Growth on the world's food retailing stage can only come to those adventurous enough to delve into emerging markets such as India and Russia.
According to Natalie Berg, grocery research manager for PlanetRetail, London, most international expansion remains limited due to market saturation by the multinational retailers.
She noted that aside from India and Russia, expansion for the leading global grocers in 2008 will be mainly fill-in focused. In Europe, for example, Schwarz Group is present in all Western and Central European markets, leaving little room for new market entries in that region. “Schwarz Group is also moving up the rankings [Top 25 Worldwide Food Retailers] as it builds up its store network throughout Europe. The previous few years were all about entering the markets. The focus now is on fill-in. In the past year alone, the retailer added over 650 new outlets in Europe,” Berg stated.
This trend is reflected in this year's Top 25 Worldwide Food Retailers, compiled for SN by PlanetRetail, which provides research and analysis on global retailers (see Page 24).
The top five volume retailers — Wal-Mart Stores, Carrefour, Tesco, Metro Group and Kroger — have held onto their rankings for the last three years. Ahold at one time floated in and out of the top five largest-volume food retailers, but plunged to No. 18 due mainly to selling off its U.S. Foodservice operation, which accounted for over one-third of sales. “The retailer has spent the past few years selling off unprofitable assets in order to focus on its core food retail business and its most lucrative markets — mainly in the U.S., Netherlands and Scandinavia,” said Berg.
Ten retailers moved up several positions on the list, and 10 held their positions from last year. Ahold took the most dramatic plunge. Costco, Sainsbury and Tengelmann also dropped one or two positions.
New on this year's list is U.K.-based Morrisons, which replaced Delhaize at No. 25. Both retailers vie to get onto the Top 25, said Berg, who pointed out that Belgium-based Delhaize Group sold its Di network (its Belgian beauty care business), and that 70% of its business comes from the U.S. market, where a weak dollar has impacted the company's top line.
Meanwhile, Morrisons has increased both its transaction size and customer count while facing stiff competition from Tesco, Wal-Mart's Asda and J. Sainsbury in the U.K. “Morrisons' recovery plan calls for an image overhaul. They want to be seen as more upmarket while still delivering value,” said Berg. New discount offers, an advertising campaign and rebranding initiative also resulted in sales lifts in 2007.
In all, the Top 25 generated volume of $1.5 trillion in sales last year, up 11.4% from the prior year.
The leading retailers spent 2007 researching emerging markets and looking for suitable local partners in countries such as India, where Foreign Direct Investment regulations require such alliances. The most significant international market entry was Tesco launching Fresh & Easy Neighborhood Market in the U.S. Although there are only 61 stores at present, Tesco plans to grow its U.S. store base to the size of its current U.K. operations — which would make it the second-largest retailer in the U.S., only lagging Wal-Mart, noted Berg.
The entry of Fresh & Easy in the U.S. is also significant considering the effect it has had on American food retailers, which have expanded their prepared foods and private labels, and launched their own version of smaller-format stores to combat the Tesco threat. Safeway launched its The Market format last month, and Wal-Mart Stores will follow with Marketside stores in Phoenix later this year.
In other international market developments, Wal-Mart opened it first store with Bharti in India earlier this year. Tesco is in negotiations to find a local player in that country as well. Carrefour expects to open its first stores in India by the second quarter of 2009.
In Russia, Carrefour plans to open its first stores by the end of this year. Tesco also has been reported to be studying the market. Meanwhile, Costco is expected to step up its international expansion. It plans to introduce its warehouse club to Australia next year, and reports say it is eyeing Ireland as a new market.
Berg said the weak economy presents a challenge for all food retailers. “Rising food prices especially will have a direct impact on the grocers' bottom lines, and the main difficulty will be working with suppliers to absorb the costs and remain price competitive rather than pass costs on to consumers.”
Berg assessed the prospects of the top four global food retailers as follows:
Internationally, Wal-Mart saw strong growth in Canada, Mexico and the U.K. In fact, Wal-Mart International, when considered on its own, is now the world's fifth largest retailer.
Carrefour — Sales were boosted by acquisitions in Brazil, Poland and Spain. The retailer also completed the conversion of all supermarkets in Spain, Poland, Turkey and Argentina to Carrefour Express, further cementing its status as a multi-format/single-brand player. In the future, its growth will mainly come from emerging markets such as Brazil, Colombia, China, Indonesia, Spain, Russia and India.
Tesco — Faced a difficult home market despite increases in customer counts and spend per visit. However, it enjoyed a strong performance from online sales (U.K., South Korea and Ireland), which includes the nonfood site Tesco Direct (launched in September 2006). Chinese performance was strong, accounting for more than half of all Asian sales. Tesco also achieved decent results from European operations, including Hungary, Poland and Ireland. Going forward, all eyes are on Tesco's business outside the U.K., which makes up 26% of sales. Tesco wants to increase this percentage to more than 50% within the next decade.
Metro — The Cash & Carry division accounted for roughly 50% of net sales. Sales at the Real hypermarket division were strong, largely reflecting the integration of the former Wal-Mart Germany outlets and the Casino-owned Geant stores in Poland. It had strong growth from the nonfood banner Media Markt and Saturn, the former witnessing a fast-paced expansion in Russia and market entry in Turkey.
Dollar sales growth of the Top 25 Global Food Retailers in 2007.
SN GLOBAL LIST METHODOLOGY
SN's Top 25 Worldwide Food Retailers list (see Page 24) was produced in cooperation with PlanetRetail, a provider of online retail intelligence and research. The list is ranked by net sales of companies tracked by PlanetRetail. Net sales are for the 2007 calendar year (or nearest fiscal period) and are consolidated without VAT or other turnover-related taxes. All exchange rates are calculated full-year averages. While PlanetRetail also tracks retailers such as Sears, Target, Walgreens and CVS on its Top 30 Grocery Retailers Worldwide list, those retailers currently do not meet SN's criteria of generating at least a third of their sales from food. They were therefore eliminated from the SN list. As a provider of online global retail intelligence, PlanetRetail offers up-to-the-minute industry news, analysis and digital media to decision-makers within the retail, manufacturing, finance, IT, entertainment and consulting sectors. With offices in London, Frankfurt and Tokyo, PlanetRetail's coverage of the retail industry includes more than 4,500 retail operations worldwide. For more information, visit www.planetretail.net.