With the hypermarket battlefields of Central Europe and Asia Pacific set to reach over-capacity during the next decade, what sort of future can the format look forward to? If they are to survive and thrive, hypermarkets will need to evolve and move into emerging markets.
Elsevier Food International, Vol. 5, Number 1, February 2002
Anne Bordier

The pursuit of internationalisation, particularly in fast growing emerging markets, is likely to represent the largest opportunity for hypermarket retailers in the future. The expansion plans of the leading hypermarket retailers are very aggressive in several of these countries and it is a matter of when rather than if these markets will hit hypermarket over-capacity.
In order to understand the future challenges and opportunities facing hypermarket retailers (and suppliers) in going forward, it is necessary to assess the long term opportunities for hypermarkets in the emerging markets.
IGD predicts that most of the current hypermarket 'battlefields' in Central Europe (Poland, Hungary, Czech Republic and Slovakia) and Asia Pacific (Taiwan, Thailand, South Korea) will hit hypermarket 'over-capacity' during the next decade.Figs. 1 and 2 show how the number of people per store is expected to fall dramatically between 2000 and 2010.
This evolution is remarkable, especially when compared to the growth of the hypermarket format in Western Europe, where the same process has taken three decades.

Future battlefields
The continuous search for global scale forces retailers to explore new markets that may represent high growth opportunities for the future. However, internationalisation is not without risks as political environment and economies are often volatile in emerging markets.

Asia Pacific
IGD believes that the Asia Pacific region offers the largest growth opportunity for hypermarket retailers in the medium term. The region dwarfs all others with the size of its population and the economic conditions favourable for hypermarket development seem to be in place in most countries.
In addition to the main battlefields of Taiwan, Thailand and South Korea, expansion of the hypermarket format is expected to continue at a fast pace throughout the region. Countries such as China, Japan and Malaysia offer good growth potential for hypermarket retailers in the medium term and several of them have announced plans to increase investment in these markets.
Growth opportunities in China are particularly exciting. Given the country's 1.2 billion population, the market could support over 12,000 hypermarkets if it is to reach hypermarket penetration levels similar to the West. The forthcoming accession of China to the World Trade Organisation (WTO) is likely to be a major catalyst for the development of hypermarkets in the country.
In addition, markets of developing Asia (Vietnam, Philippines, Indonesia) will grow in strategic importance. The combined population of these three markets (over 350 million) together with their geographical proximity to other Asia Pacific markets (where international hypermarket retailers are already present), will result in increased interest in the future. However, these countries remain very poor with average GDP per head well below the other markets, suggesting that they may not yet be ready to support significant hypermarket development.

Western Europe
There is little potential for hypermarket retailers to significantly increase their hypermarket portfolio in countries of Western Europe where the retail market is very regulated. Further mergers and acquisitions are anticipated, resulting in a small number of pan-European retailers eventually controlling a large share of the market.
There is however one country - Italy - that still offers good prospects for hypermarket retailers in Western Europe in the short term. As Europe's fourth single largest market, Italy is attractive because of its size and prosperity. In addition, traditional outlets still account for half of all sales through food retailers in Italy, and the market has one of the lowest levels of market concentration in Europe. The hypermarket format has been very successful in the country in recent years, its market share having increased from six per cent in 1993 to 12 per cent in 1999. This figure is expected to rise to 18 per cent by 2004.

Central and Eastern Europe
The fierce competition in the major Western and Central European countries is encouraging some retailers to look further East towards Russia, and South towards the Balkans in the hope of securing a first mover advantage for the future. Hypermarket retailers have established (or are about to establish) early positions in Romania, Slovenia, Croatia and Russia.
Russia represents by far the largest long-term potential in the region due its population size (147 million). Moscow alone has 9.3 million inhabitants, making it almost as large as the Czech Republic.
However, international hypermarket retailers have been slow to tackle the Russian market due to the uncertain political situation, lacklustre economic development, lack of openness to foreign investment and the much publicised crime issues. At $2,260, GDP per head is low in comparison with Central European countries and the distribution of wealth is significantly skewed. However, the hypermarket format is virtually non-existent in Russia and the market has huge potential once economic recovery is underway.

Central and South America
In Central and South America, investments from the leading hypermarket retailers have been so far concentrated on the two largest markets - Brazil and Argentina - although retailers have also established positions in a number of other countries. While the region offers potential for further hypermarket development, the current economic difficulties faced by the two lead countries are likely to compromise retailers' expansion plans in the short term.
IGD believes that apart from Brazil and Argentina, Mexico and Chile are the two countries that are most likely to attract investment from international hypermarket retailers in the short to medium term. The smaller size and often volatile economic and political conditions in the other countries (e.g. Colombia, Venezuela, Uruguay, Guatemala) means that they will remain lower priorities for leading retailers in the short term. However, the strategic importance of these countries is likely to increase when the neighbouring markets become more populated with hypermarkets and the international retailers seek to consolidate their presence throughout the region.

Africa
Until recently, interest in the African countries from international hypermarket retailers was very limited. IGD believes that Africa as a region will eventually be a source of growth, although this is unlikely to occur on a significant scale before 2010. Currently Africa remains a very poor region, accounting for some 13 per cent of the world population, but less than two per cent of total global consumer spending.
The African countries most likely to attract increasing interest from international hypermarket retailers in the future are Tunisia, Morocco and Egypt. Both Morocco and Tunisia enjoy political stability and by 2008 and 2010, these two countries will be in a free trade zone with the EU. Carrefour, Auchan and Casino have established positions in either one of these markets in early 2001.
In addition, IGD believes that South Africa presents a potential battlefield for the major global retailers in the medium term. The infrastructure relative to the rest of the continent is much further ahead. The GOP per head is higher at $3,310 although this is still relatively low in comparison to other regions and the distribution of wealth is significantly skewed. With a population of over 43 million, the opportunity over time will be just as great if not greater than that offered in Poland. When the neighbouring countries of Zimbabwe, Mozambique, Lesotho and Swaziland are included, there is a 'south African' population of 80 million.

Format evolution
IGD predicts that competitive pressures in the years ahead will have a major impact on the structure of the retail market. Today, the various retail formats are essentially differentiated by their size. This is expected to change as leading retailers adopt more distinct strategies based on consumption patterns rather than available floor space.
As a result, the structure of the retail market could evolve over the next decade, as highlighted in fig 3.
Most hyper market retailers are well placed to capitalise on this evolution as they tend to be large retail groups operating a wide range of store formats. Successful format introductions will require an excellent understanding of the local competition and of the needs of local customers.
IGD believes a key opportunity for today's hypermarkets is to evolve into 'Destination Centres'. However, all hypermarkets within a retailer's portfolio will not necessarily be suitable for conversion and stores may therefore evolve into other formats, for instance Meal Solution Centres or Discount Stores.
In our vision, Destination Centres will be the ultimate expression of 'everything under one roof' and will contain several retail formats in a single complex with one set of checkouts and a single customer service infrastructure. These centres will also provide various entertainment options, particularly those targeted at children, as well as catering facilities. Grocery will playa significant role in Destination Centres, but it will account for a minority of sales.
The broad range of products and services available 'under one roof' (as well as the keen prices) will motivate customers to travel long distances by car. The centres will aim to keep customers entertained for a day or half a day, while fulfiling their main shopping needs. The store will be located on the outskirts of major conurbations and will benefit from good road access and excellent car parking facilities.
The mix of shopping and leisure activities within the centres will vary and there will be 'different variants' of Destination Centres depending on location, level of competition and local customer profile.
In highly regulated countries such as the UK, planning restrictions are likely to hold back the evolution of large stores. As a result, there may only be a limited number of 'true' Destination Centres that get developed in these markets. The most formidable examples of Destination Centres are likely to be found in emerging markets, where local governments look more favourably on large store development proposals.