Upmarket UK retailer Waitrose has signed a licensing deal that will see its namesake stores open overseas for the first time. The move is a sign of the company’s more ambitious approach under the stewardship of managing director Mark Price. Ben Cooper examines the move and compares its approach with the international growth strategies of other UK retailers.
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As UK retail giant Tesco seeks to conquer the US, this month has seen another British retailer unveil international expansion plans, with Waitrose announcing a licensing deal in the United Arab Emirates.
Waitrose, part of the John Lewis Partnership, has signed a licensing agreement with Dubai-based retailer Spinneys. The deal will see selected Spinneys-operated stores in Dubai carrying the Waitrose fascia. The first Waitrose-branded store, a 25,000 sq ft supermarket in a Dubai suburb, will open in April. Two more will open in July and October. The plan is for 20 further Spinneys stores to be converted to the Waitrose format over the next two years.
Given the difference in scale between Waitrose and Tesco, it is not surprising that it has chosen a very different method of international expansion. While Tesco has set up substantial infrastructure to support a wholly-owned retail operation, Waitrose is partnering with a local company, which requires less investment and financial risk, though also yields less profit if and when things go well.
“Licensing is a way of gaining some extra sales and brand exposure without having to commit too great an investment,” says Stewart Samuel, analyst with retail research group IGD. “It’s useful for getting into places that you have no intention of taking your own operation into.”
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By GlobalDataIn this instance, it is being used as a retailer’s first international foray. While Waitrose has identified international expansion as a key part of plans to double turnover to GBP8bn (US$15.9m) over the next decade, Samuel believes the retailer remains “some years away from seriously planning international expansion itself”.
However, while licensing or franchising involves less financial outlay, it is not without its risks, as Samuel observes. “While a franchise deal is lower risk in terms of financial investment, the risk is made in securing the right partner.”
Owned by Albwardly Investments, a private company with interests in wholesale food, insurance and real estate, Spinneys has 40 supermarkets in the UAE and Oman. According to Waitrose, the company’s ethos is in tune with its own philosophy, and is characterised by “high levels of customer service, store standards and innovative, quality product ranges”.
Spinneys has been selling Waitrose-branded goods in Dubai, Abu Dhabi and Oman since 2004, and commercial director Richard Hodgson describes the retailer as the “obvious choice” as its first licensing partner. “Their exacting standards and strong senior management team makes them the ideal partner for Waitrose,” Hodgson says.
It has also been pointed out that the tie-up itself should bring the two companies’ philosophies closer together, with the Spinneys retail offer likely to be enhanced by added input from the UK retailer. “Spinneys would have been delighted to secure the reliable supply and credible ranging Waitrose offers as well as the company’s expertise in other areas,” says Samuel.
The comparison, or perhaps more importantly the contrast with Tesco’s international expansion is interesting, but from a marketing standpoint a more useful comparison might be with Marks & Spencer (M&S).
Like Waitrose, M&S could be described as a quintessentially British retail brand. Moreover, having retrenched from international expansion in the 1990s during difficult times, the retailer is now opening stores overseas again, though significantly it focuses virtually exclusively on non-food retailing in its international operations. M&S too has chosen to take the licensing/franchising route to international expansion, suggesting further common ground with Waitrose.
“M&S is rolling out internationally again now, on a wholly franchise basis – so this could be seen to parallel what Waitrose are doing,” says Samuel, adding that M&S’s earlier retreat from the international arena had mostly been due to the major problems its was experiencing in the UK.
However, the fact that M&S is essentially not selling food internationally – something it had done in earlier times – is significant, particularly given the similarities between the Waitrose and M&S food offer in the UK and their customers. Waitrose will supply ambient, frozen and chilled products to Spinneys, but produce, meat, dairy and other shorter shelf-life products will be sourced locally.
Notwithstanding the important distinction that M&S is not selling food overseas, the M&S international profile may provide some clues as to where Waitrose may look next.
M&S currently has international franchises in 30 countries, interestingly including Bahrain, Oman, UAE, Saudi Arabia, Kuwait and Qatar. Other overseas countries where M&S stores are trading include the Philippines, Singapore, South Korea, India, Malaysia, Taiwan, Thailand and Indonesia, and in Europe, Spain, Bulgaria, Poland, Croatia, Russia, Czech Republic, Turkey, Greece and Cyprus.
Current exports of Waitrose-branded goods provide an indication of markets Waitrose may be considering for further licensing deals, and there are some notable overlaps with the M&S international profile. For instance, Waitrose exports to Bahrain, Saudi Arabia, Qatar and Kuwait, as well as to Singapore, India, Malaysia, Thailand, Japan, and Indonesia. European export markets include Greece, Spain and Cyprus, while it also sells to a number of Caribbean markets and Bermuda.
The importance of ‘expat’ consumers to the international sales of Waitrose-branded goods is significant. This was a critical element in the move into the UAE and will certainly influence future international strategy.
According to some media reports, Waitrose is considering similar licensing moves in India and the US sometime within the coming 12 months. Waitrose’s ambitious managing director Mark Price, who has led something of a transformation at the company in recent years and consigned its previously conservative image to history, was also quoted as having “aspirations” towards China, though in another interview Hodgson ruled out a move into China “for the time being”.
For Samuel, the strength of current export sales is likely to be the firmest indicator of where the retailer might go next. “If they appear anywhere else it is likely to be comparably wealthy international entrepots, although existing deals will have provided Waitrose with information in regards of the strength and appeal of the brand outside of the UK,” he says. “It is likely to target those markets where there is the greatest potential and strong demand for its products.”
However, Waitrose’s first priority will be to see the Spinneys deal succeed. The retailer’s international plans may not depend entirely on the progress of the UAE venture but demonstrable success will make further overseas expansion in the near term far more likely, and possibly give the retailer valuable best-practice insight to replicate in other markets.
