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Expanding Into the German Market

Expanding Into the German Market

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Expanding Into the German Market

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  1. Expanding Into the German Market A Report for the Executive Board of Walgreens

  2. Development Planning Consultants • Iyad Elaydi • Jonathan Emens • Philip DeGroat • Jose Esparza • Adama Coulibaly

  3. Points of Focus • Profile of Germany • Overview of the Drugstore Industry • The Walgreens Company • Why Germany? • Why Franchise? • Business Plan • Conclusion/Recommendation

  4. Profile of Germany

  5. Europe’s largest economy and most populous nation The Cold War created two German States Unification occurred in 1990 Western Germany is more technologically advanced Considerable efforts have been made to bring productivity and wages up to Western standards Joined with other EU countries to introduce a common trading currency, the Euro Fifth largest economy in the world Profile of Germany - Background

  6. Profile of Germany - At a Glance • Area - 221,842 square miles (slightly smaller than Montana) • Population - 82,424,609 (2004 est.) • Growth Rate - .02% • GDP per Capita - $27,600 (2003 est.) • Unemployment - 10.5% (2003 est.) • Inflation Rate - 1.1%

  7. Profile of Germany - Production • Leading industries - iron, steel, coal, cement, chemicals, machinery, automobiles, machine tools, electronics, textiles • Agriculture - potatoes, wheat, barley, sugar, beets, fruit, cabbage

  8. German Economy • Currently, the German economy is going through a period of development. The traditional dominance of domestic banking groups is decreasing as large foreign investment management groups enter the German investment market • Growth rates have been slow over the past several years mainly due to weaker exports • Recent high oil prices and a strong euro have made it difficult to emerge from period of stagnation • The government is starting long-needed structural reforms designed to revitalize the country's economy • Corporate restructuring and growing capital markets are setting the foundations that could allow Germany to meet the long-term economic challenges

  9. BASF BAYER AG BOSCH BLAUPUNKT BMW DHL GRUNDIG HENKEL LUFTHANSA SAP SIEMENS AG THYSSENKRUPP AG VOLKSWAGEN Profile of Germany - Major Companies

  10. Overview of the Drugstore Industry

  11. Industry Profile - Drugstores in Germany (as of 2002)

  12. Competition • The competitive landscape • Schlecker is the biggest competitor but lacks quality of service • The main reason people shop at Schlecker is because they have a large number of stores • Large number of “mom & pop” owned stores

  13. Drugstores in Germany • Germany is the world’s third biggest drug market behind U.S. and Japan • Profit Margin - Drugstores make 18 cents of every Euro spent on medicine • German population is aging, causing greater demand for medicine • Laws currently prohibit importing drugs via mail or internet

  14. High product quality and high service quality Price is not necessarily the competing factor High premium on customer satisfaction Competition is based on excellence of product and service Cooperation and coordination with government is very strong Litigation is not as prevalent as in the US Characteristics of German Businesses

  15. The Walgreens Company

  16. In 1893 Charles R. Walgreen, Sr. arrived in Chicago, IL curiously interested in the drugstore industry More than 1,500 drugstores competed for business at that time in Chicago Walgreen worked for one of these and followed several others Walgreen constantly found three things missing in Chicago drugstores: Customer service Convenience Value In 1901, the first Walgreen’s was founded Today, 425 stores are opening each year with 7,000 planned by 2010 Company History

  17. The Walgreens Company • Our Strategy • Enter new markets • “Dense up” existing markets • Relocate • Remodel • Invest heavily in high tech innovations which drive service up and costs down

  18. Why Have We Been Successful? • Nobody Waits at Walgreens • In Your Aisle, Gets a Smile • It’s No Problem • The Phone’s for YOU! • Company’s Coming • See You Soon • Surprise!

  19. Changes in U.S. Drugstore Industry • International expansion is attractive because: • Over-the-counter switches (Claritin) • Higher co-pays • Canadian mail order and Internet filling • Uncertainty about Medicare reimbursement • Intense competition in the US

  20. Walgreens’ Strengths • Store growth is strongest in industry • Listed among Fortune’s most admired corporations for 11th straight year • 1st in food and drugstores • 29 consecutive years of record sales! • Paid a dividend every quarter since 1933

  21. Why Germany?

  22. Growing trend: In 1992 there was 370 franchisors with 16,430 franchisees in Germany. In 2002 there was 658 franchisors with 35,800 franchisees Franchising might be one of the best options to enter the German market and compete with Schlecker The German drugstore sector is undergoing a major comprehensive structural change that can benefit our company Highly advanced logistics (transportation, distribution, etc.) Ease of starting new businesses Government programs to help stimulate foreign investment Germany is the world’s third biggest drug market behind U.S. and Japan Provides a base from which to expand into the rest of Europe Why Germany ?

  23. Why Franchise?

  24. Lower Risk Established Product Line Name Recognition Management Assistance Start-up Assistance Marketing Assistance Proven System of Operation Group Purchasing Power Proven Business Plan Financing Assistance Operating Efficiency Experience of Franchisor Franchising - Attractive for the Investor

  25. Faster Market Penetration Reduced Staff Cost Savings Broader Advertising Obtain Royalties Increase Knowledge Cultural Familiarity Management Effectiveness Franchising - Attractive for the Parent

  26. Benefits of franchising • Ability to enter a new market without large outlays of resources • Homogenous goods can be offered in a large quantity under the same brand name • Franchising is a more modern marketing system than the traditional distribution system • Large number of distributors are using a common name, symbol, or trademark

  27. It is estimated that about 85% of U.S franchise businesses in Europe, originated in England or Germany This is mainly due to cultural similarities between those countries but also because of positive American culture perception U.S market trends have spread throughout the world even more so in such countries as Germany, England, Japan etc. Approximately 300 of about 2000 U.S companies have international franchises according to the IFA Building of brand outside the U.S is also a reason for franchising It is estimated that about 80% of new business fail whereas only 20% of new franchised business fail Franchising Trends

  28. Challenges in Franchising • Operational structure isn’t always easy to define • Restricts the ability of a firm to take full advantage of market potential • Can result in conflict between franchisee and franchisor • Reduced control over the quality of service

  29. Costs • Payment of franchise fee • On-going royalty fees • Conformity to standard operating procedures • Inability to make changes readily • Underfinanced, inexperienced, weak franchisor • Duration of relationship • Dependent on franchisor's success

  30. Business Plan

  31. Product Definition • We will market a drugstore that provides high quality products and service in a friendly atmosphere while offering the benefit of convenience through extended hours, short lines, and large product selection

  32. Our Customers • Elderly who need medical supplies • Customers who like the convenience of having a broad selection of food, household, and medical products in the same place • Individuals who have busy schedules (Our stores have extended hours, some 24/7) • Consumers who appreciate better service

  33. Partner with German manufactures to supply products and/or produce products under the Walgreens name Build distribution center in Frankfurt to supply all other stores Open two stores initially in Frankfurt and Munich as models Once the stores are settled and distribution channels are running, expand corporate owned stores to 20 in largest markets Begin offering franchise stores to highly qualified investors Provide training to managers and employees Business Plan

  34. Open two stores Establish distribution center Open additional stores Begin franchising Schedule • 3 year schedule highlights • Goal • Increase our number of corporately owned stores and franchised locations

  35. Direct marketing Direct mailing of flyers, sales ads etc. to our target market Provide free first aid supplies to schools and other businesses to promote name recognition Third-party marketing Co-marketing arrangements with other companies and local associations Media Newspapers Radio Television Billboards Publications Magazines Medical Journals Sponsorships Sports teams Marketing

  36. Distribution • Distribution strategy of a centralized warehouse providing products to all stores • Channels of distribution • Capitalize on existing infrastructure • Build new channels where needed

  37. Conclusions • Germany’s aging population will provide a large customer base for drugstores • Franchising methodology has continued to take hold in Germany • Walgreens model of drugstore, household goods, and convenience store products under one roof has had success in the US • Only a few competitors in this industry. One large dominant force to contend with

  38. Conclusions • Solid infrastructure, centralized in Europe, state of the art transportation, and advanced logistics are all favorable characteristics of Germany • Ease of inventory distribution throughout Germany and the rest of Europe • While the economy has been stalled over the last few years, new government actions could help turn things around • German laws favor new businesses. Multiple programs to assist owners in getting started

  39. Recommendation The consultants unanimously agree to proceed with the implementation of the previously illustrated 3-year business plan