For growing European brands, the appeal of crossing the Atlantic is an obviously alluring one. The sheer market potential in a country with a population of 320 million and GDP per capita that comes in about 20% ahead of the UK, combined with a shared history and culture, a common language and political and economic stability borne out of the UK and USA’s ‘special relationship’, offer great promise. And yet, you don’t have to look far to find a litany of casualties that have tried, and failed, to expand in the US.
Earlier this month, in the delightful Colony Grill at Corbin & King’s first hotel, The Beaumont, The MBS Group hosted a select group of CEOs, chairmen and investors that have experience of building businesses in the US – or are looking to make the jump – to discuss the potential opportunities and obstacles over dinner.
Throughout the course of the evening, the topic turned to four key themes:
People: Leaders and teams
If expansion into any new market is going to succeed, it requires the right kind of leadership. The critical question is whether it’s best to bring in local knowledge through external hires or maintain brand continuity by making use of existing talent within the business. On the night, the consensus view was that finding the right blend of skills ultimately trumps all else, but there was a mild preference for ensuring sufficient market knowledge, at least in the early stages.
As well as getting the management team in the US right, it’s important to consider the impact US expansion will have on the core leadership team. Without enough attention from the centre, US expansion is unlikely to reach its potential. On the other hand, the sheer scale of the US means that it can swallow up an almost-infinite amount of capital and management time – risking companies being too distracted from their core operations. Maintaining the right balance at the most senior level – underpinned by completely dependable operational leadership in existing markets – is a key but tricky goal that is more easily achieved if the motivation for US expansion is clear and justified.
While America’s scale is a large part of its appeal, it also presents expanding businesses with operational challenges. Guests from a retail and consumer products background noted the difficulty of distribution in a country that spans 3.8 million square miles – particularly those with a short shelf life. Many choose to turn to local partners to handle their logistics. Meanwhile, the US retail market is generally more fragmented than European businesses are used to, often meaning non-retail brands have to invest significantly more effort to get their products on the shelves. One brand representative recalled the challenges they faced maintaining the frequency of new product introductions versus the US standard of range reviews twice a year.
Understanding the US consumer
Much as the US and UK are closely aligned in many ways, they are also two nations divided by a common language, as George Bernard Shaw once famously remarked. Some of the most notable failures in the US did not invest enough time or energy in properly understanding consumer trends and behaviour before setting their stall. Successful exports have taken the time to understand the nuances of their new customers – as well as carefully picking the right corner to start out in. It seems that the mantra ‘start small and be successful; start big and fail’ is often the right approach to take in the US.
However, there is now a significant opportunity to build initial brand awareness – and sales – at scale online. A number of British brands have successfully built up hype and interest through ecommerce and social media channels, even with a very limited physical presence in the US, creating a strong platform for future growth.
Conclusion: Is it possible?
History has shown, and our participants agreed, that the possibility and potential for European businesses to expand to the US successfully is there – but that it requires a fresh and unassuming mindset. Many issues that were noted throughout the session were followed with comments about having made too many assumptions about the US market and taking too simplistic approach to a complex market. Some of the most successful examples of European brands expanding in the US have found a way to leverage the expertise of local partners, whether they pick up the slack operationally or more developed partnerships with private equity backers or other corporate partnerships with experts in the US consumer market.