Although the elite circle of Wal-Mart, Carrefour, and Metro still maintains a firm grip on the frontline positions in the retail 100, new players have entered the top rankings via ambitious buyouts made last year in the US, Canada and the UK. Planet Retail surveys the retail arena and concludes that traditional grocers who survive through the rat race have shown not only innovative strategies but also astute international expansion and adept M&A activity.
Elsevier Food International Vol.8, No.3 September 2005
Bryan Roberts

 

Despite the lack of earthshaking shifts in retail territory, the growth of frontline food retailers will lead to ongoing concentration in global retail. Both familiar and new names are inching their way up the retail rankings despite the cautious M&A activity in 2004.

This year’s Retail 100 yields some interesting shifts among the leading players, such as German multi-format operator Metro leapfrogging Dutch-based grocer and foodservice provider Ahold into third spot and UK market leader knocking US grocer Kroger out of the top five. Metro’s solid organic growth coupled with pioneering market entries have seen it overtake Ahold as the Dutch business has completed its radical downsizing programme, while Tesco’s seemingly unstoppable growth at home and overseas has driven sales to over EUR50 billion. Kroger, meanwhile, like the other mainstream grocers in the USA, has been having to work hard to counter the threat from Wal-Mart and assorted other non-traditional formats while at the same time tweaking its own store portfolio in an attempt to maintain market share.
It goes without saying that Wal-Mart remains at the top of the tree this year, dwarfing the rest of the world’s leading food, drug and mass retailers. With massive scope remaining for expansion in the USA, growth opportunities in existing international markets and likely entry into markets such as Russia, Turkey and Italy, Wal-Mart’s lead is virtually unassailable and is likely to remain so. Indeed, it would take the incredibly unlikely merger of Carrefour, Metro, Ahold and Tesco to create a retailer equivalent to Wal-Mart in net sales terms!

Advance through corporate activity
The growth of the major retailers will lead to ongoing concentration in the global retail sector, with the 15 largest retailers in the world will set to see their market share advance to well over 30 per cent by 2009 from 22 per cent in 2004. This concentration process will impact not just on consumers and retailers, but also manufacturers, who will have to contend with stronger retailer buying power as well as issues such as international promotional activity.
As part of this ongoing concentration process, here have been a number of retailers that have made considerable progress in climbing the rankings, mainly thanks to some high profile mergers and acquisitions. Chief among these growth retailers is Morrisons, the UK grocer that roughly trebled in size through the acquisition of Safeway after a fiercely-fought and convoluted takeover battle. The victory now appears to be somewhat Pyrrhic, however, as despite creating a new number four in the UK market, the deal has led to severe problems with the integration of the Safeway chain and a flurry of profit warnings from an increasingly embattled Morrisons.
Canadian-based c-store specialist Couche-Tard has also advanced impressively on the back of acquiring Circle K in the USA. Further growth is on the agenda as the company completes further in-fill acquisitions and improves its recently acquired store base. Other retailers to have climbed the Retail 100 thanks to corporate activity include Japanese powerhouse AEON (it absorbed beleaguered rival Mycal in 2003), the UK’s John Lewis (its well-respected grocery division Waitrose picked up a hefty batch of stores that Morrisons was forced to sell by regulators after the Safeway deal) and Jean Coutu (the Canadian drugstore operator that acquired the northern store estate of Eckerd, the drugstore chain sold by JCPenney).

New faces
Jean Coutu is one of several new faces in the Retail 100. Others include Californian grocer Stater Bros, which saw its sales in 2004 balloon by an incredible 34.5 per cent despite only opening two stores. The growth was due to an influx of shoppers that deserted the strike-afflicted Kroger, Safeway and Albertsons stores, although sales have since trended downwards again. Two more new retailers in the list are Canadian drugstore chain Shoppers Drug Mart and German-based pharmacy operator Celesio. SDM has seen its sales climb thanks to relentless organic expansion, with Celesio gaining ground thanks to a combination of new stores, market entries and acquisitions. These two retailers join a fairly long list of retailers that are nominally drug or health & beauty specialists, but are businesses that are increasing their involvement in the grocery sector with the expansion of food, drink, household and general merchandise categories.

Non-traditional formats
Among such retailers are world leader Walgreens, North American rivals CVS and Jean Coutu, UK sector leader Boots, highly acquisitive Hong Kong-based player AS Watson, German-based drugstore giant Schlecker and regional US drugstore operator Longs Drugs. These retailers are increasingly positioning themselves as convenient, neighbourhood destinations for an expanding array of goods and services above and beyond their traditional expertise of narrow health & beauty ranges. With ageing populations and respectable store expansion programmes, the bulk of drugstore operators are likely to see their market shares increase for years to come.
Drugstores are just one category of non-traditional grocery formats that are growing at the expense of traditional store types such as hypermarkets, supermarkets and neighbourhood stores the world over. Costco - which rises from ninth to eighth spot this year - is testament to the increasing popularity of the warehouse club concept in North America and beyond, with its compatriot competitor BJ’s Wholesale Club also continuing to post extremely satisfactory sales growth. To generate sales of nearly EUR6 billion from just 156 stores indicates just how formidable the warehouse club channel can be.
Similarly, regional US supercentre operator Meijer generates massive sales-per-store from its 163 stores. Although it has been eclipsed by Wal-Mart in terms of supercentre sales, Meijer is back on the growth path and has also been busy remodelling a number of its outlets with an impressive new concept.

Discount most dynamic format
No discussion of the success of non-traditional formats would be complete without mentioning the breathtaking success of discounters. Holding 10th and 12th position in the world ranking, German discounters Lidl (Schwarz Group) and Aldi cannot be ignored, capturing a combined EUR68 billion worth of sales. Over the last year, Schwarz has seen its sales accelerate, with its limited assortment discount stores and discount hypermarkets and superstores now spanning 19 countries with a further six countries due to be added this year, largely in Eastern and Central Europe.
Aldi, with its discount stores present in 12 countries, has historically been less expansion-orientated than Schwarz, but is once again on the prowl, with potential market entries into Norway, Poland, the Czech Republic and Switzerland on the agenda. It is also growing fast in the recently entered markets of Spain and Australia. Impending saturation of discount stores in Germany, combined with a fall in domestic sales and profits, means that Aldi needs to increase its overseas presence to bolster growth. Recent research by Planet Retail shows that discounters are likely to be the most dynamic format over the next five years across Western and Central Europe, with store numbers growing by roughly 30 per cent between 2004 and 2009.
It is not just in Europe that discounters are of vital importance. Discount chains are among the fastest growing retail businesses in the US too, with precious little sign that the main players are planning to slow down in the years ahead. Indeed, the five largest operators are projected to see their store numbers top 25,000 by 2010, up from just 12,000 in 2000. At the same time, the five largest discount store chains - dollar store operators Dollar General, Family Dollar and Dollar Tree and limited assortment grocery stores Save-A-Lot (operated by SuperValu) and Aldi - will see their sales exceed USD40 billon, resulting in a total retail market share of 2.5 per cent.

Mainstream grocers
Despite the intensification of competition from non-traditional formats, some mainstream grocers are proving that they too can defend or expand market share. It is notable that some of the more successful players, such as Tesco, Delhaize, Loblaw, Casino, Coles Myer, Publix, H.E. Butt, Lotte and Colruyt, have all garnered admiration for their innovation, adaptability and consumer-focused approach to grocery retailing. Whether it be through new formats, non-food ranges, high-end gourmet retailing, private label development, discount-led merchandising, loyalty programmes, astute international expansion or adept M&A activity, it is retailers such as these that prove that there is life yet for traditional grocery retailers in an ultra-competitive environment.

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Bryan Roberts is Global Retail Research Manager at Planet Retail, which provides news and analysis on retailers and retail markets worldwide on a day-to-day basis. This Retail 100 ranking is drawn from the Planet Retail database, which consists of the world's leading grocery, general merchandise and drugstore retailers.

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