CONTINENTAL DIVIDE 1997

GREG GATTUSO

CHICAGO -- European food retailers, straitjacketed in their own countries by strict building codes, must acquire competitors or expand off the continent in order to increase market share.

But the Europeans' trend toward globalization -- and their eagerness to adopt the ECR approach -- is being hampered by a lack of standards in their own countries and the emerging nations of Asia, said Etienne P. Laurent, president and chief executive officer of CIES: The Food Business Forum, Paris.

Laurent, speaking with SN editors before this week's CIES 40th annual executive congress in Boston, said these two trends -- expansion and the push for ECR -- may be based in Europe, but have global implications.

Since France passed a law in 1996 curtailing construction of new stores over 3,000 square feet, many European nations have followed suit, Laurent said. As a result, companies looking to expand have been forced to acquire competitors -- the way Tesco, Cheshunt, England, took over Associated British Foods' Irish chains -- or opening in Asia -- the way Ahold, Zaandam, Netherlands, has been doing rather ambitiously under the Tops and Bi-Lo banners.

"The development of new stores has stopped," said Laurent, speaking to SN editors here during the FMI annual convention. "Governments are taking France's example to restrict trade. [Companies] are stifled in their own countries and that forces them to go outside of Europe. The momentum is moving outside Europe and acquiring competitors."

For retailers seeking growth in a slow-growth industry, Asia has been a profitable discovery, where consumers in Thailand, Malaysia, Indonesia and Singapore have shown tremendous interest in the selection and low prices offered by European-style supermarkets, Laurent said.

"This is a positive trend for the consumer," Laurent said. "The big hypermarkets are creating new conditions, wider choices and reduced prices. The success of Ahold in Asia shows they have struck a very vibrant chord by the way people go to new openings."

However, European retailers are finding a technology gap and a lack of standards that has put hopes of a modern supply chain "in limbo" and resulted in case-by case loading in some areas.

"[Asian countries] are handicapped by insufficient sophistication of systems," he said.

In keeping with the group's mission -- to identify food industry trends and advance best practices and techniques -- Laurent said CIES will offer expanded educational programming to help its members, most of which are now non-European, adopt ECR.

"We have anticipated becoming active in Asia for 10 years," Laurent said, noting the opening of a Tokyo office in 1989 and a Singapore office in 1995.

Now, CIES expects to become a regional entity, aggressively recruiting members and collaborating more closely with local retail associations, Laurent said. CIES is finalizing a special task force of logisticians and suppliers, plus consultants from Coopers & Lybrand, New York, to offer educational opportunities in ECR.

One such opportunity is a traveling "road show," a series of one-day conferences aimed at increasing awareness to supply chain management and ECR.

The program could hit the road as early as October 1997. In it, CIES will work in conjunction with local trade groups, retailers, standards organizations and manufacturers to bring whole regions together for the purpose of modernizing and standardizing the supply chain. "Almost everywhere there is a local retailer association," Laurent said. "They are very important to us. They are the facilititors. We can work with them to avoid duplications."

CIES is currently involved in its busiest conference year ever -- with 11 meetings scheduled in eight countries. The association's third annual conference on ECR, scheduled for early next year, is expected to outdraw this year's 1,650 participants, with an increased number of Asian executives.

"[Asian retailers] have said to us, 'You have to take the lead to initiate the modern supply chain methods in Asia in the spirit of ECR," Laurent said. "CIES will take a quiet but resolute approach."

Laurent sees the development of ECR in Asia closely linked to the growing enthusiasm for the ECR approach in Europe.

"Concern for the ECR approach has penetrated companies to the middle management level," Laurent said. "The top level was convinced. But now, ECR is taking hold of the upper-middle management, too.

"They have recognized the benefits, the collective momentum to adapt the same practices. They are prone to develop bilateral agreements with suppliers."

Currently, a scorecard is on its way to being adapted by each local ECR board, Laurent said. "ECR is planting its roots in the countries themselves.

" While he said CIES will lead the discussion, Laurent noted, "Companies decide to make ECR happen in Europe -- not associations."

Other issues with global significance that CIES is tracking include the following:

A younger, more "rejuvenated" leadership in European supermarket companies.

Laurent said that throughout Europe, a whole new generation of executives is taking over the food retailing industry at companies like J. Sainsbury, Safeway, Tesco, Carl Evern, Tangle and Promides, making supermarkets more customer-focused.

Their new brand of leadership is showing up in terms of more creativity and more aggressive selling. Offering more stockkeeping units per square foot and emphasizing service.

"Shopping has become a chore, especially for the younger generation," Laurent said. "They are more prone to alternative shopping. This is a worldwide phenomenon."

European stores have long offered self-scanning as a way to increase shopper involvement and convenience, while cutting down on time spent in checkout lanes. Some stores do as much as 20% of their volume in self-scanned sales, Laurent said.

European retailers are also beginning to recognize the needs of older consumers, many of whom have trouble reading small type labels. The United States caters better to this group, with motorized carts and other amenities, Laurent said.

"In the United States, consumers have been well taken care of, compared to the European consumer," he noted.

The continuing diversification of the European food retailing industry. Though not a new trend, diversification is certainly noteworthy, with European supermarkets now routinely offering banking, insurance, credit cards and other financial services, travel planning and gasoline.

In France, the highest percentage of gasoline sales are made at supermarkets, Laurent said. More than half of the stand-alone gas stations have closed over the past 10 years, he added. Laurent explained that food retailers are using gas as a loss leader to lure customers with cheap prices. Motorists can usually save 10 cents a liter -- savings of anywhere from $5 to $6 a tank -- by filling up at a supermarket, he said.

The growth of Poland, the Czech Republic and other Central and Eastern European nations. Laurent said the vibrant, aggressive economic growth, coupled with "dynamic, entrepreneurial people," a proconstruction environment and consumer acceptance make this a favorable region for supermarket expansion.

Home-meal replacement. Although meal solutions have become extremely popular in the United States, that is not the case overseas, Laurent said.

"The preparation and enjoyment of food are closely linked in Europe and more so in Asia," he said. "The amount of cooking is going down, but not to a large extent. Not to the extent of the United States, where it is abysmally low."