Ireland was
always the same, artisanal high-
quality experience.
Gordon Slater
By 2002, however, the company had reached a point where it
was evident management needed

to bring in other skills to the
business in order for it to develop
its premium positioning in a market
ready proposition nationwide and
beyond. Slater, a local orthopedic
surgeon, was already a fan of the
cookies and believed he could bring
something to the business, offering
to invest in return for equity and a
directorship role. He later purchased
the remainder of the business from
the founders, setting course for
international expansion.
Slater was convinced people the world over would connect
emotionally with the Byron Bay
name once they experienced the
wonderful flavours in the cookie
recipes supported by branding that
captured the original artisan feel of
the brand. One of the first significant
developments was the decision to
begin exporting to the UK, which
along with increased sales and brand
awareness, brought new challenges
in logistics and quality control.
Cookies to Europe
Timing was critical to the success of the UK market entry. The
café market in the UK was just
taking off and it made sense to get
in early. Additionally, the exchange
rate between Australian dollars and
British sterling was running at about

3 to 1, making it economical and
competitive to export the company’s
cookies. Further, close cultural
ties and large volumes of people
travelling to and fro between the
two countries indicated that word
of mouth would help generate and
sustain demand for good quality
products.
Recruiting Mark Perrin as the UK sales manager, the company
began targeting corporate accounts
and independents around the
London area. Within a few short
years Byron Bay Cookie Company
cookies were selling in 500 cafés
throughout central London alone.
This success presented new
priorities for the management team
particularly in operating a reliable
logistics chain that could deliver
cookies to London fresh, within a
matter of days since they were made
by hand in the remote environs of
Byron Bay.
The company continued to experiment with ambient
temperature shipping among other
technologies and increasing product
shelf life beyond 6 weeks while
the UK business grew; yet it soon
became apparent that exporting
was unsustainable under emerging
market conditions. Food miles for
example were increasingly becoming
an issue for local buyers in the

UK. Secondly, currency exchange
rates had negatively impacted the
business’ margins, which were
already reduced through the use of
independent distributors. Inevitably
the situation seemed to provoke the
question as to how much Byron Bay
Cookie Company wanted to stay in
the UK market.
Strategic Developments
Compelled to commit, Slater entered into a joint venture
manufacturing agreement with a
company in Manchester to produce,
under license, cookies according
to his company’s recipes. This
manufacturing facility could then
supply the UK and European
markets, including Ireland and
continental Europe. The decision to
invest in the UK also gave Byron Bay
Cookie Company the opportunity
to streamline costs by maintaining
a direct sales presence. Perrin,
supported by his administrative
team, could deal directly with clients
throughout the UK while working with
distributors in mainland European
markets and Ireland. As such the
move helped reduced its carbon
footprint, distribution costs while
improving margins that allowed

it to better cope with currency
fluctuations between sterling and
the Australian dollar. With the joint
venture, Perrin’s role adapted as
well, managing master distributors
in the UK while developing the
business internationally via sales
activities, food shows like SIAL and
Anuga and relationship building with
new distributors.
In the case of the US, the situation was quite different from the
UK
market, however. It was 2009 and
the UK market was going well when
Slater and his team decided to enter
the US. Due to its enormous size,
intense competition among cookie
brands and resulting cost pressures
for producers, management
decided to establish a sales office
to deal directly with local cafés
and independent businesses as
opposed to larger branded chains,
while outsourcing warehousing to
a third party. This presented Byron
Bay Cookie Company with a niche
opportunity reasoning larger brands
could not tailor their sales and
distribution structures to cater to the
individual needs of locally oriented
businesses.
Focusing on smaller production runs and relationship building,
Byron Bay Cookie Company began

developing a foothold in this niche
as an upmarket boutique cookie,
exclusively available in independent
cafés. With continuing growth in
US sales it was considering a joint
venture manufacturing agreement
and was actively seeking trusted
partners with whom it could work.
Competitive Advantage
Remarking on the distinctly rich tastes and textures, Slater once
explained, “it is the real, fresh flavor
of chocolate and fruit that sets our
products apart as we do not use
preservatives”. Meanwhile, larger
competitors could not match the
quality and taste, constrained as
they were by their own cost and
distribution structures; a situation,
which only further distinguished
Byron Bay Cookie Company
products from other biscuits in the
marketplace.
It remained committed to the philosophy of using top quality
dried fruits, nuts and chocolates
in its mixes which justified the
price premium charged over lesser
quality substitute products. Yet as
cost pressures increased for rare
ingredients such as macadamia nuts
and coffee chain clients sought to
improve retail margins, management
worked to reassert brand value

through relationship building and
point of sale deals. Meanwhile it had
also begun to evaluate new sources
combo deal
Buy any regular
latte and
a Byron Bay Co
okie* for
only: £
*
Cookie shown:
Banoffee Pie
www.byronbaycookies.co.uk
For more information and to download a range of Point Of Sale
material please visit
how to
stack and fill your cafe
cookie jar
1 Carefully place the cookies in the jar, using either the tongs
provided or whilst wearing a pair of disposable gloves. 2To
form three neat columns place one cookie at the back of the jar
then two at the front (slightly overlapping). Continue filling the
jar in a circular fashion until it is full - this should
use exactly 18 cookies (3 packets)
3 Tie a label loosely around the neck of the jar, not around the
handle. Please let us know if you need any replacement tags.

4Always rotate your stock and keep the jar full - no one likes to
buy the last cookie! On a weekly basis you should wash, clean
and dry the jar to ensure that the cookies are kept in
the best conditions.
5 Store your back-up stock away from direct sunlight and heat -
ideally at room temperature (13-22°C). 6Never drop a box of
cookies as they will shatter! Remember to display your point of
sale so everyone knows that you sell the world’s most delicious
cookies!
Please follow these simple steps to make Byron Bay Cookies
work for you...
Go BANANAS
FoR BANoFFEE
PIE FRAPPE
Go BANANAS
FoR BANoFFEE
PIE FRAPPE
Enjoy a
Banoffee p
ie
frappe for
only
£
Made using a Byron Bay Banoffee Pie Cookie!

of competitive advantage through
new product development.
One such area was the company’s success in developing product
lines for the ‘nothing-added’
segment, with particular success
in the gluten-free category. Key
to the company’s success was, in
Perrin’s opinion, attributable to the
fact that gluten-free products were
marketed to all customers rather
than as a specialty product line sold
through health food shop channels
for example.
This allowed Byron Bay Cookie Company effectively
differentiate
its cookies, available in mainstream
cafes and retail outlets, from
other copycat brands entering the
market place competing mainly on
price. Additionally, more recently,
management had begun leveraging
the intellectual property of its
recipes into new consumer oriented
propositions such as its Cookie Mix
and its franchising retail concept
both launched in 2011.
Furthermore, management had also begun a phase of mergers
and acquisitions to beef up its
portfolio. In that respect, it purchased
a number of smaller Australian
brands operating in related food

categories including Luken & May
Biscuits and Falwasser Crispbreads.
Bringing both gourmet food brands
into the fold, management launched
Byron Bay Gourmet Foods.
With a focus on quality and healthiness, these newly
acquired product lines featuring
crackers and crispbreads were
aimed at the higher end specialty
shops such as delis, cafés and food
service sectors. It was hoped these
additions would present cross-
selling opportunities into existing
channels for products from its
enlarged portfolio.
Looking Ahead
With all the developments in the period 2010-2011, the
business was experiencing double-
digit growth, but it was still below the
20% target. While the augmented
portfolio presented new commercial
sales opportunities, it was the move
to exploit the intellectual property
inherent in Byron Bay Cookie
Company’s cookies that seemed
to represent the greatest potential
for longer-term international sales
growth. In addition, the decision
to establish a joint venture
manufacturing arrangement in the
US would begin paying dividends in
the medium-term.

While it was still too early to determine the potential
for the franchising model, it was
evident that the company’s ability
to leverage its intellectual property
into exciting and novel niches such
as gluten free cookies and cookie
dough mix, was paying dividends,
consolidating its brand in the market
place and extending it into credible
new ventures.
These developments seemed well-suited to neutralising the
threat from cheaper and lesser
quality ‘me-too’ brands including
those developed for supermarket
retailers and those competing in
the café space. Yet as the company
continued to grow internationally it
would face challenges in reconciling
the conflicts between the needs for
consistency and Byron Bay Cookie
Company’s reputation as an artisan
brand as well as the need to be
competitive while remaining true to
its quality commitment.
Looking ahead, Slater was adamant the creative energy behind
the
products would remain in Byron Bay,
the heart and soul of the company,
while other elements could easily
be outsourced or simply re-located
as market circumstances required.
To bolster the company’s strategic

position he had implemented
plans to recruit more highly skilled
personnel into the team, including
food technicians, marketing and
sales people that would support
this focus on international growth.
In the meantime he and Mark Perrin
and the newly appointed US sales
manager were due to discuss how
to coordinate sales activities in the
coming year.
Gazing out over the golden crescent of beach nuzzling the
lush forests of Byron Bay, Slater
called his secretary to arrange his
next business trip to the US and UK.
Pondering how much had changed
since he took over the company
in 2002 Gordon Slater wondered
what was the best way to grow his
company and retain that iconic status
for which it had become known?
Key Learnings
Retaining a brand’s artisan appeal when it internationalises
brings
significant changes to operations
and communications management,
presenting risks the brand may lose
touch with its roots. Defining export
and internationalisation strategies
that

Identifying the core value in the brand is critical- it may not
always
be the obvious. For Byron Bay which
has built a reputation on provenance
and heritage, management seem to
have identified the recipes as their
core value, building new businesses
around that intellectual property in
the form of franchises and cookie
dough for example.
Lean organizational models may help keep costs down but there
is a balance to maintain with brand
building activities and the risks of
commoditization by losing control
of the brand story through layers of
distribution.
Balancing push and pull marketing to support a quality and
premium
brand positioning may present
challenges in the absence of direct
relationships with the end customers.
attempts to build those relationships
through 2-for-1 promotions and in-
store merchandising while pushing
premium positioning with its clients,
independent cafes.
Byron Bay Cookie Company’s international success seems to
have benefited from the reputation
of their hometown and their
internationalisation strategy seems
to have followed a classic approach

pursing initial markets that were
culturally similar e.g. UK and Ireland
and therefore possibly easier to enter.
Notes and Take Homes From Byron Bay Cookie Company
Byron Bay Cookie Company: A Local Brand Goes Global
A Case Study produced for the Bord Bia Brand Forum 2012
© Simon Bradley Weekandoo Consulting 2012. The author is
grateful to Gordon Slater, Chairman Byron Bay
Cookie Company and Mark Perrin, Managing Director Byron
Bay Cookie Company Europe with whom he worked
in preparing this case study for purposes of the Bord Bia Brand
Forum, 2012. This case study was developed
solely as the basis for class discussion. Cases are not intended
to serve as endorsement, recordation of fact,
sources of primary data, or illustrations of effective or
ineffective management. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet,
or transmitted in any form or by any means –
electronic mechanical, photocopying, recording or otherwise –
without express written permission of the author.
For Gordon Slater, Chairman and owner of the Byron Bay
Cookie
Company, the period of sustained
growth since 2006 was transforming

his business. Described by Etihad
Airlines in its in-flight magazine as one
of Australia’s iconic brands, the high-
inclusion gourmet cookie business
had successfully built a reputation
for quality and flavour combined
with its heritage. Originating in one
of Australia’s most desirable beach
communities and heartland of
organic farming, Byron Bay, 750 km
north of Sydney; sales had grown
nationally then internationally via
café chains, independents and retail
channels.
Moving from a pure exporting model in 2008, Byron Bay
Cookie Company had invested in a
joint venture, manufacturing under
license in the UK for its European
customers. More recently in 2011,
it had begun test-marketing retail-
oriented franchising agreements,
Byron Bay Bakehouse, in its
domestic Australian market and had
opened a sales office in Texas, USA
to facilitate market development
in North American markets.
Internationally, competition in the
sector was, however, intense. In the
case of the US, Byron Bay Cookie
Company was entering a market
with many established regional and
national cookie brands and coffee
chains necessitating a strategy
that played to its advantages as a

niche gourmet product. Further, in
the UK recently, several cheaper
and lesser quality ‘me-too’ products
added to the challenges of rising
input costs and price pressures
from buyers in coffee shop chains
looking to improve margins during
the economic downturn since 2008.
With sales in 2012 on target for €11 million from 20 different
country
markets, the company continued to
face issues with managing currency
fluctuations, complicated distribution
structures and pricing pressure from
competitors as well as quality control
in the supply chain and marketing
communications. Additionally there
was the pressing need to increase
automation in the baking process
to support scalable growth and
quality control as international
sales continued to grow. These
circumstances compelled Byron
Bay Cookie Company to seek new
sources of competitive advantage
while facing the conundrum of how
to grow the brand without losing sight
of its origins in the face of tougher
market conditions.
Provenance, Quality and Taste
Byron Bay Cookie Company produced a range of 20 products
across 240 stock keeping units

(SKUs) selling in over 20 countries
globally. It sold about 70% of turnover
through food-service channels with
the remainder destined for retail.
International sales relied on systems
of distributors selling via other
distributors to food-service clients,
supported by Byron Bay Cookie
Company’s own sales and marketing
team. Growing at about 17% per
annum and employing 75 people,
the business was on target to sell
about €15 million worth of goods in
its twentieth anniversary year, 2012.
Founded in 1992 by Maggi Miles and Gary Lines, the Byron
Bay
Cookie Company was literally a
cottage industry start-up. Baked
using a regular kitchen stove, the
partners sold their indulgent cookies
through local restaurants and
cafés, which were enthusiastic to
support local enterprise. Situated on
Australia’s most easterly point, Byron
Bay had a magnetic appeal for being
a laid-back idyllic beach-town for
international tourists, backpackers
and Australian people seeking a
slower pace of life. As such its name
travelled far and wide with a cachet
for being a piece of heaven on earth.

Since inception there was a focus on flavour and ingredients in
Byron Bay Cookie Company’s
cookies, based on high-inclusion
rates and high quality ingredients.
But premium pricing had never been
a problem in the friendly business
atmosphere of the Byron Bay
community, giving latitude to Miles
and Lines to perfect their cookie
recipes. Marketing was primarily
by word of mouth and through
product championship, with resellers
relaying the brand’s story supported
by in-store merchandising.
All visual stimuli underscored the quality message, using
packaging, in-store point of sales
materials and electronic marketing,
especially social media, to
communicate the brand’s values.
In cafés for example, cookies were
stacked in traditional glass jars while
retail packaging for boxed goods
and individually wrapped cookies
was elegantly simple. Additionally
in coordination with café clients,
the marketing department produced
branded materials to support special
promotions and point of sale deals
as required. Later it also began
to place emphasis on processes
and standards in display and
merchandising such as how to fill,
present and maintain the cookie
jars, to ensure the first point of

contact with the customer, whether
in a café in UK, USA or Ireland was
always the same, artisanal high-
quality experience.
Gordon Slater
By 2002, however, the company had reached a point where it
was evident management needed
to bring in other skills to the
business in order for it to develop
its premium positioning in a market
ready proposition nationwide and
beyond. Slater, a local orthopedic
surgeon, was already a fan of the
cookies and believed he could bring
something to the business, offering
to invest in return for equity and a
directorship role. He later purchased
the remainder of the business from
the founders, setting course for
international expansion.
Slater was convinced people the world over would connect
emotionally with the Byron Bay
name once they experienced the
wonderful flavours in the cookie
recipes supported by branding that
captured the original artisan feel of
the brand. One of the first significant
developments was the decision to
begin exporting to the UK, which
along with increased sales and brand
awareness, brought new challenges
in logistics and quality control.

Cookies to Europe
Timing was critical to the success of the UK market entry. The
café market in the UK was just
taking off and it made sense to get
in early. Additionally, the exchange
rate between Australian dollars and
British sterling was running at about
3 to 1, making it economical and
competitive to export the company’s
cookies. Further, close cultural
ties and large volumes of people
travelling to and fro between the
two countries indicated that word
of mouth would help generate and
sustain demand for good quality
products.
Recruiting Mark Perrin as the UK sales manager, the company
began targeting corporate accounts
and independents around the
London area. Within a few short
years Byron Bay Cookie Company
cookies were selling in 500 cafés
throughout central London alone.
This success presented new
priorities for the management team
particularly in operating a reliable
logistics chain that could deliver
cookies to London fresh, within a
matter of days since they were made
by hand in the remote environs of
Byron Bay.
The company continued to experiment with ambient

temperature shipping among other
technologies and increasing product
shelf life beyond 6 weeks while
the UK business grew; yet it soon
became apparent that exporting
was unsustainable under emerging
market conditions. Food miles for
example were increasingly becoming
an issue for local buyers in the
UK. Secondly, currency exchange
rates had negatively impacted the
business’ margins, which were
already reduced through the use of
independent distributors. Inevitably
the situation seemed to provoke the
question as to how much Byron Bay
Cookie Company wanted to stay in
the UK market.
Strategic Developments
Compelled to commit, Slater entered into a joint venture
manufacturing agreement with a
company in Manchester to produce,
under license, cookies according
to his company’s recipes. This
manufacturing facility could then
supply the UK and European
markets, including Ireland and
continental Europe. The decision to
invest in the UK also gave Byron Bay
Cookie Company the opportunity
to streamline costs by maintaining

a direct sales presence. Perrin,
supported by his administrative
team, could deal directly with clients
throughout the UK while working with
distributors in mainland European
markets and Ireland. As such the
move helped reduced its carbon
footprint, distribution costs while
improving margins that allowed
it to better cope with currency
fluctuations between sterling and
the Australian dollar. With the joint
venture, Perrin’s role adapted as
well, managing master distributors
in the UK while developing the
business internationally via sales
activities, food shows like SIAL and
Anuga and relationship building with
new distributors.
In the case of the US, the situation was quite different from the
UK
market, however. It was 2009 and
the UK market was going well when
Slater and his team decided to enter
the US. Due to its enormous size,
intense competition among cookie
brands and resulting cost pressures
for producers, management
decided to establish a sales office
to deal directly with local cafés
and independent businesses as
opposed to larger branded chains,
while outsourcing warehousing to
a third party. This presented Byron

Bay Cookie Company with a niche
opportunity reasoning larger brands
could not tailor their sales and
distribution structures to cater to the
individual needs of locally oriented
businesses.
Focusing on smaller production runs and relationship building,
Byron Bay Cookie Company began
developing a foothold in this niche
as an upmarket boutique cookie,
exclusively available in independent
cafés. With continuing growth in
US sales it was considering a joint
venture manufacturing agreement
and was actively seeking trusted
partners with whom it could work.
Competitive Advantage
Remarking on the distinctly rich tastes and textures, Slater once
explained, “it is the real, fresh flavor
of chocolate and fruit that sets our
products apart as we do not use
preservatives”. Meanwhile, larger
competitors could not match the
quality and taste, constrained as
they were by their own cost and
distribution structures; a situation,
which only further distinguished
products from other biscuits in the
marketplace.
It remained committed to the philosophy of using top quality

dried fruits, nuts and chocolates
in its mixes which justified the
price premium charged over lesser
quality substitute products. Yet as
cost pressures increased for rare
ingredients such as macadamia nuts
and coffee chain clients sought to
improve retail margins, management
worked to reassert brand value
through relationship building and
point of sale deals. Meanwhile it had
also begun to evaluate new sources
combo deal
Buy any regular latte and
a Byron Bay Cookie* for
only: £
*Subject to availability. Image shown for illustrational purposes
only. Offer may exclude Byron Bay Gluten-Free Cookies.
Cookie shown:
Banoffee Pie
For more information and to download a range of Point Of Sale
material please visit
how to
stack and fill your cafe
cookie jar
1

Carefully place the cookies in the jar, using e
ither the tongs
provided or whilst wearing a pair of disposa
ble gloves.
2
To form three neat columns place one cookie
at the back of
the jar then two at the front (slightly overlapp
ing). Continue
filling the jar in a circular fashion until it is fu
ll - this should
use exactly 18 cookies (3 packets)
3
Tie a label loosely around the neck of the jar
, not around the
handle. Please let us know if you need any r
eplacement tags.
4
Always rotate your stock and keep the jar fu
ll - no one likes
to buy the last cookie! On a weekly basis yo
u should wash,

clean and dry the jar to ensure that the cook
ies are kept in
the best conditions.
5
Store your back-up stock away from direct su
nlight and
heat - ideally at room temperature (13-22°C)
.
6Never drop a box of
cookies as they will shatter! Remember
to display your point of sale so everyone kno
ws that you
sell the world’s most delicious cookies!
Please follow these simple steps to make Byron Bay Cookies
work for you...
Go BANANAS
FoR BANoFFEE
PIE FRAPPE
Go BANANAS
FoR BANoFFEE
PIE FRAPPE
Enjoy a

Banoffee p
ie
frappe for
only
£
Made using a Byron Bay Banoffee Pie Cookie!
of competitive advantage through
new product development.
One such area was the company’s success in developing product
lines for the ‘nothing-added’
segment, with particular success
in the gluten-free category. Key
to the company’s success was, in
Perrin’s opinion, attributable to the
fact that gluten-free products were
marketed to all customers rather
than as a specialty product line sold
through health food shop channels
for example.
This allowed Byron Bay Cookie Company effectively
differentiate
its cookies, available in mainstream
cafes and retail outlets, from
other copycat brands entering the
market place competing mainly on
price. Additionally, more recently,
management had begun leveraging
the intellectual property of its

recipes into new consumer oriented
propositions such as its Cookie Mix
and its franchising retail concept
both launched in 2011.
Furthermore, management had also begun a phase of mergers
and acquisitions to beef up its
portfolio. In that respect, it purchased
a number of smaller Australian
brands operating in related food
categories including Luken & May
Biscuits and Falwasser Crispbreads.
Bringing both gourmet food brands
into the fold, management launched
Byron Bay Gourmet Foods.
With a focus on quality and healthiness, these newly
acquired product lines featuring
crackers and crispbreads were
aimed at the higher end specialty
shops such as delis, cafés and food
service sectors. It was hoped these
additions would present cross-
selling opportunities into existing
channels for products from its
enlarged portfolio.
Looking Ahead
With all the developments in the period 2010-2011, the
business was experiencing double-
digit growth, but it was still below the
20% target. While the augmented
portfolio presented new commercial
sales opportunities, it was the move
to exploit the intellectual property

inherent in Byron Bay Cookie
Company’s cookies that seemed
to represent the greatest potential
for longer-term international sales
growth. In addition, the decision
to establish a joint venture
manufacturing arrangement in the
US would begin paying dividends in
the medium-term.
While it was still too early to determine the potential
for the franchising model, it was
evident that the company’s ability
to leverage its intellectual property
into exciting and novel niches such
as gluten free cookies and cookie
dough mix, was paying dividends,
consolidating its brand in the market
place and extending it into credible
new ventures.
These developments seemed well-suited to neutralising the
threat from cheaper and lesser
quality ‘me-too’ brands including
those developed for supermarket
retailers and those competing in
the café space. Yet as the company
continued to grow internationally it
would face challenges in reconciling
the conflicts between the needs for
consistency and Byron Bay Cookie
Company’s reputation as an artisan
brand as well as the need to be
competitive while remaining true to

its quality commitment.
Looking ahead, Slater was adamant the creative energy behind
the
products would remain in Byron Bay,
the heart and soul of the company,
while other elements could easily
be outsourced or simply re-located
as market circumstances required.
To bolster the company’s strategic
position he had implemented
plans to recruit more highly skilled
personnel into the team, including
food technicians, marketing and
sales people that would support
this focus on international growth.
In the meantime he and Mark Perrin
and the newly appointed US sales
manager were due to discuss how
to coordinate sales activities in the
coming year.
Gazing out over the golden crescent of beach nuzzling the
lush forests of Byron Bay, Slater
called his secretary to arrange his
next business trip to the US and UK.
Pondering how much had changed
since he took over the company
in 2002 Gordon Slater wondered
what was the best way to grow his
company and retain that iconic status
for which it had become known?
Key Learnings

Retaining a brand’s artisan appeal when it internationalises
brings
significant changes to operations
and communications management,
presenting risks the brand may lose
touch with its roots. Defining export
and internationalisation strategies
that
Identifying the core value in the brand is critical- it may not
always
be the obvious. For Byron Bay which
has built a reputation on provenance
and heritage, management seem to
have identified the recipes as their
core value, building new businesses
around that intellectual property in
the form of franchises and cookie
dough for example.
Lean organizational models may help keep costs down but there
is a balance to maintain with brand
building activities and the risks of
commoditization by losing control
of the brand story through layers of
distribution.
Balancing push and pull marketing to support a quality and
premium
brand positioning may present
challenges in the absence of direct
relationships with the end customers.
attempts to build those relationships

through 2-for-1 promotions and in-
store merchandising while pushing
premium positioning with its clients,
independent cafes.
Byron Bay Cookie Company’s international success seems to
have benefited from the reputation
of their hometown and their
internationalisation strategy seems
to have followed a classic approach
pursing initial markets that were
culturally similar e.g. UK and Ireland
and therefore possibly easier to enter.
Notes and Take Homes From Byron Bay Cookie Company

Why Walmart Failed in Germany - Lessons from the Retail Giant's Disastrous 9-Year Foray

Recommended

Recommended

More Related Content

Similar to Why Walmart Failed in Germany - Lessons from the Retail Giant's Disastrous 9-Year Foray

Similar to Why Walmart Failed in Germany - Lessons from the Retail Giant's Disastrous 9-Year Foray (13)

More from christalgrieg

More from christalgrieg (20)

Recently uploaded

Recently uploaded (20)

Why Walmart Failed in Germany - Lessons from the Retail Giant's Disastrous 9-Year Foray