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Survey: Global Retailers Will Strengthen Core Markets

Although the globalization of food retailing is expected to accelerate over the next five years, it will more likely involve retailers generating returns on their existing investments in overseas markets rather than searching for new territories, according to international food and grocery consulting firm IGD. The 2007 IGD Global Retail Outlook report, previewed for SN last week, found that

London — Although the globalization of food retailing is expected to accelerate over the next five years, it will more likely involve retailers generating returns on their existing investments in overseas markets rather than searching for new territories, according to international food and grocery consulting firm IGD.

The 2007 IGD Global Retail Outlook report, previewed for SN last week, found that 77% of food industry leaders predict that international growth will come from emerging markets as European ones become increasingly saturated.

The era of “flag planting for the sake of it is over,” said Jonathan Gunz, senior business analyst at IGD. “Retail globalization in now less about establishing a presence overseas and more than ever about creating value from these operations.”

Of the major food retailers around the world, the report concludes that Carrefour, Wal-Mart, Tesco and Metro are yet again the only true global grocery operators. And they are expected to further consolidate their positions as the largest players on the world stage, with IGD forecasting that their combined sales volume will grow from a current $676 billion to $979 billion by 2011, which equates to growth of 9% per year.

IGD suggests that tactical acquisitions by these leading players will likely prove critical if they are to retain their prominent positions in the battle for global market share. Of the big four, Cheshunt, England-based Tesco is predicted to achieve the fastest rate of sales growth between now and 2011, with a forecasted 71% increase. It is followed by Düsseldorf, Germany-based Metro AG, with a 51% projected growth rate; Bentonville, Ark.-based Wal-Mart Stores with 41%; and Levallois Perret, France-based Carrefour with 40%.

The result is that Tesco will close the gap on No. 2 retailer Carrefour, but both will remain behind leader Wal-Mart, owing to its sheer scale.

For smaller and midsize players, Gunz said, “The future outlook will be all about how to build strength on a regional rather than a global basis. Successful retailers will tend to build strength-in-depth in existing territories before expanding further overseas.”

Tesco's growth will be helped by its aggressive store opening program; IGD believes the company will increase its store count from 3,262 in 2006 to 6,040 in 2011, a growth rate of 85%. This compares with a much more pedestrian rate of growth forecast by the other big three retailers, which are expected to average a 26% increase over this time frame.

Tesco's growth will be helped by its multi format strategy, which involves opening stores with a wide variety of footprints, including its Express format store, which is significantly smaller than a hypermarket.

Although Carrefour, with its $110 billion sales in 2006, remains far behind Wal-Mart and its $387 billion of annual sales, respondents to an IGD survey predicted that Carrefour will remain the most globally diversified retailer in the world in 2012.

China topped the survey of the five markets predicted to represent the highest growth potential for global grocery retailers over the next five years, with 93% of voters in the IGD survey including it in their Top 5 list of growth opportunities. It was followed by India, with 89% of respondents' votes, Russia with 76%, Brazil 48% and Turkey 29%.

As well as contending with an acceleration of globalization, the grocery industry's leaders also have to prepare themselves to deal with a raft of future consumer issues. The IGD survey found that 66% of respondents believe health and well-being will be one of the most important issues for consumers in 2012. Other likely priority issues for consumers to contend with in five years' time include convenience and climate change.