With net sales of USD244.5 billion, US colossus Wal-Mart continues to reign supreme amongst the world's leading grocery retailers. Last year sales grew by 12%, enabling it to maintain its unassailable lead where it stands 3.5 times as big as the second largest retailer, which this year came in as Carrefour. In their inexorable march across the world, the grocery retailers are increasingly capturing a larger proportion of the grocery market. Last year, the Top 30 grocers accounted for 33% of global sales, compared with 29% in 1999.

Modern grocery distribution includes both grocery and non-food sales from modern grocery distribution formats. It excludes sales from independent specialist formats and wet markets.

Ranking of Top 30 Grocery Retailers, 2002

Source: M+M Planet Retail (www.planetretail.net); Notes: e = estimate

Top 30 Grocery Retailers - Net Sales 2002 (USD mn)



Source: M+M Planet Retail (www.planetretail.net)

The rise and fall of the Top 30

Overall, there was very little movement within the Top 30 last year, with no new entrants or exits, although there were some noticeable rising and falling stars. The fastest movers in terms of sales growth were Tesco (16%), Aldi (16%) and US drugstore retailer Walgreens (16%). These companies represent a diverse mix of businesses - Tesco with its increasingly international c-store to hypermarket operation, Aldi with its tightly defined international network of hard discounters and Walgreens with its US based drugstore chain. The worst performing companies were easier to categorise - largely domestic players who had over expanded and are now having to rationalise and slim down their operations - Kmart (-15% on last year), Albertsons (-6%), Safeway USA (-6%), and Daiei (-4%). However, the exception to this group is international retailer Ahold which has seen its net sales shrink 1%. This reflects currency fluctuations and the restatement of its accounts which have been adjusted to incorporate sales from joint ventures on an equity basis. Ito-Yokado is expected to see a slight fall in net sales reflecting store closures in Japan.

Top 30 Grocery Retailers - Rising and Falling Stars, 2002
(based on % change in net sales 2002 vs 2001)

Internationalisation still buoyant despite global uncertainty

Despite the high levels of uncertainty that have prevailed across the world over the last 18 months since 9/11, the internationalisation process is still relatively buoyant. Last year the Top 30 retailers increased their international sphere of influence with entry into 19 new countries, largely through joint ventures and acquisitions, with just five countries entered into directly with wholly-owned operations. However, activity this year looks to be more muted with just 12 new countries tabled for possible entry.

On average the Top 30 retailers generate around 30% of sales from outside of their home market, a roughly similar level to last year. The key exceptions are Ahold (85%), Delhaize (83%) and Tengelmann (56%), which all have substantial US operations.

Last year saw Wal-Mart make its long awaited entry into Japan. It is in the process of gradually acquiring Seiyu, the country's sixth largest supermarket chain, which also has small operations in Singapore and Vietnam. In March, it bought a 6.1% stake in Seiyu, which increased to 34% by December. By 2007, Wal-Mart has the option to acquire 66.7% of the company. The acquisition showed a markedly different and more cautious approach to its other foreign competitors in the country, namely Carrefour and Costco. These two companies have adopted an organic growth route and have both encountered problems with adapting to the local market and opening new stores.

Top 30 Grocery Retailers - How Global Are They in 2002?
(based on % foreign sales)



Source: M+M Planet Retail (www.planetretail.net)

Wal-Mart lost no time asserting its influence over Seiyu. Over the last year, it has announced a store closure programme, established a joint working team to implement best practices into Seiyu, brought Seiyu into its global procurement network and appointed five senior managers to Seiyu's board.

December 2002 saw Metro open its first cash & carry outlet in Japan, in a joint venture with Marubeni Corporation, with a further three outlets planned this year. It is expected that Marubeni will provide further support to Metro as it expands across Asia. A further three outlets are planned this year. Its entry into Vietnam, and India and Ukraine this year, are indicative of its spearheading strategy to be an early entrant in fragmented, developing markets where it services the needs of independent operators.

As part of its Asian expansion, Tesco entered the Malaysian market last year with the opening of three hypermarkets in conjunction with joint venture partner Sime Darby Berhad. Although early days, Tesco has ambitious plans for the country with the long-term objective of opening 15-20 stores. During the course of this year, it is highly possible that it will acquire Turkish retailer Kipa, although to date it has only signed a conditional contract to buy certain classes of equity share capital if a number of material conditions are met. Given Turkey's recent economic and political turmoil this represents a long-term strategic move that is likely to take some time to pay dividends. Nevertheless, by entering now, Tesco will be well placed to take advantage of any economic upturn in the future. The company has also stated that it is continuing to research China and Japan, although China is very much a longer-term target and it is likely that market entry will be in conjunction with a local player.

Although Aeon delayed the opening of its first store in Taiwan from last year to this year, it is set to be a significant player in the market, with plans to invest about USD172 million to set up a network of between 18 and 20 outlets by the end of the decade.

French retailer Casino has been one of the most active retailers on the international front over the last year. In November 2001, it acquired a 33.35% stake in Vindémia, the retail subsidiary of Groupe Bourbon, which operates 26 stores on the islands of Reunion, Madagascar, Mayotte and Mauritius as well as in Vietnam. Backed by its new partner's operating and financial support, Bourbon intends to consolidate its position in retailing and pursue an aggressive development policy. For Casino, the stake both enhances its international presence and provides an opportunity to benefit from Bourbon's specific know-how in the tropics, where it has no direct operations. The stores will continue to operate under their current (Cora) banners. Casino also has an option to buy the majority of shares (70%) in the period starting from April 2004 to September 2006.

In July 2002, after much debate, Casino finally acquired a 38.6% stake in failing Dutch retailer Laurus, with an option for control by 2008. Subsequent to the acquisition, Laurus' operations in Spain and Belgium were sold, leaving Casino with Laurus' key assets in the Netherlands - 700 supermarkets with sales of USD3.7 billion.

Following the dissolution of its buying alliance with Cora, Opéra, in September last year, Casino announced the creation of a 50:50 service joint venture with Auchan. The new body, International Retail and Trade Services (IRTS), is designed to enable the two retailers to jointly negotiate better terms with manufacturers giving them the opportunity to compete more effectively with larger groups such as Wal-Mart and Carrefour.

In 2001, Casino opened an office in Russia with a view to developing a retail base via acquisitions. The first deals were expected to take place in 2003, although none have yet materialised.

The Schwarz Group is one of the most ambitious global retailers with plans to take Lidl into six new countries this year, in northern Europe and the Baltics, and Kaufland in Bulgaria.

Two significant companies which are pulling back from their international operations are Ahold and Daiei. As has been well documented, Ahold is in the process of offloading under performing businesses in South America and Asia and there is the possibility that it could sell its networks in Central Europe (Czech Republic, Poland and Slovakia) and in Portugal (where it operates in a joint venture with Jeronimo Martins Retail) next year, enabling it to focus on more lucrative operations in the US, Netherlands, Northern Europe and the Baltics and Central America.

In an effort to resuscitate itself, financially-troubled Japanese retailer Daiei has announced that it will sell its overseas retail operations (in China and the USA) as soon as appropriate buyers are identified. This move will enable it to concentrate solely on its Japanese operations.

Top 30 Grocery Retailers: Varying Levels of Internationalisation, 2002-03

Robust levels of M&A activity

Last year saw an increased level of M&A activity amongst the Top 30 with 57 identified deals, involving more than 7,000 stores, representing around USD44 billion worth of net sales. The deals ranged from single store acquisitions, such as Aldi buying two Plus outlets from Tengelmann in Spain, to Carrefour buying a further 20% stake in its Spanish subsidiary Centros Comerciales Carrefour. Wal-Mart's acquisition of Supermercados Amigo reinforced its position as the leading retailer in Puerto Rico, similarly Casino's acquisition of Sé secured its lead in the Brazilian grocery market. Tesco's acquisition of the Hit hypermarket operation in Poland took it to fourth position in the Polish market, whilst Ifil/Auchan's acquisition of a 41% stake in Rinascente will give it greater management control over La Rinascente and will result in a delisting of the company from the stock market.

Top 30 Grocery Retailers: Key Strategic Deals, 2002

Note: *Net retail sales of acquired business
Source: M+M Planet Retail M&A Database (www.planetretail.net)

High levels of activity are likely to continue this year with the sale of Ahold's assets in Latin America and Asia, Safeway and possibly Somerfield in the UK, and a number of deals in the US such as A&P disposals. These are more reflective of defensive strategies as retailers seek to offload poorly performing businesses, rather than aggressive growth.

The ones to watch

Currently ranked number six, US general merchandiser and grocery retailer Target is a key retailer to keep an eye on. Over the last three years, sales have grown by 30% to USD44 billion. Growth has largely been achieved via the rapid development of its SuperTarget hypermarkets, with 102 stores now in operation up from just 18 in 1999. Although dwarfed by the size of Wal-Mart, it is one of Wal-Mart's fiercest challengers. It has a strong own label brand and a reputation for cheap, fashionable clothing.

Drugstore retailer Walgreen has achieved one of the fastest rates of growth across the Top 30 over the last three years, with sales growing by 61% to USD28.6 billion. It is the US market leader in drugstores, with rapid growth achieved through organic expansion seeing it add more than 1,000 stores in the last three years. Although it remains a highly regionalised US operation, long-term international expansion cannot be ruled out.

Fellow drugstore retailer CVS is another aggressive player to watch. It is the US market leader in prescription medicine and the country's largest drugstore operator in store numbers with 4,000 outlets. Since the late 1990s, it has been an aggressive buyer, taking it into new regional markets. With many smaller regional players still to pick up, prospects for further growth are very positive.

By: Corinne Millar, M+M Planet Retail