Internationalisation of retailing has its own dynamics. Once retailers' eyes fall on virgin territory abroad with business potential, many of them flock together in search of the best parts of that market. Then consolidation sets in with some retailers cashing in and others going bankrupt. By then though, the retail pioneers are already on the lookout to restart this process ...
Elsevier Food International, Vol. 5, Number 4, November 2002
Pascal Kuipers

Good assets do not come cheap. That must have been the idea of UK retailer Tesco after it acquired German retailer Dohle's HIT hypermarkets in Poland in early July 2002. Tesco paid some £395 million (€ 619 million/US$ 627 million) for 13 hypermarkets, two additional stores under construction and a number of sites suitable for hypermarket development. The price included a net debt of £85 million (€ 133 million/US$ 135 million). "For Tesco the deal is very promising as far as own-label assortments and non-food ranges are concerned," says Jurgen Elfers, head of Commerzbank's European retail research group, who adds that the vast majority of the stores are situated in excellent retail locations. Elfers estimates that Dahle originally invested an average of € 9 million per location. "Now we estimate that Tesco may have paid as much as € 22 million per store (real estate investment only)," he says. "Clearly this shows that in food retailing it may be very advantageous to build up a retail network based on first-mover advantage. The Dahle family bought the vast majority of locations in the early days of the 'new Poland', in almost all cases between 1993 and 1998."

The Balkans, Russia and China
Pioneering pays off when it is done in the right way. However, where are the regions today in which the early bird can gain advantage? These regions are scarce with retailing having become an increasingly international business in recent decades. The emerging markets of Central and Eastern Europe have been interesting for ambitious retailers to set up shop but for the near future consolidation will be the main feature in these markets, as the Dohle-Tesco example underlines. However, to the south the Balkan countries are still mostly virgin territory when it comes to modern retail structures. The Balkans are eyed by several West European retailers - such as French retailers Intermarche and Leclerc and German retailers Metro AG, Schwarz and Rewe - for expansion. This is a region where privately owned independent players can still gain a market share. However, local retailers in emerging retail regions are also keen on expansion. Examples are Slovenian retailer Mercator and Turkish retailer Migros Turk that are both keen to increase their cross-border operations.
Russia has always been a difficult market. Nevertheless, an increasing number of West European retailers are starting a business there. In late August, French retailer Auchan opened its first 16,000-square metre store in Moscow, making this Russia's largest hypermarket.
M + M Planet Retail refers to Patrick Longuet, Auchan's general director for Russia, who estimates that it will take five or six stores and some ten years to make Auchan profitable in Russia. Longuet sees great potential since Moscow has just 70 square metres of retail space per 1,000 inhabitants, compared with 300 square metres in Warsaw and 400 square metres in Paris.
With its huge potential, mainland China is also a region where foreign retailers have been actively engaged in setting up a modern distribution network (see also the Country Profile in this edition of EFI). The Chinese government supports the development of multiple chains as these are believed to be the main drivers to modernisation of the retail sector, which will subsequenlly boost the country's economy in the years to come. Global players like Carrefour and Wal-Mart and the ambitious Japanese retailer Aeon are the three largest operators of modern large surface outlets in China. Carrefour currently has 26 hypermarkets and also wants to set up a network of its Dia discount stores in China. Wal-Mart operates 16 Supercenters, three Sam's Club warehouse clubs and one neighbourhood market. Aeon already has 13 superstores in China and aims for 50 stores in the longer term.

Vietnam and India
Last year Hans-Joachim Korber, CEO of German retailer Metro AG, repeatedly mentioned Vietnam and India as countries for future expansion of his company's cash & carry format. In his view cash & carry is the best-equipped format to cater to the myriad of small and independent retailers that dominate emerging markets, thereby increasing the level of what is for sale for consumers. At a later stage, this market entry strategy should offer Metro AG the opportunity to efficiently penetrate the market with more sophisticated retail formats such as supermarkets and hyper markets.
It is still early days to see if this strategy pays off, because only in April 2002 the first Metro store was opened in the Vietnamese capital Ho Chi Minh City. In Vietnam Metro joined the French retail pioneer Groupe Bourbon, who was the first to set up a western style hyperrnarket under the Cora banner. Via its retail operation Vindernia, Groupe Bourbon franchises the Cora hypermarket concept from the French retailer of the same name. Vindernia operates a total of 15 Score supermarkets and 11 hypermarkets under the Cora and Score banners. Groupe Bourbon wants to push its retail pioneering efforts forward - it is said to be keen on setting up shop in China - and receives the needed financial backing from French retailer Casino who acquired a 33.35 per cent share in Vindernia in November 2001. Casino acknowledged the potential of Vindernia's pioneering activities and decided to acquire the stake in Vindernia, despite the fact that Vindernia (Groupe Bourbon) is the main franchisee of the French retailer Cora in Asia Pacific. However, relations between Casino and Cora in Europe have been particularly bad, leading to the dissolution of their joint purchasing alliance Opera.
India offers a market potential of over one billion inhabitants. Despite the fact that 35 per cent still lives below the poverty line, per capita GDP is US$ 2,200. A huge population concentrated in large cities and mainly catered by markets and traditional corner shops, offers the symbiosis with cash & carry which is highly appreciated by Metro AG's CEO Hans-Joachim Korber. Indeed, Indian expansion is on his radar screen, but so far no Metro cash & carry has been opened in India. A Metro spokesperson says that the opening of Metro's first cash & carry in India is planned for the first half of 2003. Because the Indian government allows foreign investors to acquire a maximum of 40 per cent in local companies, a local partner is needed. Like Metro AG, South African retailer Shoprite is searching such a partner. Last August, M + M Planet Retail quoted Shop rite's CEO and Managing Director Whitey Basson saying that expansion into India was to be expected for the medium term. When all this comes true, both Metro and Shoprite will join the Hong Kong based retailer Dairy Farm, which is the real retail pioneer still present in India. Dairy Farm's Indian connections date back to 1996 when it helped its current local partner RPG Group to develop
a supermarket chain called Foodworld, which is now India's largest chain with 71 stores and an estimated sales of US$ 65 million. Foodworld Supermarkets is one of Dairy Farm's three joint ventures with Spencer & Co., a subsidiary of RPG Group. According to M + M Planet Retail, Dairy Farm owns 49 per cent of Foodworld Supermarkets and 50 per cent of the other two joint ventures. One is named RPG Guardian and concerns drugstores (16 Health & Glow drugstores with estimated sales of US$ 2 million). Great Wholesale Club is the name of the other joint venture aimed at developing a network of Giant hypermarkets. The first Giant (5,000 square metres, 20,000 SKUs, sales of some US$ 16 million) was opened in July 2001 and caters to consumers and - like a cash & carry - to small businesses.

The Middle East
Looking at per capita GDP, the Middle East markets of Saudi Arabia and the United Arab Emirates (UAE) offer huge opportunities. As far as foreign retail activity is concerned, mostly non-food luxury goods companies seize the opportunity to tap into the large spending potential of Middle East consumers. "Selling watches, furniture or clothing, these luxury goods retailers increasingly say that it is essential to include a major food offer in shopping malls to drive up footfall," says Simon Thomson, managing director of Retail International and an expert on Middle East retail. "The Middle East has its own characteristics, which are quite different from what one would expect. Many people would doubt whether a shopping mall anchored by both IKEA and Carrefour would work, but in Dubai it is a huge success."
Carrefour - via its wealthy and ambitious franchise holder Majid Al Futtaim Group of Dubai - is most widely represented in the region. Another French retailer with Middle East ambitions is Casino. With its Bahrain joint venture partner Future Commerce (better known as FuCom), Casino opened a Ceant hypermarket in a Bahrain shopping mall some eight months ago and it is said that Ceant might soon also set up shop in the Saudi Arabian capital Riyadh. Mall owners in Sharjah - Dubai's neighbour and 'twin city' - are also considering to add a Ceant hypermarket to one of the existing malls.
"The merchandise mix of Carrefour and Ceant has been tailored to match local conditions in the Middle East", says Thomson, "in the Gulf their food offer is 25 to 30 per cent maximum. The rest is non-food. The Ceant hypermarket in Bahrain for instance, has huge electronics, horneware, clothing and entertainment departments. "
Despite the opportunities mentioned, only Carrefour and Casino are actively engaged in the Middle East food retail sector. Majid AI Futtaim will be opening its first Carrefour anchored malls in Egypt later this year. It is also known to be in the process of finalising plans to open in the Lebanese capital Beirut. UK retailer Tesco has its contacts in the region and in recent years, Tesco has been rumoured to be interested in starting a business there. However, to date no plan whatsoever has been put into practice. Up to now, no other large international retailers have expressed any interest in the region.
Local players could well expand their business. "After Carrefour and Ceant, Saudi retailer Giant is a third player expected to expand its hypermarket format in the region," Thomson says. "This local retailer caters more to the indigenous clientele, with a larger assortment of cheaper, lower end products. Another local Saudi Arabian retailer is Azizia Panda, which is part of the SavoIa Group, a manufacturer of cooking oil and other food products. It has large expansion plans across Saudi Arabia with large supermarkets and Carrefour-style hypermarkets."