The Retail World Cup
With the world's retail regions in different stages of development, big players from the saturated markets are seizing the opportunity to get involved in emerging markets. While most retailers remain regional, some will grow to be truly global. But which ones are they? And how do we judge them - by size, or by geographical spread?
Elsevier Food International, Vol. 4, Number 3, September 2001
Pascal Kuipers
We have proved that we can grow cross border and we will grow cross border," said John Menzer, president and CEO of Wal-Mart International in the February 2000 edition of Elsevier Food International. "We want to have a strong presence in every country in which we're represented. We certainly don't want to be just a flag planter."
Early last year, Wal-Mart set up shop in nine countries abroad, operating a total of 999 units with total sales of US$ 22.7 bn, representing almost 13.8 per cent of Wal-Marts total sales. One year later - on February 2001 when Wal-Mart released its business figures for the fiscal year ending January 31 - the US retailer hadn't added any new countries to its list of foreign operations, but it had increased the number of its non-US stores by 77 to 1,076. The largest increase took place within its neighbours Mexico (+ 39) and Canada (+ 20). With sales of US$ 32.1 bn, Wal-Mart International has a 16.7 per cent share of the company's total sales. Wal-Mart is represented in ten countries, the US included. By contrast, French retailer Carrefour serves over two bn clients annually, with over 9,000 stores located in some 27 countries and spread across three geographic zones. Outside France, Carrefour reached sales of €3,914 mn (US$ 3.62 bn) accounting for 49.3 per cent of total sales at the end of its fiscal year 2000 (December 2000). And Royal Ahold operates over 8,600 stores in 25 countries across four continents, with total sales of €52.5 bn (US 48.6 bn). The Ahold figure, however, includes the retailer's domestic market The Netherlands, but the size of this market is negligible in comparison to its US operations.
In The Netherlands, Ahold's 2000 sales are €8.8 bn (US$ 8.14 bn), which is 16.8 per cent of Ahold's total sales.
Global retail chessboard
The question, of course, is which of these companies is the more global? Is it the world's largest retailer Wal-Mart, with a domestic/foreign sales ratio of 83:17, or is it Ahold with a ratio that's just the opposite? Ahold is the world's most international retailer if measured by its share of foreign sales. Or is the world's geographically most widespread retailer Carrefour in the lead when it comes to global perception, despite its balanced domestic/foreign sales ratio(51 :49)? Different analysts all come to the conclusion that these three retailers are indeed the world's top three. Unchallenged as their positions are, it is definitely more difficult to rank retailers for the positions four to 15. Differences in the type of business, geographic presence and organisational structure (e.g. are internal synergies being exploited? Is it a private or a listed company?) underline the need for a clear set of criteria to discriminate the more or less global retailers from each other.
The front-runner in this sort of research is investment bank Goldman Sachs, which assesses this question in terms of a global retail chessboard, where the fields are determined by top retailers' individual features combined with the importance of the markets in which they are represented, and how strong that representation is (ranging from dominant to modest). Goldman Sachs measures the retailers' individual features by five criteria:
• superior global vision
• dominance within an attractive home market
• mastery of global best practises
• a deep-rooted global culture
• international staying power
When it comes to a superior global vision, French retailer Carrefour has a first-rate reputation, says Goldman Sachs. Having entered the Japanese market last year, Carrefour currently operates in 27
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Carrefour's deep-rooted global culture has helped it crack the Japanese market in Makuhari. |
Wal-Marts unrivalled core competency is in its logistics systems. Wal-Mart uses an Internet-based vendor interface called Retail Link to add efficiency to its buying and logistics operations. Furthermore, Wal-Mart's global sourcing capability increases as its business increases.
In developing a deeply-rooted global culture, it's Carrefour that's ahead of the pack - the French retailer is renowned for its cross-cultural flexibility when entering foreign markets, thereby reducing its Eurocentricism from the start. Carrefour has a global management structure of regional 'committees' that meet regularly and bring about implementation of global best practises throughout the company. Ahold is another example of a company doing an excellent job when it comes to cultural flexibility. Wal-Mart is, "making clear progress in this respect", according to Goldman Sachs, while, by contrast, Tesco, Costco and Metro " ... still seem to be dominated by a national perspective." Regarding staying power, Wal-Mart is clearly in the lead with its impressive US$ 8.2 billion cash flow (1999 data). This buys it enough time to keep on fighting in difficult markets until it has secured a good position. Wal-Mart's cultural stamina, which features aggressive growth-driven reflexes and a can-do attitude, drives productivity and organic growth.
Recreating the chessboard
Goldman Sachs combines the criteria to benchmark the individual players with their status on the playing field. To do this it looks at total and per capita consumer spending in different economic regions worldwide, such as Europe, NAFTA (Canada, United States, Mexico), South America, and Asia Pacific, exclusive of huge markets like Japan, China and India, which Goldman Sachs acknowledges as entities in their own right.
When focusing on consumer spending, NAFTA ranks number one at US$ 6.5 billion, followed by Europe at US$ 5.6 billion, Japan at US$ 2.3 billion, the Pacific Rim and South America at just under US$ 1 billion and China and India significantly further behind, Combining total and per capita spending, it appears that NAFTA, Europe and Japan should be the three major focus markets for large global retailers, followed far behind by South America and the Pacific Rim. When recreating the global chessboard by focusing on major markets, only Wal-Mart has a dominant position in the world's largest market NAFTA, and it has a solid position in the second largest market Europe. Carrefour is weak in NAFTA and only represented in Mexico. It has only recently launched in Japan, where it has three stores. But it is dominant in South America, strong in (mainly southern) Europe, and has a solid position in China and the Pacific Rim.
Ahold has the second biggest presence in the two largest markets, but lags behind Carrefour in the Pacific Rim, South America and China. Costen's strong position in NAFfA and its modest start in the world's next three markets secures it the number four position on this chessboard. From this perspective, both Metro's and Tesco's lack of geographical diversification are apparent.
Refinding the chessboard
The UK Institute of Grocery Distribution (IGD) has a more in-depth set of criteria based on Goldman Sachs' chessboard approach. lGD uses a combination of 'hard' and 'soft' to determine if a retailer can be considered global or not. Each factor also has a weight according to its relative importance, The results are expressed in lGD's Global Retail Index (GRI), which is based on the following factors:
Hard factors (weight)
• Turnover (20)
• Number of countries of operation (10)
• Percentage foreign sales (10)
• Presence in key regions* (15)
• Home market dominance (10)
Soft factors (weight)
• Clarity of global strategy (15)
• Global culture (10)
• Level of global learning and sharing (10)
* NAFTA, Europe, Far East Asia
The table on page 78 shows the Global Retail Index, featuring Carrefour, Ahold and WaJ-Mart as the numbers one, two and three respectively. Both Carrefour and Wal-Mart have a top GRI ranking that corresponds with their ranking in terms of sales. Ahold clearly scores less well in the hard factor turnover (it ranks number seven based on 1999 sales) but it reaches its runner up position because of its clear global strategy and its global culture (two key soft factor heavyweights), and its high proportion of sales in overseas markets and wide spread of global operations.
US retailers Albertson's, Kroger and Target demonstrate that 'big' doesn't necessarily mean 'global', as they rank fifth, fourth and ninth in turnover respectively, but only 23rd, 25th and 28th when taking all factors into account. Their huge domestic market offers them enough growth perspectives, so there is no need to grow a business abroad.
Belgian retailer Delhaize and French retailer Casino draw the opposite picture with a small (Belgium) or heavily regulated (French) domestic market, limiting their opportunities at home and forcing them cross-border.
From 2000 to 2010
IGD enlarged Goldman Sachs' global chessboard both by the number of players and geographic spread. The leading three retailers - Carrefour, Ahold and Wal-Mart - are all represented in the three most important regions NAFrA, western Europe and Far East Asia. Combined, these three regions account for 84 per cent of the US$ 2.8 trillion global food retail market, and the top three retailers are either strong or dominant in at least one of these regions. Of the remaining nine retailers, six have a presence in all three regions and only Delhaize and Costco have a strong or dominant presence in any of them.
Regarding the emerging markets, eastern Europe is most popular among the global retailers, with eight out of 12 present. However, as yet no one has established more than a modest position in the region, which is still an open battlefield. South America is also a popular emerging market, with five of the 12 retailers present. Here, Carrefour is dominant, with both Ahold and Casino having a solid position. It will be a challenge for the retailers who are not yet present to start up business there. In Africa, both Carrefour and Metro have a modest presence and in the Middle East, Carrefour is present. In Oceania it's Ito Yokado and Aldi. The food retail markets in these three regions are currently small compared to the major regions. The years up to 2010 are likely to show an increasing presence of global retailers across each region. The level of presence in the three key regions will increase, but other regions like South America, Oceania and parts of Africa will also encounter expanding global retailers. The chessboard for 2010 only works if two assumptions prove correct: first, that all of these retailers will still exist in 2010 and with grocery retailing as their core business, and second that they will remain the leading 12 global retailers. However, looking at the speed of consolidation in recent years, it is hard to believe that these assumptions will hold true for the next nine years. But they should be taken into account in order to give some kind of parameters to global retailing over the years to come.
Especially within the ranks of the important markets and the higher ranked retailers, dominant and strong positions will increase. All of the leading 12 retailers are expected to have at least some presence in all three leading markets. Japan, though, has three retailer absences, including Ahold, which has ruled itself out of much of Asia for the foreseeable future. While Ahold will undoubtedly keep a modest presence in the region, it is likely to put itself at a disadvantage later on, especially in Japan where development looks set to occur in the short term now that Carrefour has set up shop and Metro has signed a joint venture with a Japanese company in order to open the first Cash & Carry store in 2002. It is, however, unclear whether retailers will be able to build anything beyond a modest presence in Japan. Key factors are the ability to acquire either land or existing retailers, and in some instances the acceptance by Japanese consumers of 'niche' formats (such as Costco’s warehouse clubs), which have yet to prove to successful.
The top three and the rest
Looking at the top three global retailers, Carrefour is likely to strengthen its position in Europe and might even become dominant there. In South America, the French will consolidate their dominance, while they will also grow in both the Chinese market (which should prove promising in the long-term) and in Japan, a market they entered in December 2000. A question mark continues to hang over the US, however. Re-entering the US will be both an offensive thrust into the world's largest market and a defensive manoeuvre to prevent Wal-Mart from achieving hypermarket hegemony on its home turf.
With enough growth potential at home, Wal-Mart is destined to continue dominating the NAFTA market. It will also try to build a strong presence in Asia - like Carrefour, in China but also in Japan where it has yet to establish itself. When it comes to Europe, Germany might prove a setback for Wal-Marts ambitions. Ahold will continue its strategy of growth through acquisitions in retail, food service and E-commerce. It is likely to remain concentrated in Europe, NAFTA and South America. The possibility of its revival in Asia - where it still has its oriental stronghold in Thailand, together with assets in Malaysia and Indonesia - cannot be ruled out between 2005 to 2010.
IGD believes the future of the eight remaining global retailers is less clear. Organic growth opportunities still exist in many of the Eastern European and Asian markets. It is, however, difficult for any of the retailers that are not yet present in NAFTA, Japan, western Europe and to a large extent South America, to become established in those markets in the future.
There will be no one global winner by 2010, as all three of the current leading global retailers have the vision and strategy needed to continue to strengthen their global positions. The others -the 'nearly-global' retailers - will decide who will join the top three to form the retail elite of 2010 and beyond. The winners in this global retail race must be able to exhibit a number of superior characteristics in fields such as global strategy, in-store execution, customer knowledge, back office operations, financial resources and flexibility in acquisitions. Retailers can no longer be rigid in their expectations as to which markets they wish to enter and what kind of format they wish to manage.
This article is based on the Goldman Sachs report Winning Moves on a Global Chessboard:
Evaluating Wal-Mart and Costeo in a Global Context (May 2000 - www.gs.com) and the IGD publication, Global Retailing: The Future (November 2000 - www.igd.com).
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