The second annual overview of international grocery retail deals from analysts M+M Planet Retail shows that while there were few major strategic deals (Morrisons' takeover of Safeway in the UK was not completed until earlier this year), a number of opportunistic companies took advantage of rivals' businesses' weaknesses and retreats to expand their operations in 2003.
The decision by both Ahold and Carrefour to reduce their operations in the Latin American market, for example, allowed a number of local players to significantly strengthen their business there, a reversal of the recent trend which has seen European retail giants snap up chains in a number of developing markets.
But the tough economic conditions also meant that the total retail sales value of M&A deals during the year, as well as the number of stores involved, declined compared to 2002.
Despite the lack of any major deal, the more stable economies in Europe and North America meant that these two regions accounted for the majority of the M&A activity during the year with 37 per cent each. The aggressive expansion of Japanese retailers and the continued development of the Chinese market - where both local players and international groups continue to grow their businesses at a rapid rate - meant that Asia accounted for 19 per cent of the total number of deals in 2003, the study showed.
In fact, Japanese businesses accounted for half of the 10 biggest transactions in 2003 - a reflection of the weakness of the country's retail sector and the collapse and rationalisation of several major players, according to M+M Planet Retail's Bryan Roberts, who compiled the report.
"The ongoing rationalisation in the still stagnant Japanese retail sector continues to generate the largest corporate deals in Asia, with stronger players such as Ito-Yokado and AEON consolidating their leading positions by taking weaker players under their wing," he said. Ito-Yokado took a 4.9 per cent stake in the York-Benimaru Company, while AEON bought both Mycal and a 15 per cent stake in Kasumi, adding nearly €7.7 billion in retail sales to its business as a result.
Britain's leading supermarket group Tesco also sought to take advantage of the current market conditions in Japan there through its takeover of the C Two-Network there.
In China, the consolidation of the market was prompted by rather different reasons. The imminent relaxation of rules on foreign investment (which had previously obliged international retailers such as Wal-Mart and Carrefour to take local partners rather than go it alone) is expected to see an upswing in the level of interest from foreign groups, and a number of local supermarket groups joined forces in 2003 to try and combat this expected threat.
The state-owned Lianhua Supermarket, Hualian Supermarket, Shanghai No. 1 Department Store, and Shanghai Material Trading Centre groups combined to form the Bailian Group, with combined retail sales of €3.2 billion and some 2,160 outlets - a move which will allow the various groups to present a more stalwart defence as international players seek to invade the Chinese market.
Carrefour and Wal-Mart have been at the forefront of this expansion into China, but the level of M&A activity in their respective markets of Europe and North America has been relatively low in comparison to previous year, reflecting the high level of concentration which already exists.
In Europe, for example, the biggest single deal in 2003 was Rewe's acquisition of the Swiss group Bon appétit, which added €2.1 billion in retail sales, and two other German groups also feature in the top five - Tengelmann took a 40 per cent stake in Spain's Plus Supermercados, while the Kaufland/Schwarz group took over its compatriot Famila/Bremke & Hoerster.
Such a high level of activity from German retailers at a time when the domestic market is severely depressed is testament to their desire to spread their activities beyond their national borders, and German firms are likely to be at the forefront of an expected increase in activity in central and eastern Europe this year.
M+M Planet Retail said that there had already been a number of fairly significant deals in Poland, Slovenia, Hungary, Lithuania, Russia and Croatia this year, and that this trend was likely to continue throughout the year, especially with eight countries from that region joining the EU next month. Discount stores - the speciality of German retail groups - are likely to play a major role in developing the retail sectors in these countries post-accession, and Lidl, Tengelmann, Rewe and Metro are all already established there.
The other two largest deals in Europe were in Spain (where the La Caixa bank invested in a 20 per cent stake in Caprabo) and Greece (where ELETA merged with Aspis) and both these countries could see further developments this year. Ahold is still looking for buyers for its Spanish supermarket businesses, while the Greek market remains relatively underinvested, with Delhaize and Carrefour the only notable foreign investors there.
As for North America, the year "went without seeing a high-level mainstream grocery retail acquisition, thanks largely to Safeway's decision to hang on to its problematic Chicago-based Dominick's hypermarket chain," according to Roberts.
"Instead, 2003 was a year of busy asset-swapping in the convenience and fuel marketing segment, with the deal of the year being Canada's Couche-Tard swooping on the Circle K unit put up for sale by ConocoPhillips, one of many international oil majors beating a retreat from retail activities to refocus on more lucrative upstream activities."
Ahold's withdrawal from Latin America was the main driver of corporate activity there, with most of its businesses going to local rather than international players - a reflection of the continuing economic problems there which have affected European retailers' results in particular over the last few years.
Ahold sold three of its units there in 2003, with its Chilean operation Santa Isabel going to Cencosud, the Peruvian branch going to a consortium, and its Paraguayan business unit to Grupo AJ Vierci. Cencosud has also this year added the Argentine unit Disco.
Although conditions remain tough there, there has been a distinct improvement in Latin American sales over the last year, with the leading European players such as Carrefour finally beginning to see growth in euro terms as a result of strong underlying sales growth as they adapt their businesses to local market conditions - and in Carrefour's case the decision to sell off a number of underperforming units.
This improvement could potentially see a return to foreign investment in the region - Ahold's Brazilian units have attracted interest from both Wal-Mart and Casino, for example.