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U.S. Chains Eschew International Development

U.S. Chains Eschew International Development

A quick look at the list of the world's 25 largest food retailers reveals one obvious disparity between U.S.-based operators and many of their overseas counterparts.

With the exception of Wal-Mart and Costco, the “Countries of Operation” column in the list is pretty limited for most American chains.

Cincinnati-based Kroger Co., the sixth-largest food retailer in the world, and Minneapolis-based Supervalu, at No. 17, both operate retail stores only within the United States. No. 16 Safeway, based in Pleasanton, Calif., operates directly only in the U.S. and Canada, and through a joint venture in Mexico. And Minneapolis-based Target Corp., No. 10 on the list, generated all $63.5 billion of its 2009 sales domestically.

In a recent earnings conference call, Target executives explained their international strategy, in response to an analyst's question: “There are hundreds and hundreds and hundreds of trade areas in the U.S. — maybe even more than 1,000 — that are suitable for a Target store that don't have one yet,” said Douglas Scovanner, Target's executive vice president and chief financial officer.

Gregg Steinhafel, Target's chief executive officer, noted that international expansion was very far down on the company's “to-do” list, behind expanding its P-fresh remodeling program, and that growth outside the U.S. wouldn't occur for the next several years at least: “We're doing the research, and at some point in time, we feel that we will be international,” he said.

It's something analysts like to ask about because it creates a new set of growth metrics for the companies they follow — new calculations on the cost side as well as on the revenue side.

For the huge multinational retailers like Carrefour, Tesco and Metro Group, global expansion has long been a path to sales growth beyond the confines of their saturated European markets (read SN's report here).

The questions is, how long will traditional U.S. supermarket operators like Kroger, Safeway and Supervalu continue to adhere to the low-risk Target model? Will there ever be Kroger in India?

Kroger executives have repeatedly stated their preference for acquisitions that are congruent to their current operating areas — and the company certainly has plenty of room to grow in the U.S., with little or no presence in several major U.S. markets, including the Northeast, Florida and Chicago. Safeway also has room to expand domestically, and doesn't appear interested in reaching beyond its operations in Canada and Mexico.

Supervalu, bogged down with the integration challenges of its disparate network of domestic chains, doesn't appear a likely candidate for international expansion either — but it is intriguing that CEO Craig Herkert has an international background at Wal-Mart.

Conservative investment strategies are a hallmark of the supermarket industry in the U.S. It would take a complete shift in mindset for a company like Kroger to buy a chain like Lenta, the Russian hypermarket operator that Wal-Mart has reportedly discussed acquiring.

It doesn't seem likely to happen anytime soon — but it's certainly fun to think about nonetheless.

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