GOING GLOBAL, GETT+NG LOCAL

JAMES FALLON

LONDON (FNS) -- Food retailers worldwide are facing increasing competitive challenges that are forcing them to evolve or go the way of the dinosaur.

Changing patterns of consumer behavior; increasing competition for business from restaurants, convenience stores and other food formats, and a maturation of the industry in North America and Europe are forcing retailers to painstakingly scrutinize all aspects of their businesses, from warehousing to customer interface. The questions they face are how much time they have to change and how they implement the transformation.

The challenges are driving three major trends in food retailing today:

An increasing globalization of the industry, with many retailers expanding rapidly into both developed and undeveloped overseas markets.

The global move toward Efficient Consumer Response and the implications it has for supply-chain and category management.

The search for new formats and marketing tools to protect and increase food retailers' share of consumer spending.

Industry executives and analysts say these trends are likely to dominate food retailing for the next five to 10 years. They also are what will determine the industry's structure and fortunes well into the next century.

"Our industry is in the midst of rapid change," said Cees H. van der Hoeven, president and chief executive officer of Ahold, Zaandam, Netherlands. "Our customers, rightly, continue to pose new challenges for us through less predictable and highly individualized behavior. Through innovations in our stores, the addition of new products and the introduction of new forms of service we are trying more and more to capitalize on changing consumer desires."

Ahold is at the forefront of the industry's global expansion, which is stretching from the United States to the Far East. For example, the Dutch retailer recently acquired Stop & Shop in the Northeastern United States, signed an agreement last fall with PSP Group in Indonesia to jointly develop supermarkets on Java, and moved into the Polish market with its German partner Allkauf. Van der Hoeven earlier this month revealed plans for Ahold to expand aggressively in Eastern Asia, opening pilot shops in Indonesia later this year and in Shanghai by early 1997, and he said the company is in talks with potential partners to open stores in Thailand, Malaysia and Singapore.

Ahold is by no means alone in expansion efforts. Tesco plc of Cheshunt, England, bought 13 stores in the Czech Republic and Slovakia from Kmart earlier this year, acquired a majority stake in Savia of Poland last fall and is continuing to expand its Catteau chain in France. Carrefour also is looking at the Polish market and

is expanding rapidly in Spain and the Far East. Wal-Mart is expanding into Central and South America and the Far East. And J. Sainsbury plc of the United Kingdom is expected in the near future to acquire the remaining 50% stake in Giant Food of Landover, Md., that it doesn't already own to further consolidate the position in the U.S. market it gained with the purchase of Shaw's Supermarkets of East Bridgewater, Mass.

"The consolidation and concentration of food retailing will absolutely continue over the next few years," said Alan McClay, vice president of the business development unit at CIES: The Food Business Forum, Paris.

The concentration is being driven by expanding companies. The driving force is the increasing saturation and maturation of food retailing in North America and Europe, as well as government controls in countries such as the United Kingdom and France on further development of large superstores, analysts say. There are several ways this expansion is occurring, observers noted. Ahold, Delhaize "Le Lion" S.A. of Brussels, Belgium, Sainsbury's and Tesco, among others, are taking the acquisition route, buying up chains in markets such as the United States, Portugal, Spain, France, Greece and some Eastern European countries and using their logistics and merchandising expertise to increase the businesses.

Other retailers are pursuing joint ventures in Eastern Europe and the Far East. A third strategy, being followed by such chains as Tengelmann and Aldi of Germany, Promodes and Carrefour of France, Marks & Spencer of the United Kingdom, and Makro, is to expand overseas with their own stores.

Finally, there is the path being taken by Woolworths Ltd. of Australia, which isn't even opening stores in its overseas expansion -- its goal is to export its expertise in systems and products to local retailers in the Far East. Reginald Claris, group managing director at Woolworths, predicted the chain can become a major supplier to Asian food retailers over the next several years.

"This whole industry is built on the idea of growth," said Glen Terbeek, a partner in the retail division at Anderson Consulting in the United States. "But most of the major players have maxed out in their markets. So their only choice is to expand overseas into less-developed areas. If you're a retailer in a nonsaturated market, watch out."

Bill Gilmour, partner responsible for retail at Coopers & Lybrand in London, said retailers with the most-developed logistics and category management skills are the ones that are most likely to expand successfully abroad. At the same time, he added, local retailers must develop those skills if they are to protect their market shares. Both trends are what are driving the global spread of the Efficient Consumer Response initiative that began in the United States in 1993.

Food retailers and manufacturers launched ECR Europe in Geneva in January with the goal of adapting the program's initiatives in information technology, supply-chain management and category management to the European market. A Coopers & Lybrand study found that European food retailers could cut their operating costs by more than $27 billion and increase sales by up to 300% if they implemented all the benefits of ECR. However, Kurt Salmon Associates found in another study that European companies significantly lag their American counterparts in initiating ECR programs -- only 43% of retailers and 25% of producers have implemented some aspect of ECR.

"But European retailers expect significant benefits from ECR," said Peter Harding, vice president at Kurt Salmon Associates in the United States. "They expect their sales to rise 5%, to cut their warehouse inventories by 8.5%, headquarters administration costs to fall 6.4% and warehouse expenditures to decline 6.1%."

While there continues to be some skepticism among European retailers and suppliers about the cooperation called for by ECR, other executives and analysts stress the European-wide initiative is vital if programs are to be implemented in individual markets. The difficulty is where to start in a market that is far from cohesive. For example, retailers such as Tesco and Ahold are far ahead of their European cousins in terms of logistics and other aspects of ECR. Meanwhile, only a handful of German retailers are close to 100% scanning, said Alan Lintner, a principal at consultants Roland Berger & Partner GmbH in Munich, Germany.

The spread of ECR is a signal that the industry is undergoing a painful shift in how it approaches its processes, executives say. The result is a total reversal of retailers' view of the supply chain and customer service.

"The movement of the goods flow has been switched from push to pull," Han Willemse, vice president of distribution at Albert Heijn NV of Netherlands, said at a recent CIES logistics conference. "It is now the consumer who stands at the helm of the goods flows to the stores."

The problem, according to observers, is how to read this goods flow in an era when consumer behavior is totally unpredictable -- and the customer is just as likely to buy dinner at Pizza Hut as he is at Tesco. How to solve this quandary is splitting the industry into those who want revolution and those who believe in evolution. Terbeek of Anderson Consulting, for example, thinks retailers should stop thinking about how to improve the operation of their 60,000-square-foot superstores through ECR and instead should focus on smaller units selling only convenience food, or home delivery services. Other observers recommend less drastic approaches that would be more evolutionary.

And such retailers as Albert Heijn and Tesco already are adapting. Heijn has had a home shopping experiment, called James, under way for several years and has launched a convenience store format, offering ready-to-serve meals and a limited selection of household products, that it is opening in such locations as airports and railway terminals. Tesco, meanwhile, has launched its Metro format for center-city locations as well as a convenience store-gas station format called Tesco Express.