5 Market Expansion Fails & What Your Start-up Can Learn From Them

Market expansion for a business can be an exciting time! It allows you to open up your audiences, diversify your products or services, tap into international investments, multiply revenue and transform into a global brand. While many brands have proven that with the proper research, analysis, team and strategy, you can successfully build an international presence, many more have not succeeded.  

Sometimes it could be due to the failure to understand the new market culture, lack of competition analysis, erroneous distribution channels, un-relatable brand messaging, or it’s just plain ol’ timing. Without adequate precautions and preparation to mitigate potential pitfalls, brands could lose millions of dollars in time, effort and money.

Here are 5 (in)famous market expansion fails that start-ups can learn from:

American coffee giant Starbucks couldn’t compete with the Aussie cafe culture

When Starbucks decided to expand into the Australian market in 2000, it had a pretty good handle on how things were done in the U.S. Still; it didn’t anticipate that the local movement would dominate its new market. 

Starbucks tried to force its own culture and coffee onto Australians while Australia already had its own coffee culture, which was huge. Australian cafe culture was rooted in friends meeting up, having a good time, and personal relationships with baristas and coffee shop owners. In contrast, Starbucks had a more commodified concept of coffee. The Australian people already had trusted baristas serving their favourite coffees like Flat Whites or Australian Macchiatos at a better price, so they had no incentive to switch.

Starbucks made headlines in 2008 when it announced closing 70%, or 61 of its stores, in Australia. The coffee giant had entered the market with an aggressive expansion plan but had to close those stores because it lost $143 million per year. It became clear that the chain’s ambitious expansion plan was not working out as expected.

What can start-ups learn from Starbucks’ experience in Australia?

It’s a tough pill to swallow, but most people agree that Starbucks’ failed expansion into Australia was a classic case of failing to understand its customers. Don’t assume your customers will be the same as your home market. Also, don’t underestimate the power of local culture and customs.

Fun fact: In contrast, Gloria Jean’s Coffee, another American Coffee chain, has been quite successful in Australia. They entered the market in 1996 with a franchise model. Two Australians, Peter Irwine and Nabi Saleh, took on the franchise and customized the menu from the beginning to ensure it would fit in seamlessly. Today, Starbucks still has 39 locations in Brisbane, Melbourne, Gold Coast and Sydney, mainly catering to tourists.

UK’s Tesco was unable to get Americans to shop for groceries daily

When Tesco was already the 3rd largest retailer in the world market, the U.K.-based grocery chain thought its Fresh & Easy brand had a shot in the United States. After all, Americans were just starting to warm up to buying local and organic food, and Tesco had plenty of experience in the United Kingdom and abroad. 

But when Fresh & Easy opened its doors on the west coast in 2007, it did so just as American consumers began to feel the effects of recessionary times. In the first 5 months, they opened 60 new stores; by the end of 2007, they had 150 Fresh & Easy stores across California. In less than 2 years, they reported a $200 million loss.

Americans were used to shopping in supermarkets for affordable, ready-to-eat TV Dinners that they preferred to stock up on. In contrast, Fresh & Easy was a small grocery store that required Americans to buy highly-priced fresh ingredients to cook with to make the same dinner. 

Furthermore, California, Arizona and Nevada were among the worst-hit states by unemployment during the recession. In 2009, the brand even garnered some flack for not recognizing a union and only hiring part-time employees. By 2011, it was clear that Americans weren’t interested. Tesco announced it was closing 200 stores—after spending nearly US$1.8 billion.

What can start-ups learn from Tesco’s experience in the US?

Tesco failed to understand how American consumers shopped for groceries and the nuance of where this consumer behaviour stemmed from. In North America, grocery stores are not walkable distances or readily accessible to every neighbourhood. It is considered time-consuming and impractical to drive to grocery stores for daily ingredients. Instead of fitting into the American consumer behaviour of grocery shopping, Tesco believed Americans would change their pattern for high-quality, fresh ingredients. We obviously cannot ignore the terrible timing as well.

Fun Fact: In recent years, Tesco has expanded to and exited many other international markets like Japan, South Korea, Turkey, Thailand and Malaysia. They are now focused on their European market leadership in countries like the Czech Republic, Hungary and Slovakia, where they see greener pastures and returns.

Walmart entered Germany with a cultural blind spot

Walmart is one of the biggest brands in the world, but when it entered the German market in 1997, its failed market research resulted in a US$1 billion loss.

Walmart purchased existing store locations from Wertkauf and Interspar to set up their chain in the country. These locations were not accessible by public transport and needed customers to drive to them. Germany has excellent public transportation systems, and driving to a store did not fit their usual pattern. What made it worse was that, although Walmart was known worldwide for discounted shopping, German customers already enjoyed low prices from their existing stores. Germany also has very high living standards, so consumers are typically willing to pay more for higher quality. 

A rather amusing example of a cultural blind spot linked to Walmart’s failure is how German customers would find it very uncomfortable that Walmart employees would smile excessively and greet them. Also, Walmart’s decision to sell packaged meat did not go down well because Germans loved shopping for fresh meat. After almost 9 years of many strategic miscalculations, in 2006, Walmart left Germany.

What can start-ups learn from Walmart’s experience in Germany?

The lesson here is that you can’t take market research lightly. You must take the time to understand your market and adapt your business model to it before entering a market. Experts are constantly reminding businesses to not only listen but talk to customers. In-depth interviews and focus groups could have helped Walmart alter their strategy even while it faltered through the market for 9 years. Unfortunately, it was already a little too late. 

Fun Fact: Düsseldorf-based Metro bought out the 85 Walmart stores for a lower value and used it to expand their 550 supermarkets and hypermarkets chain in Germany.

American retailer Target misses the bullseye in Canada

Target, a US-based retail chain, decided it wanted to expand into Canada in 2011, its first international expansion. It was a good idea at the time, considering their success in the US. Target decided to launch by purchasing 133 existing Zellers store locations across Canada.  It was meant to be an intelligent way to cut costs, but ironically, turning out to be a very costly decision for their business.

As it happens, the Zellers locations needed Canadian customers to drive long distances in the cold to shop. The neighbourhoods they were located in were far past their popularity expiration date, so there was little organic footfall. 

To top it off, customers who did visit were being welcomed by empty shelves because of Target’s supply chain issues. Target was facing technological glitches that created logistical nightmares. Target would have inventory in their distribution centres but not be able to get it to their stores on time because the locations were far off and difficult to reach.

What can start-ups learn from Target’s experience in Canada?

Target’s failure is often blamed on the ambitious timeline. They spent over $4.4 billion and claimed they would achieve profitability in 2 years. They opened 124 stores and 3 distribution centres in 10 months and put themselves under immense financial pressure. Considering this was their first international expansion, they could have allowed themselves more time to learn and adjust. Also, a simple inquiry into why Zellers was leaving those locations could have changed their trajectory entirely.

Fun Fact: There are still no Targets in Canada!

UK’s Hailo said goodbye to the US market in 2 years

When expanding into international markets, the competition in the new market is a huge influencer of the success or failure of the expansion. That’s what happened with Hailo, a London-based taxi booking app with 2.5 Million users in the UK at the time, but closed down its operations in five U.S. cities after less than two years of entry.

Hailo neglected Uber and Lyft at the start because they believed their models were different. Hailo tied up with the existing fleet of yellow taxis, while Uber made any car a taxi. But in a very short period, they learnt that even their US$77 Million investment from A-list investors could not help them establish a market in the US. The company faced operational issues with drivers, technical issues with payment, and price wars with local competition.

Drivers they partnered with in London were used to using mobile phones, but in New York, they discovered that taxi drivers didn’t rely on smartphones for directions. Drivers in New York had no issue finding fares, unlike the yellow cabs in London. In 2 years, they could only onboard a small number of 40,000 yellow cab drivers in New York. 

In 2014, Hailo announced that they could not justify the “astronomical” marketing costs and cutthroat competition, proceeding to exit the market as quickly as they came in.

What can start-ups learn from Hailo’s experience in the US?

Hailo teaches us that two markets rarely have the same strategy and execution fit. In Hailo’s case, it can be said that even the problem they were solving in the UK was a non-issue in the US. Yellow cabs were very easily getting fares in their respective cities in the US and did not see the value in their service. In actuality, their razor focus on yellow cabs left the premium market to their competitors, like Uber and Lyft, to dominate. 

Fun Fact: Hailo was active in Britain, Ireland and Spain in 2017 when they agreed to a merger with ride-sharing giant MyTaxi; together, they built a conglomerate across Austria, Germany, Italy, Poland, Portugal and Sweden too. Eventually, in 2019, the app was rebranded to FREE NOW, available in nine countries and over 100 cities across Europe.

Ensure your global expansion is a victory

Failure is a part of the business. Start-ups have a lot to gain from learning from the mistakes of others. You can save time and money by avoiding common pitfalls in other companies’ market expansion attempts. Some of the common threads we saw were:

• Failing to research the market properly before launching their product
• Not understanding customer behaviour, motivations & cultural nuances
• Replicating execution strategies in different countries
• Creating ambitious timelines and investing too much too early
• Neglecting competition

At BHive, our venture managers come from around the globe and from various backgrounds. They are always looking for new, innovative and disruptive start-ups that could compete on a global stage. Want to see if your start-up is ready to take the next step? Book a call today!