Global PL Trends

It will come as no surprise that the Top 30 grocery retailers in 2006 were led once again by Wal-Mart, whose retail banner sales came in at USD376 billion. Following close behind the Bentonville giant were the usual suspects of Carrefour, Metro, Tesco and newcomer Seven & I.

The Top 30 collectively generated retail banner sales of USD1.9 trillion, or 32.2% of the global market as a whole, representing a slight increase in market share over the 32% in 2005. In terms of growth, the emergence of rapidly growing markets such as China and India meant that global retail market grew at a faster pace than the Top 30 (7.8% versus 6.9%, in USD terms). The strong overall market growth was clearly fuelled by solid economic development in most parts of the world, including the highly developed regions of the US, the European Union and Japan, as well as the emerging markets of Central & Eastern Europe, South East Asia and Latin America.

Big Can Get Bigger

Wal-Mart is proof that even the big can get bigger, with sales greater than the GDP of some countries (for example Indonesia, Taiwan, Poland or Norway). The unrelenting American retailer ended 2006 with a 6.3% share of the global market, the equivalent of its four largest competitors put together. In the US, which accounts for 78% of Wal-Mart’s business, the Supercenter format was again the main driver of growth, with 276 stores opening across the country. Internationally, Wal-Mart ended the year with 2,757 Supercenter, almost double the three years prior.

Trailing Wal-Mart in second place is France’s Carrefour. Sales growth from Carrefour’s continued operations, based on constant exchange rates, came in at 6.4%, in line with the 5-10% sales growth target the company had set itself for 2006. With operations in more than 30 countries (including franchises), Carrefour is the most international retailer in the world.

In 2006, strong operations in markets such as China, Greece, Poland, Spain, Colombia, Argentina and Indonesia helped to offset struggling business in countries such as Italy and Taiwan. The French giant withdrew from the South Korean market after facing fierce competition from local players and failing to adapt its stores to the needs of South Korean consumers.

Metro Back on Growth Trajectory

In number three position is Germany’s Metro, which experienced its strongest year of growth since 1998. Roughly half of Metro’s sales are derived from non-grocery items, while its cash & carry operation is the third largest in the world and is set to benefit from the vast numbers of independent traders in emerging markets around the world for many years to come. In 2006, the group’s Real hypermarkets strengthened their position through acquisition in Germany (Wal-Mart’s 85 hypermarkets) and Central & Eastern Europe (Casino’s Géant chain in Poland), in addition to organic openings and market entry into Romania.

Following very close behind Metro is Britain’s Tesco. Despite resurging competition in the UK and difficult conditions in some foreign markets, Tesco managed to grow overall sales by an impressive 11.2% (in local currency) in 2006. In times when large-scale mergers and new hypermarket openings tend to be blocked by the UK’s competition authorities, it was mainly non-foods (instore and online) and continued convenience store expansion through its Tesco Express format that helped to grow sales in its home market. Meanwhile, the British conglomerate boosted its positioning in Central Europe and Malaysia through acquisitions, and an asset swap with Carrefour resulted in the withdrawal of Tesco from Taiwan in exchange for stores in the Czech Republic.

However, not all markets were such a success: political uncertainty in Thailand and weakening economic conditions in Hungary put a slight damper on Tesco’s international portfolio.

Seven & I has ousted Ahold from fifth place thanks to acquisitions in Japan, as well as the continued rapid expansion of its 7-Eleven convenience stores across the world. Sales in 2006 were boosted by the integration of the Millennium Retailing department store business in Japan, which generated revenue of around USD8.5 billion during the year. In addition, Seven&I upped its shareholding in its York–Benimaru superstore affiliate. Although the 7-Eleven operation struggled somewhat in Japan, it continued to expand rapidly across the globe in 2006. In fact, there were 31,625 7-Eleven stores around the world by the end of 2006, an increase of around 2,000 on the previous year.

The Big Winners...

In addition to Seven & I, impressive growth was seen by other retailers in the 2006 Top 30 list. The US drugstores CVS and Walgreens, for example, grew at 18.4% and 12.8% respectively over the past year. While a large proportion of the drugstores’ growth is down to organic openings, several acquisitions have boosted their positioning. CVS picked up about 700 Osco stores from the Albertsons dissolve in 2006, and about 1,200 Eckerd outlets the year before. Walgreens, meanwhile, made several smaller acquisitions including the 76-store Happy Harry’s chain.

Costco, the third fastest growing Top 30 retailer, has primarily grown through an extraordinarily productive store base, with like-for likes consistently in double digits. Over the past year, Costco also added around 347,000 square metres of retail space, primarily in its home market. Similarly, organic expansion has fuelled growth for Target, which opened 113 new stores during the year. Impressive growth was also recorded by Germany’s Schwarz Group, leaving no room for doubt that discount retailing is here to stay. Over the past five years, Lidl has doubled the number of markets it trades in, ending 2006 with operations in 22 European countries.

In terms of new entrants, the 2006 Top 30 featured just one new name: SuperValu. The American retailer added around 1,100 stores to its network when it acquired Albertsons’ premier retail locations, jumping from number 48 to number 25 in 2006. With a diverse portfolio stretching from coast to coast, combined with its roots in supply chain, SuperValu should prove to be a stronger competitor going forward.

...and the Losers

While some retailers managed to improve their positioning in the ranking, others have experienced much slower–and for some, even negative–growth. In most cases, the decline was due either to market exits/store disposals, or a result of slow market growth.

One such market to experience sluggish growth is Germany, home to three of the slowest growing Top 30 retailers in 2006. In fact, Germany’s Tengelmann and Edeka were the only Top 30 retailers to report a decline in year-on-year sales growth. Tengelmann’s market exits in recent years (Canada, China and Slovakia), a struggling US business, and slow organic growth have all been contributing factors.

Meanwhile, market leader Edeka is in the process of dropping virtually all of its foreign activities, which gives it humble growth prospects at best. This is due to the highly competitive, discount oriented German retail sector.

Opportunities Abroad

With Wal-Mart nearly doubling its international store count over the past few years, it is clear that the largest retailers continue to discover opportunities outside their home markets. The Top 5 have established their position in part due to early exploitation of overseas markets, albeit with a few setbacks along the way. The general scale of their businesses means that they are able to initially operate at a loss in a new market with the longer-term intention of being successful.

From Mexico to Malaysia, the Top 5 players are collectively present in 67 countries around the globe. While internationalisation has always been a priority for the world’s leading retailers, it is the liberalisation of lucrative markets such as China and India that has attracted their attention in recent years.

The situation in China is, of course, a direct result of a change in regulation in 2004 that allowed foreign retailers to own 100% equity in companies. It didn’t take long after the regulatory change for the multinational retailers to begin queuing up for entry, especially given the benefits such as lower tax rates and preferential land.

Other key growth regions for the Top 5 include the remainder of the BRIC markets: Brazil, Russia and India. Brazil, for example, is a rapidly consolidating market whose Top 3 players are all foreign multinationals.

In Russia, bureaucracy and corruption has resulted in just one of the Top 5 entering the market. Metro, which used its cash & carry format to enter its Real and Media Markt banners.

Last but certainly not least, a largely fragmented and local Indian retail market is on the agenda for the large multinationals. At present, foreign ownership of a local retailer is usually not permitted, although the government does allow entry by a foreign company into the sector under special circumstances. As a cash & carry operator, Metro was able to bypass this regulation and became the first large multinational to trade in India when it opened its first store in 2003.

Now, several years later, Wal-Mart has entered into a joint venture with Bharti Enterprises with the first store expected to open in 2008. Meanwhile, Carrefour and Tesco have openly stated their intentions to enter the market and have begun searching for a local partner.

Information in this article is based on a recent report by Planet Retail, “Top 30 ranking by Planet Retail reveals changes at the top: Top 30 grocery retailers worldwide, 2006.” For more information on this report, visit www.planetretail.net.