Global retail concentration

Citation

(2002), "Global retail concentration", International Journal of Retail & Distribution Management, Vol. 30 No. 3. https://doi.org/10.1108/ijrdm.2002.08930cab.002

Global retail concentration

Global retail concentration

For more than ten years M+M Planet Retail has closely followed the activities of the world's largest international grocery retailers. Using their global retail database, they have developed an index that measures the level of internationalisation that individual countries have achieved. The index is based on the total number of international retailers who have opened stores in each country and can be used to measure the degree of popularity and the growth potential in retail markets across the world. While countries such as France, Poland, Spain and Germany are well populated with international retailers and therefore unlikely to see significant growth levels, there is plenty to play for in other areas of the world. The battlegrounds of the future are likely to be fought in markets such as China, Russia, India and Japan, while further development in the Middle East and Africa is being put on hold as long as the political scene is clouded with uncertainty.

In the past ten years, the world's economy has experienced accelerated levels of globalisation, and the retail industry has been no exception. Saturation and restrictive planning legislation in developed markets have prompted operators to look abroad for growth opportunities. Variables such as a growing population, expanding income, fragmented retail markets and changing shopping patterns have all encouraged retailers to enter foreign markets.

Furthermore, the necessity to achieve economies of scale via growth in order to become more competitive and successful, together with the advantage of avoiding local economic downturns by being present in different markets and regions, is prompting retailers to expand and internationalise further.

An analysis of the M+M Planet Retail database, which tracks the Top 30 international food retailers, gives us a picture of which countries have been the most widely exploited by international retailers (see Table I for details of the 35 most internationalised countries). Western Europe and the USA are without doubt the two areas where most companies operate. This is understandable, since the vast majority of the Top 30 originate in this area, which also generates around 43 per cent of the world's GDP.

Levels of internationalisation

France, with 14 international grocery retailers, has the largest presence of international operators across the world, with an index of 356. However, with 80 per cent of the French grocery market captured by five French operators, there has been little scope for extensive international presence. Nevertheless, German operators in particular have exploited a gap for hard discounting, which was largely neglected by domestic operators in pursuit of hypermarket development.

Carrefour is the biggest French grocery retailer and the second biggest in the world. After Marks & Spencer, the company is the second most international operator, with a presence in 28 countries. Once Marks & Spencer withdraws from most Western European countries and the USA, Carrefour will be the most expansive international player.

Outside the triad (USA, the European Union (EU), and Japan), Poland has emerged as the country with the most internationalised retail market, with 13 of the top 30 companies operating there. Undoubtedly, Poland has been experiencing a huge transformation since the fall of the Wall. The country has adapted well to the market economy, and at the moment enjoys one of the fastest economic growth rates in Europe, with 4.3 per cent growth estimated for 2001 and 4.6 per cent for 2002, well ahead of most European economies.

Furthermore, with around 38 million inhabitants (similar to Spain), it is a big and well populated country by European standards. It is also one of the countries set to accede to the EU in the next phase of expansion. Combined, these factors have made Poland a key target for expansion in Eastern Europe. Retailers, especially the Germans and the French, have rushed to control a market from which local operators have effectively been wiped out.

Spain is the third most internationalised market, with total sales from the Top 30 of US$29 billion in 2000. Since the mid-1970s, the country has been a strategic market for Europeans, from France and Germany in particular, to the point of being the second most important market both for Carrefour and Auchan. Retailers have been attracted by its size in terms of per capita income, its fragmented market (dominated by independents and regional chains), its relaxed planning environment and changing social patterns underpinning demand for modern, superstore retailing. In addition to the French and Germans, it has also acted as a magnet for Dutch chains Laurus and Ahold, Modelo Continente (Portugal), and Marks & Spencer (UK).

The USA, with an index of 280, is another country which has been widely exploited by international retailers (see Table II). In this case, the very size and importance of the biggest retail market in the world justify that presence, commanded by Wal-Mart, which ranks first in the world and alone accounts for almost 2 per cent of global retail sales.

At a time when the US economy is on the verge of recession, Wal-Mart is motoring ahead with the most aggressive expansion programme in its history. By the end of the fiscal year, the company will have added 3.7 million square metres of new retail space, a 9 per cent increase over last year's total expansion. With a presence in ten markets, Wal-Mart is the most international US retailer. However, it lags behind other international players such as Carrefour and Ahold, with international sales still representing a relatively small proportion of total sales (around 20 per cent).

Generally speaking, US retailers have shown a far less aggressive attitude towards expansion abroad than their European counterparts. Most US retailers only have a regional presence and still have a lot to play for in their domestic market. Despite its attractions, the USA is a difficult market to penetrate with take-overs of existing companies tending to be a more successful entry strategy than organic development.

Other major European markets such as the UK, Germany and smaller countries like Portugal, the Czech Republic and Belgium also have a high presence from the Top 30 retailers. Germany is the fourth most internationalised market, and is also the base for six Top 30 retailers, including Metro, which is present in 22 countries.

Italy, with just seven Top 30 retailers operating in its territory, all of which are French and German, constitutes the exception between the major countries of Europe, due to restrictive legislation and onerous bureaucracy impeding store development.

Other examples of heavily internationalised countries are Thailand and Taiwan, both with ten of the Top 30 retailers. Thailand has historically adopted a fairly liberal policy towards attracting foreign companies and encouraging store development. However, this could change, because pressure from local retailers is prompting the government to tighten retail regulations regarding opening hours and store development.

Taiwan, with a population of 20 million and a high average income of US$16,500 per capita, is attracting a host of international retailers. Carrefour and Makro were the earliest entrants into the market and have been followed by Auchan, Costco, Tesco and Marks & Spencer (see Table III). The retail market is estimated to be worth around US$88.23 billion, dominated by traditional stores and markets which account for 82 per cent of sales, with modern retailing (hypermarkets, supermarkets and convenience stores) taking a nascent 15 per cent. Despite having a relatively high index of 254, Taiwan still has scope for further internationalisation, given the fragmented nature of the local market.

Emerging areas

Looking at the future, the strong growth of China and some Central and Eastern European countries, together with the liberalisation of their economies, is making them a target for retailers. This is particularly true in the case of China, which already ranks as the tenth most internationalised country. Wal-Mart and Carrefour are fighting a fierce battle for supremacy as the leading international retailer in a country with the biggest population in the world.

Latin America, which is finally beginning to enjoy a relatively long period of economic growth and enjoys a considerably sized middle class, is becoming an important region for retailers to target. An example of this importance is the fact that Brazil, Argentina and Mexico rank within the top 25 most internationaiised markets. Companies like Ahold, Carrefour and Casino already have a significant presence in the area. French retailers have been particularly successful at penetrating these countries, possibly due to a greater understanding of local cultures and lifestyles.

Although currently ranked 56th in terms of internationalisation, India is likely to ascend the ranks, once further progress has been made towards economic liberalisation and laws on foreign ownership have been relaxed. Furthermore, it is the second most populated country in the world, with one billion inhabitants, and a growing middle class eager to spend.

With an index of 153, Japan should be a target for any company considering becoming a truly global operator seeking to take a slice of the world's second largest economy. Currently, it is host to only six international retailers (Ito-Yokado, FamilyMart, Aeon, Marks & Spencer, Carrefour, and Costco) and therefore occupies a relatively low 21st position in the ranking.

However, entry to Japan is very difficult due to factors such as a restrictive planning environment, a complicated supply chain structure and lack of understanding of Japanese consumers. Furthermore, its ten-year recession is no doubt deterring a number of operators. Nevertheless, Metro is poised to enter next year and there is speculation that Wal-Mart is looking to acquire the bankrupt Mycal chain. Furthermore, Tesco has reported that it is conducting research in Japan.

Major markets still on the periphery of international retailing are Russia, the north of Africa, and the Middle East. The latter two are unlikely to see a surge in activity in the near future, given recent terrorist events and general political and economic uncertainty. Retailers are actually pulling out of these markets, as evidenced by Sainsbury's and Metcash leaving Egypt and Israel respectively, and Metro, which has put on ice its plans for expansion into Egypt.

Conversely, Russia will see a rise in its degree of importance over the next few years, as retailers mass around the capital. Auchan is planning to open its first hypermarket in Moscow next year, Edeka has received planning permission to develop a hypermarket-anchored shopping mail in the city, whilst Metro has announced the development of a chain of up to six cash and carry stores in the greater Moscow area by 2005.

(This article is extracted from a report on Global Retail Concentration, a full copy of which is available from M+M Planet Retail. Please contact their Marketing Department at enquiries@planetretail.net for further information.)