Global retail powers of 2009: discount supermarkets more prominent

Posted by Daniel Palmer on 13th January 2009

A new report has suggested discount supermarkets will continue to make inroads in the retail sector, while Australia’s Woolworths and Coles both made it comfortably onto the list of the world’s largest 250 retailers.

As the global economy shifted in 2007 from relatively strong growth, to deceleration and on to modest recession in early 2008, consumers cut back on their spending and turned to discount retailers in ever increasing numbers, according to the report, 2009 Global Powers of Retail, from Deloitte Touche Tohmatsu in conjunction with STORES Magazine.

This is demonstrated in the report, which ranks the 250 largest retailers in the world on fiscal 2007 sales figures, by the strong performance of discount retailers in the Top 10. The big movers were Schwarz Unternehmens Treuhand KG (Schwarz), owner of the Lidl supermarket chain, which climbed three places from 10th to 7th. Over the past five years, Schwarz has grown at a faster rate than any of the current Top 10 with a Compound Annual Growth Rate of 12.6 per cent. Aldi GmbH (Aldi) also climbed this year and was the only new entry in the Top 10 taking the place of Sears Holdings Corporation (Sears). The German discount supermarket operator reaped sales success in a tougher British retail environment last year while stepping up their Australian expansion.

“As we move through 2009, consumers will be intensely value-oriented, even more so than in the recent past,” Dr. Ira Kalish, Deloitte Research’s Director of Consumer Business, advised. “We are seeing this already with consumers shifting to more price focused retailers. For all retailers, this environment will require added attention to keeping costs under control.”

Forty-four retailers experienced declining sales in 2007, compared with 36 the year before. Furthermore, the number of unprofitable retailers in the Top 250 doubled from seven in 2006, to 14 in fiscal 2007.

US-based Wal-Mart remained the world’s largest retailer ahead of France’s Carrefour. Tesco and Metro both climbed one place as The Home Depot, Inc suffered its first-ever annual sales decline in 2007 and dropped two places to 5th. Australia’s two largest supermarket operators both found a place in the global top 30.

Top 10 retailers; sales in $US millions; and compound annual growth rate from 2002-2007 (country of origin in brackets):
1. Wal-Mart (US); 374,526; 10.3 per cent
2. Carrefour (France); 112,604; 3.6 per cent
3. Tesco (UK); 94,740; 12.4 per cent
4. Metro (Germany); 87,586; 4.6 per cent
5. Home Depot (US); 77,349; 5.8 per cent
6. The Kroger Co. (US); 70,235; 6.3 per cent
7. Schwarz (Germany); 69,346; 12.6 per cent
8. Target Corporation (US); 63,367; 7.6 per cent
9. Costco Wholesale Corporation (US); 63,088; 10.7 per cent
10. Aldi GmbH & Co. (Germany); 58,487; 4.3 per cent

22. Woolworths (Australia); 41,021; 11.9 per cent
29. Coles Group (Australia); 27,599; 6.4 per cent

Russian, Chinese and South Korean retailers among fastest growing
2006 saw the entry of two Russian and four Chinese retailers to the Top 250 list, highlighting the growth potential of these regions. This year, all six of these retailers have climbed significantly in the rankings. Indeed, two Chinese retailers now feature in the Top 100. Gome Home Appliance Group is ranked 63rd and is the 8th highest ranked retailer in Asia/Pacific, the first Chinese retailer to break into the regional Top 10.

Furthermore, of the ten retailers with the highest Compound Annual Growth Rate over the past five years, two are Russian, two are Chinese and one is South Korean. Indeed, four of the six fastest growing are from emerging markets.

Tougher times ahead but retailers should still go global for growth
The view that the Asian economy had ‘decoupled’ from the US with Asian companies growing under their own steam, and not because of the United States, has been shown to be wanting following the onset of the current financial crisis. There are tougher times ahead in the emerging markets but they may not be hit as hard as developed economies.

“China’s export growth has tapered off in real terms due to the slowing US economy and the rising value of the Chinese currency. However, inflation appears to be under control allowing the easing of monetary policy,” Dr Kalish noted. “The result is likely to be slower growth but not recession and as consumer spending should remain stable, retailers will be in a strong position. India also faces economic slowdown but not recession. While in the longer term, issues such as excessive regulation, poor infrastructure and limits on the supply of human capital could stifle growth, India should still grow more quickly than its historical pattern and retailers will continue to benefit.”

Many retailers which have gone global to try and take advantage of this growth have found the terrain challenging and not as lucrative as originally anticipated. However, the reasons for going global have not disappeared. Indeed, they have been reinforced by recent events. Retail spending is weak in developed countries and is likely to remain so in the near future.

“For the world’s leading retailers, strong growth will come either from gaining market share at home, or moving into new markets – especially emerging markets,” Dr Kalish said. “In the coming years, we may see second-tier retailers as well as more non-food retailers take the plunge. In addition, we are also likely to see retailers based in emerging markets continue the path of investing in other emerging markets and even in some developed markets.”

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