Wal-Mart continues to reign supreme amongst the world’s leading grocery retailers. Its sales last year grew by 12 per cent to $244.5 billion (€208.7bn), enabling it to maintain its unassailable lead where it stands 3.5 times as big as the second largest retailer, Carrefour.
This is just one of the findings of a recent report from retail industry analysts M+M Planet Retail which also shows that the world’s leading grocery retailers continue to tighten their grip on the global market. Last year, the top 30 grocers accounted for 33 per cent of global sales, compared with 29 per cent in 1999.
This means that it is also very difficult for new players to break into the top 30 list, and M+M Planet Retail pointed out that there were in fact no new entrants or exits last year. This does not mean that there were no changes, however. The fastest movers in terms of sales growth were Tesco (16 per cent), Aldi (16 per cent) and US drugstore retailer Walgreens (16 per cent).
These companies represent a diverse mix of businesses – Tesco with its increasingly international convenience store to hypermarket operation, Aldi with its tightly defined international network of hard discounters and Walgreens with its US based drugstore chain. But the worst performing companies were easier to categorise – largely domestic players who had over expanded and are now having to rationalise and slim down their operations - Kmart (-15 per cent on last year), Albertsons (-6 per cent), Safeway USA (-6 per cent), and Daiei (-4 per cent).
However, the exception to this group is international retailer Ahold which has seen its net sales shrink 1 per cent, reflecting currency fluctuations and the restatement of its accounts which have been adjusted to incorporate sales from joint ventures on an equity basis. Ito-Yokado is also expected to see a slight fall in net sales reflecting store closures in Japan.
International growth slowing?
Despite the high levels of uncertainty that have prevailed across the world over the last 18 months, the internationalisation process is still relatively buoyant. Last year the top 30 retailers increased their international sphere of influence with entry into 19 new countries, largely through joint ventures and acquisitions, with just five countries entered into directly with wholly owned operations. However, activity this year looks to be more muted with just 12 new countries tabled for possible entry.
On average, the top 30 retailers generate around 30 per cent of sales from outside their home market, a roughly similar level to last year. The key exceptions are Ahold (85 per cent), Delhaize (83 per cent) and Tengelmann (56 per cent), which all have substantial US operations.
But few companies can match Wal-Mart for year-on-year performances. Last year saw the giant US group make its long awaited entry into Japan, where it is in the process of gradually acquiring Seiyu, the country’s sixth largest supermarket chain, which also has small operations in Singapore and Vietnam. The acquisition shows a markedly different and more cautious approach to its other foreign competitors in the country, namely Carrefour and Costco. These two companies have adopted an organic growth route and have both encountered problems with adapting to the local market and opening new stores.
Asia is still seen as a land of opportunity for the leading retail groups, despite such problems. December 2002 saw Germany’s Metro open its first cash & carry outlet in Japan, in a joint venture with Marubeni Corporation, with a further three outlets planned this year. It is expected that Marubeni will provide further support to Metro as it expands across Asia; Metro’s entry into Vietnam, India and Ukraine this year is indicative of its spearheading strategy to be an early entrant in fragmented, developing markets where it services the needs of independent operators, the report claims.
As part of its Asian expansion, Tesco entered the Malaysian market last year with the opening of three hypermarkets in conjunction with joint venture partner Sime Darby Berhad. Although early days, Tesco has ambitious plans for the country with the long-term objective of opening 15-20 stores.
During the course of this year, it is highly possible that it will acquire Turkish retailer Kipa, although to date it has only signed a conditional contract to buy certain classes of equity share capital if a number of material conditions are met. Given Turkey’s recent economic and political turmoil this move represents a long-term strategic move that is likely to take some time to pay dividends. Nevertheless, by entering now, Tesco will be well placed to take advantage of any economic upturn in the future.
The company has also stated that it is continuing to research China and Japan, although China is very much a longer-term target and it is likely that market entry will be in conjunction with a local player.
French retailer Casino has been one of the most active retailers on the international front over the last year. In November 2001, it acquired a 33.35 per cent stake Vindémia, the retail subsidiary of Groupe Bourbon, which operates 26 stores on the islands of Reunion, Madagascar, Mayotte and Mauritius, as well as in Vietnam. Backed by its new partner’s operating and financial support, Bourbon intends to consolidate its position in retailing and pursue an aggressive development policy.
For Casino, the stake both enhances its international presence and provides an opportunity to benefit from Bourbon’s specific know-how in the tropics, where it has no direct operations. The stores will continue to operate under their current (Cora) banners. Casino also has an option to buy the majority of shares (70 per cent) in the period starting from April 2004 to September 2006.
In July 2002, after much debate, Casino finally acquired a 38.6 per cent stake in failing Dutch retailer Laurus, with an option for control by 2008. Subsequent to the acquisition, Laurus’ operations in Spain and Belgium were sold, leaving Casino with Laurus’ key assets in the Netherlands – 700 supermarkets with sales of $3.7 billion.
Following the dissolution of its buying alliance with Cora, Opéra, in September last year, Casino also announced the creation of a 50:50 service joint venture with Auchan. The new body, International Retail and Trade Services (IRTS), is designed to enable the two retailers to jointly negotiate better terms with manufacturers giving them the opportunity to compete more effectively with larger groups such as Wal-Mart and Carrefour.
In 2001, Casino opened an office in Russia with a view to developing a retail base via acquisitions. The first deals were expected to take place in 2003, although none have yet materialised.
But two significant companies are pulling back from their international operations, according to the M+M Planet Retail report. As has been well documented, Ahold is in the process of offloading under-performing businesses in South America and Asia and there is the possibility that it could sell its networks in Central Europe (Czech Republic, Poland and Slovakia) and in Portugal (where it operates in a joint venture with Jeronimo Martins Retail) next year, enabling it to focus on more lucrative operations in the US, Netherlands, northern Europe and the Baltics and Central America.
Meanwhile, in an effort to resuscitate itself, financially-troubled Japanese retailer Daiei has announced that it will sell its overseas retail operations (in China and the US) as soon as appropriate buyers are identified. This move will enable it to concentrate solely on its Japanese operations.
M&A activity on the rise
Inevitably, the continued expansion of the top 30 retailers has come at the expense of a number of smaller players, which have been swallowed up by their larger rivals. M+M Planet Retail identified 57 different deals, involving over 7,000 stores, last year, ranging from single store acquisitions, such as Aldi buying two Plus outlets from Tengelmann in Spain, to Carrefour buying a further 20 per cent stake in its Spanish subsidiary Centros Comerciales Carrefour.
Wal-Mart’s acquisition of Supermercados Amigo reinforced its position as the leading retailer in Puerto Rico, while Casino’s acquisition of Sé, from Jeronimo Martins, secured its lead in the Brazilian grocery market. Tesco’s acquisition of the Hit hypermarket operation in Poland took it to fourth position in the Polish market, while Ifil/Auchan’s acquisition of a 41 per cent stake in Rinascente will give it greater management control over La Rinascente and will result in a delisting of the company from the stock market.
High levels of activity are likely to continue this year with the sale of Ahold’s assets in Latin America and Asia, Safeway and possibly Somerfield in the UK, and a number of deals in the US such as A&P disposals. But these are more reflective of defensive strategies as retailers seek to offload poor performing businesses, rather than aggressive growth, the report suggests.