Global Analysis
Information in this article is based on a recent report by Planet Retail, "Global Channel Strategies, 2009: Small-box to ride out the recessionary wave." For more information on this report visit www.planetretail.com.
Globally, hypermarkets & superstores remain the backbone of many retailers’ strategies, but despite their far lead over other grocery channels in terms of sales, hypermarkets are forecasted to grow at just 4.9% globally over the next five years, which is below the average of 5.3% for the Top 30 grocery retailers. Faced with saturated home markets and an increasing lack of suitable sites, the hypermarket channel is poised for more conservative expansion than most of its peer channels. That said, the channel will continue to be an important method for growth in emerging markets.
Economic Impact
The global economic downturn has had a significant impact on the retail sector, albeit to a lesser extent on Modern Grocery Distribution (MGD), due to the fact that food remains a non-discretionary purchase. Grocery retailers have primarily responded to the downturn in two ways. One is by promoting value through, for example, the expansion of discount stores, economy ranges, price investments and increased promotions. The other is by reducing costs and therefore preserving cash. This has come in the form of slowed expansion plans and employee redundancies.
Over the next five years, the Top 30 are expected to grow sales through grocery formats at a compounded annual growth rate (CAGR) of 5.2%, compared to the 10.8% recorded for the previous five years. Store numbers are expected to rise at a CAGR of 3.5%, reflecting the fact that a slowdown in expansion will see retailers focusing on their most profitable existing stores.
As capital expenditure budgets get squeezed, resulting in a slowdown in virtually every grocery channel, it has become more important than ever for retailers and manufacturers to be sure they are investing in the winning formats and in the winning regions.
Expansion
One of the winning formats for the Top 30 will be the discount channel, which is expected to add USD71 billion in sales over the next five years, up 6.3% on the current figures. Driven by the likes of Aldi and Schwarz Group, the no-frills format continues to attract cash-strapped consumers both in developed and emerging markets. By 2013, the Top 30 retailers operating in the discount segment are poised to open an additional 12,600 new stores.
Proximity retailing on the whole should bode well in today’s turbulent retail climate. Retailers are likely to focus their efforts on small-box stores given that they require less capital both to build and operate.
In fact, stores less than 2,500 square meters are poised to grow their store network by 4.1% over the next five years compared to just 2.2% by the large hypermarkets. Also in the long run, the outlook is positive for proximity retailing as demographic changes mean that there will be more single households combined with lower incomes and less widespread car ownership.
This is especially the case in the US, where Tesco’s entry has sparked a series of reactive pilots, the most notable being Wal-Mart’s Marketside, the retailer’s first new format in the US in a decade. It is too early to say whether small-box will change the face of grocery retailing in the US, as this type of format caters to a high frequency/low spend shopping mode, an assortment of products with a greater emphasis on fresh, private labels, and consequently calls for more frequent distribution.
In terms of future expansion, all eyes are on emerging markets. Central and Eastern Europe is poised for the greatest compounded annual growth by the Top 30 players as store numbers are expected to almost double over the next five years. Meanwhile, Asia & Oceania is also becoming increasingly important for the large multi-nationals which are faced with slowing sales in their domestic markets. The Top 30 players are expected to add more than 6,300 stores in the region, equating to a 4% CAGR, over the next five years.
Global PL Trends
The Top 30 grocery retailers in 2007 were once again led by Wal-Mart, whose retail banner sales came in at USD393 billion. Following behind were Carrefour, Tesco and Metro Group, with Kroger moving into fifth place, close to tied with the Metro Group for fourth. The Top 30 collectively generated banner sales of USD2 trillion, representing 31% of the global market as a whole.
The global heavyweights derive mainly from North America and Western Europe, two of the largest and most developed regions in the grocery sector. Wal-Mart, equal in size to its next four largest competitors combined, has held the reign as the world’s number 1 for over a decade. French retailer Carrefour is the most international of the group with a presence in over 40 countries. Coming in at number three is the UK’s Tesco, which, like Carrefour, continues to look for growth outside of its saturated home market. Leading cash & carry operator Metro is the only retailer in the top five to generate more than one-third of its total sales from non-food formats. Kroger, in at number five, is the largest traditional American grocer and the largest single-market grocery retailer in the world.
Economy Spurs PL Sophistication
New research from Planet Retail’s February 2009 report, Private Label Trends, 2009, indicates private label sales are set for accelerated growth as retailers employ more sophisticated private label strategies to combat the economic downturn. According to the report figures, private label products are gaining in importance for virtually all major retailers and markets as the economy weakens.
However, discount retailers remain the true experts based on the higher proportion of private label sales. Among them, German discounter Aldi leads the way with over 94% of total sales attributed to private label merchandise.
Not surprising, consumer price focus in the wake of the economic crisis is the main driver behind private label growth. However, the report studies several other factors underpinning demand and price sensitivity; in particular, rising consumer confidence in private label products and retailers’ desire to control the supply chain. The report goes further to predict private label growth until 2013. These figures indicate that while private label penetration is currently lower in emerging markets, like India, Brazil and Mexico, these countries are poised for the fastest growth over the next four years.
The study also highlights the sophisticated positioning of own-label products emerging from some retailers, much to the dismay of many brand manufacturers. “Retailers are cherry-picking consumers at both ends of the markets by developing their economy ranges as well as premium lines,” says Matthias Queck, Planet Retail analyst and private label specialist. “This will intensify the arguments with brand suppliers.”
One such example of a shift in strategy is Tesco’s new discount brand. Representing a shift away from the traditional 3-tier strategy, Tesco is launching its first labels without the Tesco brand in order to fight German discounters Aldi and Lidl.
Another “hot” trend identified by Planet Retail is the emergence of new “hybrid” forms of private label products. These types of private labeling include co-operation between retailers and manufacturers to develop co-branded and tailor-made solutions. Also, foodservice companies are bringing their own-label products to shelves.
The complete report update Private Label Trends, 2009 is available at www.planetretail.net.
