WORLD LEADERS 1995

The world's biggest supermarket retailers are in fast motion.

o embrace new formats, particularly the discount concepts rising in popularity.

In this issue, SN Global profiles the top 10 supermarket operators in the world, a group derived from a list of the world's top 35 food retailers provided by Management Horizons, a consulting division of Price Waterhouse (see Page 4). The listings and accompanying profiles point to fast changes in the way operators do business.

Western European-based retailers such as Tengelmann Group and Rewe Zentrale are getting more aggressive at breaking out of mature local markets and diversifying into regions ranging from Eastern Europe to the United States. Many are jumping on the discount trend

pushed by companies such as Aldi. A large number continue to expand their private-label businesses as they spread to new markets.

In the United States, cost-cutting and re-engineering continue to loom large in business strategies, while operators with far-flung divisions are focusing on developing buying and logistics synergies. Some companies, notably Kroger Co., the No. 1 food retailer in the United States, are accelarating expansion after finding success with revised store formats. Among the top 10, four are based in Germany, three in the U.S., and one each in France, England and the Netherlands. The top three supermarket companies -- Tenglemann, Rewe Zentrale and Kroger Co. -- held their respective rankings in the Management Horizons list from the year before. Among companies gaining in the rankings was Aldi, which jumped to fourth place from seventh on the strength of its expansion program. In contrast, J. Sainsbury was among the biggest decliners, slipping from sixth to eighth on the list after facing stiffer sales competition from expanding international food competitors.

The list of top retailers is based on fiscal year data for companies whose years ended between July 1, 1993, and June 30, 1994. While these numbers aren't the latest available for some companies, they were the most complete available for a comprehensive listing of international supermarketing. However, the individual company profiles that accompany the chart cite the most recent sales numbers. The latter numbers also use more recent exchange rates, which may give the appearance of larger gains in sales compared with the chart's 1993 numbers than is actually the case.

Some companies with large supermarket operations didn't make the list because supermarkets weren't their primary source of sales. For instance, most of the large Japanese retailers have major supermarket operations, but they are considered diversified rather than primarily supermarket companies. Following are profiles of the 10 highest-volume supermarket companies.

Company features by James Fallon in the United Kingdom and Elliot Zwiebach in the United States.

1. TENGELMANN GROUP, Germany

Tengelmann, facing increasing pressure in Germany from such discounters as Aldi, has decided to ride with the herd.

The 102-year-old company, based in Mulheim, Germany, has 5,192 stores selling everything from food to apparel, and is aggressively expanding its discount formats throughout Europe. It also is building its private-label program on both sides of the Atlantic. And Tengelmann clearly has the resources to fund its European expansion, with sales in the year ended June 30, 1994, of $35.51 billion (48.99 billion deutsche marks). About 90% of sales are in food retailing.

Sharp price competition has forced Tengelmann to step up its private-label program in Germany with the introduction of the Master Product line into its Tengelmann, Kaiser and hypermarket operations. In the short term, Tengelmann's main European focus will be on the former East Germany, where it has 500 stores. It invested $652.17 million from 1988 to 1994 and expects to invest another $724.6 million over the next few years. Outside Germany, Tengelmann operates food stores in Italy, Austria, the Netherlands, Hungary, the Czech Republic and Spain as well as the United States, where it owns the A&P chain. The latter chain continues to struggle against increasing competition. The company invested about $350 million last year in new stores and refurbishments and continues to build its private-label program through its America's Choice line.

2. Rewe Zentrale, Germany

Rewe will be casting its net wider over the next few years.

The Cologne-based company is focusing its attention outside Germany as a result of a slowdown in growth in its domestic market and tough competition from the likes of Aldi, Lidl and Tengelmann. Rewe, whose operations include discount stores, hypermarkets, cash-and-carry outlets, office supply and electrical stores, as well as supermarkets, reported a 3.1% increase in sales in 1994 to $30.39 billion (41.64 billion deutsche marks) from $29.49 billion in 1993. The company had 8,497 stores in 1993 and almost 9,000 as of last year, analysts said.

Rewe has expanded rapidly into the former East Germany, where it had almost 1,000 stores as of last year. It also has opened a cash-and-carry outlet in Prague, Czech Republic, and is eyeing the Russian market in the long term. It reached an agreement with Esseclunga in 1994 to establish its core Penny Markt format in Italy and also is in talks with potential partners in Belgium and Spain.

The Esseclunga deal will form a cornerstone of Rewe's expansion plans this year following the failure of a strategy to move into the United Kingdom.

3. KROGER CO., United States

Kroger Co., Cincinnati, the largest supermarket operator in the United States, is now accelerating its store expansion program after determining that its present format is a winner.

The operator, which competes against supercenters more than virtually any other U.S. supermarket chain, will reinvest cash flow to lift square footage expansion.

Kroger had planned to spend about $1.8 billion on capital expenditures over the next three years. However, having decided that its new stores have been successful against all forms of competition, Kroger plans to increase capital spending to $1.96 billion over the three-year period. The spending will be geared to investments in new stores and technology and logistics systems.

Kroger operates 1,301 stores in 19 states, with 1994 sales of $23 billion. Kroger's geographically diverse store base provides protection, analysts note. Other positive factors are managements focused cost-cutting efforts and declining working capital requirements, analysts said.

Joseph A. Pichler, chairman and chief executive officer, said the combination stores Kroger opened in 1993 and 1994 "are producing returns greater than we originally projected."

4. ALDI, Germany

Aldi's discount format is catching on. The company, one of Germany's largest and most secretive aretailers, continues to push into other markets both east and west. The expansion has propelled the retailer into the fourth spot on the largest supermarket list, up from a ranking of seven the year before.

Aldi currently operates more than 3,500 stores in Germany, Belgium, Denmark, the Netherlands, France, Austria, the United Kingdom and the United States, where it has about 400 outlets and also owns 11% of the Albertson's chain of Boise, Idaho. Its main push in the last five years has been in the United Kingdom, which it entered in 1990 and where it now has about 140 stores, with sales approaching $480 million (300 million pounds) a year. It also is targeting Denmark, which it entered in 1976 but where it had a checkered profits record until 1993. It expects to have up to 250 stores in Denmark by 1998.

Aldi, which is split into Aldi North, Essen, and Aldi South, Mulheim, doesn't reveal its earnings or sales, but observers estimate its current annual sales at more than $25.36 billion (35 billion deutsche marks), and the company is believe to be growing at a rate of about 10% each year. Its ability to invest is fueled by its dominance of the German market, where Management Horizons estimates it has more than 12% of the food retail market and almost half of the discount sector. In Eastern Europe, the chain has moved into the former East Germany with about 150 stores, but it still lags its main competitor Lidl & Schwarz in store numbers.

5. Intermarche, France

Intermarche is on an expansion drive.

The Paris-based food retailer, which was founded in September 1969 as a breakaway from Leclerc, has been expanding its operations in Belgium and the Iberian peninsula over the last several years and it now is targeting central Italy. According to Management Horizons, Intermarche could open up to 70 stores there by late this year and the company hasn't ruled out acquisitions or joint ventures to further expand in that market.

The move into other geographical markets has helped fuel Intermarche's sales growth, which has averaged more than 3% in each of the last three years. Sales rose 3.2% in 1994 to $24.1 billion (121.24 billion French francs).

Intermarche operates 2,644 stores, which are owned independently by about 2,000 retailers, none of which owns more than two stores. The key to Intermarche's success is its emphasis on low prices as it faces increasing competition in France from Aldi and Lidl of Germany. The company operates 38 distribution centers throughout France.

6. AMERICAN STORES CO., United States

As it continues to evolve from a holding company to an operating company, American Stores, Salt Lake City, is attempting to better leverage its size. The goal is to gain a variety of cost advantages so it can accelerate store remodeling, improve service and lower pricing. American operates 1,597 stores in 26 states, including Acme Markets in the Philadelphia area, Jewel Food Stores in the Chicago area, Lucky Stores in California, Jewel Osco in New Mexico, and Osco and Sav-On drug stores in the Midwest and West, respectively. Because of the sale of 45 Acme units and its Star Market subsidiary in the Boston area late last year, American's 1994 sales fell 2.2% to $18.4 billion, while same-store sales were up 0.5%. To improve its operating results, the company is re-engineering its business to eliminate walls between operating segments in the areas of buying, distribution logistics, technology, accounting, real estate and other administrative functions. It has also set up a national buying program to enhance and coordinate branded and private-label strategies and logistics. American is also experimenting with a variety of formats, including a price-impact concept called Super Saver, and is considering a new fresh foods format.

7. Edeka Zentrale, Germany

Edeka posted the biggest ranking increase of the top 10 supermarkets after boosting its stake in certain affiliates and retail food chains.

The Hamburg-based group has operations in Germany, Denmark and the Czech Republic spanning food retailing and wholesaling. Over the last few years it has gradually increased its shareholdings throughout all three markets. In common with other German food retailers, Edeka has been moving beyond its domestic market to find new areas of growth. It is rolling out its Delta retail food chain in the Czech Republic following the opening of three stores there last year and has formed a cooperative agreement with the Adeg group of Austria to focus on cross-border purchasing. Edeka's 50% subsidiary, Edeka Danmark, has about 5% of the Danish grocery market, while Edeka has about 18% of the German food retail market.

Edeka, a voluntary association of independent and company-owned retailers, has about 11,400 stores covering food and other areas. The sales figure in the top supermarkets chart refers only to Edeka's retail sector. The Edeka group reported a 3.3% increase in sales last year to $38.3 billion (52.48 billion deutsche marks) from $37.08 billion in 1993. 8. J. SAINSBURY, United Kingdom

J. Sainsbury, London, may be the United Kingdom's largest food retailer, but in the last year it has begun an aggressive expansion program to lessen its dependence on both food and its domestic market.

The company, which slipped in the rankings to No. 8 from No. 6 because of the expansion of other international food chains, has in the last year acquired a 50% voting stake in the 159-store U.S. chain Giant Food, as well as the 241-store Texas D-I-Y home improvement chain in the United Kingdom. The latter group of stores is being converted to Sainsbury's existing Homebase format.

The acquisitions form part of Sainsbury's strategic plan to find other areas of growth as the U.K. food retail market becomes more competitive and tighter government planning rules for stores outside city limits retard the potential to develop new and larger stores. The company currently has about 355 Sainsbury's stores in Britain.

Sainsbury in the last two years has moved to further strengthen its private-label business by launching secondary brands in numerous categories.

The company reported a 281% increase in after-tax profits in the most recent fiscal year to $857.5 million (539.3 million pounds) on a 7.5% rise in sales to $19.2 billion. The sharp performance increase stemmed from the lack of exceptional costs last year.

9. SAFEWAY, United States

Safeway is regarded as a textbook example of how to restructure a major supermarket company. "It's the most dramatically successful turnaround I've ever seen," Gary Giblen, a financial analyst at Smith Barney, New York, told SN Global. "And I think Safeway is the best-managed company in the supermarket industry today." Safeway, Oakland, Calif., operates 1,062 stores in the United States and Canada, with 1994 sales of $15.6 billion, up 2.7% over 1993, and same-store sales increases of 4.4% for the year. Overseeing Safeway's turnaround is Steve Burd, who moved from outside consultant to president in 1992 and added the title of chief executive officer in 1993. He has three top priorities: to reduce expenses, build sales and refocus capital spending over a five-year period. And the company is making progress on all three counts. Safeway boosted its capital budget from $290 million in 1993 to $352 million last year and a projected $400 million this year -- with 75% of the money going into its existing store base.

10. AHOLD, the Netherlands

Ahold already is big, but it wants to be bigger. The Zaandam-based retailer is aiming to double profits and sales over the next five years. Ahold reported net profits rose 20% to $264 million on a 7% rise in sales to $17 billion for the year ended Dec. 31, 1994.

Cees van der Hoeven, the company's president, said Ahold remains on the prowl for purchases in the United States, Western and Eastern Europe and Southeast Asia, which it has targeted more recently as a region with above-average growth prospects.

Ahold currently operates about 2,300 supermarkets and specialty stores in the Netherlands, the United States, Portugal and the Czech Republic. About 46.5% of Ahold's sales last year were in the United States, a percentage boosted by its acquisition of Red Food Stores in Tennessee, which has become part of the BI-LO chain. Other U.S. operations include Giant, Tops, Edwards and Finast.

Aholds dominates its Dutch market, and owns one of Europe's strongest private-label brands. It is recognized as one of the world's most innovative food retailers.

Portugal and the Czech Republic are two of the territories in which Ahold sees the greatest potential for future growth.

The Top 35 Global Supermarket Companies

RANK '93 SALES

'93 '92 COMPANY (& Base Country) (in billions US)

1 1 Tenglemann (Germany) $29.5

2 2 Rewe Zentrale AG (Germany) $27.2

3 3 Kroger Co. (U.S.) $22.4

4 7 Aldi (Germany) $20.9

5 4 Intermarche (France) $20.7

6 5 American Stores Co. (U.S.) $18.8

7 20 Edeka Zentrale AG (Germany) $17.9

8 6 J. Sainsbury (U.K.) $15.9

9 8 Safeway (U.S.) $15.2

10 11 Koninklijke Ahold N.V. (Netherlands) $14.6

11 10 Tesco PLC (U.K.) $12.9

12 NA Crai (Italy) $11.9

13 13 Seiyu (Japan) $11.8

14 16 Albertson's (U.S.) $11.3

15 12 Casino Guichard-Perrachon & Co (France) $11.1

16 14 Winn-Dixie Stores (U.S.) $11.1

17 17 Groupe Delhaize "Le Lion" (Belgium) $10.6

18 15 Migros Genossenschafts-Bund (Switzerland) $10.2

19 18 Argyll Group (U.K.) $8.4

20 24 Woolworths Limited $7.9

21 22 Spar Handels AG (Germany) $7.8

22 29 Publix Super Markets (U.S.) $7.6

23 21 ASDA Group (U.K.) $7.3

24 26 Co-op Switzerland (Switzerland) $7.3

25 28 Systeme U (France) $7.3

26 25 Loblaws (Canada) $7.3

27 19 Conad (Italy) $6.9

28 23 Co-op Italia (Italy) $6.8

29 30 Lidi & Schwarz Stiftung & Co KG (Germany) $6.4

30 NA Kesko OY (Finland) $5.6

31 27 ICA Handlarnas AS (Sweden) $5.2

32 NA Vons Cos. (U.S.) $5.1

33 NA Somerfield Holdings (U.K.) $4.7

34 NA Cifra SA DE CV (Mexico) $4.6

35 NA Pathmark Stores (U.S.) $4.2