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November 2010
Euromonitor International
Introduction Channel Strategies and Format Innovations Growth Strategies through Internet Retailing Global Expansion in Emerging Markets Private Label and Product Mix Key Conclusions
Introduction
Euromonitor International
Scope
This briefing on the global Retailing market covers the following channels, focusing on the years 2009 and 2010 in
particular, and on forecast growth trends for the period between 2011 and 2015.
Retailing
Grocery Retailing
Non-Grocery Retailing
Non-Store Retailing
Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised
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Introduction
Euromonitor International
and most international retailers. It also evaluates how they have performed in relation to each other and compared to the overall retailing market, and how they are forecast to adapt their strategies. This report analyses the main strategies of global retailers in terms of channel and store formats, international expansion, internet retailing opportunities, as well as product mix and private label. Key format strategies include a move towards improving value perception, alongside more targeted store layouts to respond to socio-demographic trends. The international expansion strategies adopted by large retailers are set to focus on major emerging markets, especially second-tier cities offering significant growth opportunities, while the development of franchise stores should help widen their global presence. Internet retailing strategies will be increasingly prominent for major retailers, in order to benefit from new consumer behaviours and technological trends favouring greater familiarity with, and more frequent use of online shopping. Key recent trends in terms of product mix and private label highlight how retailers have reacted to the economic downturn by focusing on budget private label, and how the product mix balance between value and premium, and food and non-food is set to evolve, with a greater emphasis on health and convenience. The retailers strategies are discussed in the context of broader external factors which influence demand, such as consumer trends, and socio-demographic and macro-economic conditions. This report covers grocery retailers, non-grocery retailers and non-store retailers. The briefing does not claim to be comprehensive, focusing on key industry categories, but rather seeks to offer highlevel insight into key changes in the market.
Introduction
Euromonitor International
Key Findings
More pronounced low price positioning a key selling point Retailers with a discount or a strong value orientated positioning are among the fastest growing players. New store concepts across most channels feature a marked prevalence towards low prices in order to give them a distinct competitive advantage. The strong growth of internet retailers, including the largest operator, Amazon, is set to continue and to have a defining influence on the strategies of most store-based retailers. This should intensify price wars between store-based and internet retailers. Growing demand for health-related products should continue to boost the parapharmacies/drugstores channel at the expense of grocery retailing formats, and fuel the rise of store concepts offering convenience and a choice of health products. In developed markets, big-box retailers faced with a lack of expansion opportunities in out-of-town locations will increasingly test smaller formats at high-traffic locations to build more flexible expansion strategies and to generate more frequent store visits. The focus on private label through value ranges alongside premium items, which has been a hallmark of the strategies of many grocery retailers in Western Europe as a tool to rise brand loyalty and margins, is set to be more widely adopted worldwide. While large global retailers are still expanding rapidly in emerging markets, notably by entering new markets and venturing into lower-tier cities, small players can often bypass the costs and risks linked to physical stores by using internet retailing only. Diversification helps maintain sales growth for retailers with a strong reliance on declining categories, such as media products. While grocery retailers will focus more on higher margins non-food products, some hypermarkets will streamline their offer. Trends seen in 2010 will still impact the strategies of the largest global retailers until 2015 to a lesser or greater extent, and will influence their relative performances. Low prices may be a less of a key factor compared to convenience and green attributes.
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Introduction
Euromonitor International
Channel strategies and format innovations Convenience, new services and pronounced low price positioning
Global expansion in emerging markets Expanding successfully in emerging markets becomes more essential
Retailer strategies to changing market drivers Growth strategies through internet retailing Stronger web presence, wider offer, higher customer loyalty by using web 2.0 sites Private label and product mix Focus on private label, non-food ranges and fresh food the key tools to boost customer loyalty and margins
KEY FACTORS Internet usage reaches most age and socio-economic groups globally Web 2.0 leads to new consumer behaviours
KEY FACTORS Price wars between internet retailers and store-based retailers for non-food items Demand shifts towards healthier food
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Introduction
Euromonitor International
2010 ranking 1 6 4 7 5 2 12 16 3 32 26 8 20 10 13
2005-10 2005-10 actual CAGR sales increase % (US$ million) 7.1 15.8 10.1 11.0 9.8 4.5 8.3 10.4 5.6 27.6 15.7 6.5 10.2 6.6 7.2 124,297 36,314 33,876 29,445 27,351 25,183 21,695 21,187 20,077 20,206 19,349 18,861 18,656 18,197 17,287
Auchan, Carrefour, Tesco and Wal-Mart, saw sales growth largely driven by expansion in emerging markets. Retailers with a discount or a strong valueorientated positioning feature prominently among the fastest growing retailers, with the presence of the two largest European discounters, Aldi and Schwarz, and the largest discounter in the US, Supervalu. The sharp downturn in the global economy in 2008 and 2009 favoured these retailers at the expense of those with a mid-market or premium price positioning.
Amazon, which grew organically, as well as through acquisitions, benefiting from the rapid expansion of internet retailing and an aggressive pricing strategy backed by efficient operations.
The two largest US-based parapharmacy/drugstore retailers, CVS Caremark and Walgreen, also saw strong sales
growth, as they benefited from the positive impact of an ageing population. The acquisition by CVS Corp of the pharmacy benefits manager Caremark in 2007 also contributed to make CVS Caremark the second largest growing retailer behind Wal-Mart over the 2005-2010 period.
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Introduction Channel Strategies and Format Innovations Growth Strategies through Internet Retailing Global Expansion in Emerging Markets Private Label and Product Mix Key Conclusions
Euromonitor International
Retailers are increasingly testing smaller formats that An ageing population and a lack of suitable sites
enable more flexible expansion strategies, with a greater presence at high-traffic locations. This favours more frequent store visits and helps target older consumers. An older population also fuels the growth of parapharmacies/drugstores and higher sales of health products in other channels.
The expansion of discounters in Europe, and of variety
stores such as dollar stores and other fixed-price retailers in North America and Asia-Pacific, is leading to a stronger focus on low-price positioning for other grocery retailing formats, accompanied by a wider private label offer.
According to the socio-economic profiles of their
markets, creating a more varied local retail landscape, while the gap between first-tier and lower-tier cities is set to grow in developed markets.
location, individual stores which are part of a chain are increasingly being adapted to match the characteristics of local demand, in particular whether they should adopt a discount banner with fewer products and a focus on private label, or should opt for a more premium positioning.
Euromonitor International
the mature hypermarkets channel in France than its main rivals Carrefour and Casino, the group decided to convert its least efficient hypermarkets into new formats to improve their results. The first store under the new Priba banner was opened in March 2010 in Mulhouse. In Russia, Auchan also opted to launch a new brand for its new hypermarket concept, creating the Raduga banner at the end of 2009. The first two outlets, in the cities of Kaluga and Penza, with selling spaces of 5,000 sq m and 7,000 sq m, respectively, offer around 10,000 products, of which 30% are private label. As this format is adapted for expansion in second-tier cities, where large hypermarkets are not viable, Auchan has major ambitions for this concept, with a longterm objective of 100 outlets if it meets targets.
well recognised discounter banner allows Carrefour to capitalise on its low price perception while strengthening the chains convenience positioning. In France, in conjunction with the gradual conversion of ED stores to the Dia banner, Carrefour is also testing the smaller Dia Market. The introduction of the Carrefour Discount budget private label ranges at other convenience store banners also shows the potential for Carrefour to alter the channels price structure, in a similar way to Tescos role in creating lower prices in the channel in the UK by offering private label ranges at Tesco Express outlets.
Western Europe Market Growth Rates: Retail Value rsp excl Sales Tax
4 % CAGR 3 2 1 0
2005-2010 CAGR %
2010-2015 CAGR % 10
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decline, have seen sales further hindered in 2009 by the economic crisis that led consumers to cut their spending and increasingly favour other channels with a lower price positioning, such as hypermarkets, mass merchandisers and warehouse clubs, as well as dollar stores. The largest US department stores operator Mass merchandisers in Japan convert stores to discount in the US, Macys, is attempting to lure back banners these shoppers through a new small Following successful trials, Japans two largest retailers, Aeon and discount format. Announced in early 2010, Seven & I, are both accelerating the conversion of some of their least the small Bloomingdales discount concept, profitable mass merchandiser stores into smaller outlets with selling discount labels, has a selling space discount-orientated concepts, a more limited product assortment and of between 2,500 sq m and 4,000 sq m. In a focus on private label, under the brands The Big and The Price, addition to the initial four outlets planned for respectively. These formats can help reduce costs and offer lower 2010 across three states Florida, New prices, as the channel faces saturation and low margins. Jersey and Virginia more could be opened DIY retailers testing low-price concept in France in 2011. Neiman Marcus similarly launched a new small format under the Last Call Among DIY, home improvement and garden centre operators, the brand in Dallas in the first half of 2010. new concept under the Brico Usine banner launched by Bricorama in April 2010 in Clermont Ferrand offers products at 30% below the The wave of store closures at shopping prices of standard Bricorama outlets and its major competitor Leroy centres and high street locations led to more Merlin, in order to compete more directly against the budget rival commercial property being available and Brico Depot. The company will consider expanding the banner if the encouraged retailers to test new formats. test proves successful.
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Forecasts: Retail Value RSP excl Sales Tax Constant 2010 Prices
6 % CAGR 2010-2015 5 4 3 2 1 0 Japan Convenience stores USA Parapharmacies/Drugstores
new store concept in autumn 2010, which would be a hybrid between convenience stores and parapharmacies/ drugstores, through a partnership with its Tsuruha chain. As it attempts to tap into the growing demand among elderly consumers for medicines sold at convenience stores, while increasing the average ticket per store visit, Aeon has long-term plans for 200 stores nationwide. Another new concept that will compete against Aeons chain is planned to be launched in 2012, illustrating the high growth prospects for this type of hybrid store in Japan. Through an alliance between the convenience stores operator Uny, with its Circle K and Sunkus brands, and the parapharmacies/drugstores chain Cocokara, the two companies will create a new store concept selling prepared and packaged food, as well as cosmetics, with around 50 stores of less than 500 sq m to be opened annually. In the US, the parapharmacies/drugstores operator Walgreen is updating its store layout and product assortment to offer more convenience under the Consumer-Centric Retailing programme, with the conversion of over 2,000 outlets planned in 2010. This will see the Walgreens chain offer cigarettes alongside more food and drinks, in particular with a beer and wine section, in order to generate higher average ticket sales and increase footfall through more frequent store visits.
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France: Grocery Retailers Retail Value rsp excl Sales Tax Y-o-Y Exchange Rates
3,500 3,000 2,500 2,000 1,500 1,000 500 0 2005 Atac Leader Price 2006 2007 2008 2009 2010 Simply Market Atac + Simply Market million
Leader Price discounter chain in 2009, started to revamp its stores in summer 2010, adding at least 250 branded products in October 2010, in a move that ended its previous strategy of offering only private label. Leader Price expects to compete more effectively against Auchans supermarket chain Simply Market, whose supermarket/discounter hybrid positioning has helped the group improve the stores performance on their former incarnation under the Atac brand in France. The success of the Simply Market brand in France, despite difficult market conditions, paved the way for a similar rebranding in Italy, Poland and Spain in 2008 and 2009.
cash-and-carry chain in Brazil since Carrefour acquired it in 2007 provided the impetus for its launch in Colombia in March 2010. Carrefour is considering entering Argentina with the chain. This innovative hybrid format, with a reduced product range to offer lower prices, is also likely to be used as a basis for a streamlined discount hypermarket concept, which Carrefour plans to test in Europe in France and Spain at the end of 2010 or in early 2011. This could also help the company find a suitable format for some of its underperforming hypermarkets.
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30 20 10 0 Atacado 2007 2008 2009 13
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global presence, mass merchandisers sales are derived almost exclusively from North America and Japan.
outlets into hypermarkets, the USs largest mass merchandiser player, Target, announced In January 2010 its plan to develop its food range, including fresh produce, notably through the creation of the PFresh concept, through a US$1 billion investment programme, in order to revamp 340 of its outlets. This move should allow Target to compete more directly against Wal-Marts hypermarkets. In challenging market conditions, Target plans to use store revamps rather than store network expansion to improve its performance, with the planned opening of only 10 outlets in 2010, compared to 60 in 2009.
North America: Market Sizes Retail Value rsp excl Sales Tax Current/constant
360,000 US$ billion 300,000 240,000 180,000 120,000 60,000 0
Wal-Mart is instrumental in driving the channels sales. In the wake of its successful strategy in the US to convert mass merchandiser outlets into its more profitable Supercenter hypermarkets, Wal-Mart started to open hypermarkets in Canada in 2006 and has since focused on expanding in this channel rather than through the more saturated mass merchandisers channel. Wal-Mart plans to convert another 25 to 30 mass merchandisers into hypermarkets in 2010, due to the strong results through this channel.
2005 2006 2007 2008 2009 2010 2015 Hypermarkets Mass Merchandisers 14
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well as from a lack of opportunities for new store expansion and unfavourable demographic conditions, with an ageing population increasingly favouring neighbourhood stores over big-box, out-of-town formats. It was also hit by poor macro-economic conditions in 2009 and stronger competition from internet retailers and specialist non-grocery retailers, such as Fast Retailing, which led to particularly strong declines in sales of clothing and footwear. In this difficult environment, the two largest mass merchandisers operators, Aeon and Seven & I, have embarked on various restructuring strategies to rejuvenate this format, including a rebranding, tested initially at some underperforming stores. Japan: Mass Merchandisers
Company Sales (by GBO) Retail Value rsp excl Sales Tax
names The Big and The Price, respectively, share a pronounced discount-orientated positioning. In order to cut prices while maintaining margins, they rely on a reduced product assortment and a higher proportion of private label, with dedicated ranges sold at prices of around 30% below equivalent branded products. The initial successes of the two new concepts have led to ambitious expansion plans, with Aeon planning to have up to 200 outlets under the new banner by 2012. While Seven & I has not stated such an ambitious target, it will continue to convert some of its Ito-Yokado stores in 2010. These rebranding strategies also highlight the need for Japans main mass merchandiser operators to compete effectively against Wal-Mart, an aggressive player with the Seiyu chain. The launch of a new Seiyu Livin store concept in late 2009 aims at making them more similar to the US Supercenter outlets in terms of layout and supply strategy, by using Wal-Marts global purchasing network.
7,500 6,250 billion 5,000 3,750 2,500 1,250 0 2007 2008 2009 2010 Others Wal-Mart Stores Inc Seven & I Holdings Co, Ltd AEON Group 15
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clothing range, the global economic crisis has resulted in a greater availability of suitable sites for opening these stores, while allowing landlords to avoid leaving space vacant. For its 40th anniversary, Gap launched pop-up stores in Los Angeles, London, New York and Paris in September 2009. In a sign that pop-up stores are paradoxically becoming a more permanent feature of the US retailing landscape in major cities, several companies specialise in providing appropriate sites for these concepts in New York City, which are rented to brands on a short-term basis. Even the pure-play internet retailer eBay opened a temporary high-street store in New York in November 2009.
can lead to a long-lasting retail presence. Following the pop-up store opened in central London in 2009 and selling its yeast-based spread and assorted giftware, Unilever-owned Marmite is considering opening similar shops in other UK cities in 2011. The book publisher Phaidon opened two temporary stores in London and one in New York at the end of 2009. The New York stores popularity led to the group setting up a new store for a longer two-year duration.
10 temporary stores in the UK in 2009, while Toys R Us opened around 600 temporary outlets at shopping centres in the US at the end of 2010, following a similar scheme with 90 units between October 2009 and January 2010. However, while such store openings were profitable in a recessionary or post-recessionary economic environment, they may no longer be a viable option under more buoyant commercial property market conditions.
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smartphones, in addition to related accessories, many chains are developing dedicated mobile phone shop-in-shop concepts in order to provide a wider choice and a better shopping experience for mobile phone shoppers. Electronics and appliance specialist retailers, including Best Buy and DSG International, are at the forefront of this trend, but grocery retailers, including Tesco and Wal-Mart, have also ventured into such store concepts.
Concepts from non-grocery retailers through partnerships with mobile phone specialists
Through a partnership with the UK retailer The Carphone Warehouse, Best Buy developed the Best Buy Mobile
shop-in-shop concept in the US. Following the success of the concept, rolled out at all Best Buy outlets in the US in 2009, the company is focusing on extending the reach of Best Buy Mobile to stand-alone stores, with between 75 and 100 new units planned in 2010. The US mass merchandiser chain Target launched its mobile phone shop-in-shop concept under the brand Bullseye Mobile Solutions, to compete directly against Best Buy, at 100 stores at the end of 2009, through a partnership with RadioShacks Kiosk Operations division. It plans to extend it to all its outlets by the end of 2010. For its electronic and appliance specialist chains Currys and PC World, the UK retailer DSG International also looked to a specialist retailer, Phones4u, in order to offer its expertise for a mobile phone concept. After a trial at five locations, DSG announced in July 2010 that the concept would be extended to 50 stores.
specialist retailer. Tesco plans to open more dedicated mobile phone store-in-store areas at hypermarkets, with a target of 100 new units annually to reach 500 by 2013. Tesco could also use the shop-in-shop concepts as a testing ground for possible standalone outlets at high street locations. Tescos major hypermarket rival Wal-Mart followed the shop-in-shop model with the first units opened in September 2010 at two Asda hypermarkets, and has plans for a roll-out at 150 locations over a two-year period if the concept achieves targets.
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channel, with 37% of world sales in 2009, is a trendsetter for convenience operators, with an offer that crosses the boundaries between grocery retailing and foodservice. It is a heavily concentrated channel, with the top four players Seven & I, Lawson, Itochu and Uny together accounting for 85% of sales in 2009, and key operators innovating to offer more services. This helped convenience stores outperform the other major grocery retailing formats.
Carrefour is rapidly expending into convenience stores and small supermarkets of between 100 sq m and 400 sq m in Poland. With between 50 and 60 new Carrefour Express stores planned for 2010, Carrefour intends to broaden its reach in small towns and villages with populations of between 1,000 and 2,000. In the UK, the John Lewis Partnership opened in 2010 in Cambridge its first small format Waitrose with a focus on fresh food to reach city centre areas, and sees long-term potential for 300 stores of less than 300 sq m.
4 2 % CAGR 0 -2 -4 -6 -8
Japan: Retail Value rsp excl Sales Tax Historic vs Forecast bn Constant 2010 Prices
% CAGR 2005-2010
% CAGR 2010-2015
increasingly focus on concepts with a foodservice positioning, which generate higher margins and footfall. The Chez Jean banner, tested by Casino in France since 2009 at city centre locations, and with 10 stores planned by the end of 2010, offers an upmarket feel, with an emphasis on fresh food, sandwiches and hot meals, and contains a caf area featuring Wi-Fi internet connection and magazines to browse. Rewe started testing a similar concept in Austria at the end of 2009 under the Billa Box banner in Vienna, which focuses on snacks and hot drinks, with a smaller selling space than regular Billa stores, at 150 sq m. With its 7-Eleven chain offering hot meals and takeaway food and drinks, Seven & I has considerable experience of competing against foodservice outlets in Japan. It innovated in Australia with a new format tested in autumn 2009, with a focus on freshly prepared food.
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suitable large sites to build new stores, especially in European markets. Following successful similar launches in France and Russia, Kingfisher unveiled in June 2010 its plans to open B&Q city centre stores of between 3,000 and 4,000 sq m in the UK by 2011. It has identified 60 catchment areas in London and small market towns where it could venture through this new format. Kingfishers rival Focus also plans to launch a more convenient DIY store concept at high street locations, though without stating scheduled openings. It also started testing a store size with a 50% reduction in selling space and 30% fewer products at an existing location by leasing the remaining space.
focusing on a smaller store concept, with a size around half that of most its other stores, at about 10,000 sq m. The concept also has a stronger focus on grocery products and health and beauty products. It opened its first such outlet in January 2010, in the Chicago suburb of Niles, and a second store was opened near Chicago, in Orland Park, in April 2010. This move follows the success of Wal-Marts focus on smaller hypermarkets offering fewer products for its new openings, as part of its Project Impact in 2009 and 2010, albeit with a more modest reduction in size for Wal-Mart. While Target has yet to state a timeframe for the launch of its new smaller format, it also announced plans to open a new store concept in order to target densely populated cities within the next few years. In preparation for this launch, Target is testing a concept with an assortment reduced by 50% at three outlets, to gauge their profitability.
Key Point: Target will need to accelerate the launch of its new format in order to maintain expansion in a mature mass merchandiser channel in the US. With the company planning only 10 new outlets in 2010 instead of around 100 over previous years, this highlights the need for venturing into new areas in order to offset the growing saturation of the traditional big-box store concept.
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published in 2001, the size of grocery retailing stores in Ireland is limited to 3,500 sq m in the Greater Dublin area and 3,000 sq m outside the area. An exception was granted for the building of Irelands first IKEA store near Dublin, which opened in July 2009. This legislation is one of the reasons why relatively few international retailers have entered the Irish market. For example, Sainsburys and Wal-Marts Asda chains are present in Northern Ireland but have no stores in the Irish Republic. However, Tesco has opened one hypermarket and has a dense network of supermarkets. A review of the retail planning guidelines, first published in 2001, was started in June 2010, which could lead to an increase in the store size limit. In the Netherlands, although there are no strict legal restrictions on the building of hypermarkets at a national level, local authorities often refuse to grant planning permission to big-box retail developments. Shopping habits also favour frequent shopping trips to small outlets that are easily accessible within walking or cycling distance for consumers. As a result, the only hypermarket operator, Royal Ahold, has only a modest store network under the AH XL chain, with fewer than 30 outlets in 2009.
retailers need to obtain planning approval from local authorities from 300 sq m to 1,000 sq m, adopted in 2008, allowed discounters to expand more rapidly, as they could not operate profitably with store of less than 300 sq m. By contrast, in Germany, a court ruling in December 2009 rejected the appeal of discounters chains Aldi and Plus to be allowed to build stores in Cologne, Hamburg and Munich. The court stipulated that smaller store formats were likely to be harmed by the proposed store openings.
the Town Planning Act and The Building Control Act in 2004, under pressure from independent retailers fearing the rapid development of foreign retailers with larger stores. These rules restrict the opening of stores with selling spaces of between 300 sq m and 4,000 sq m, which have to be located at least 15km from city centres. Following this legislation, Tesco has focused its expansion on the opening of small convenience stores and small supermarkets, instead of larger grocery retailing formats.
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Introduction Channel Strategies and Format Innovations Growth Strategies through Internet Retailing Global Expansion in Emerging Markets Private Label and Product Mix Key Conclusions
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With greater confidence among consumers in using Higher internet literacy across all age groups
online shops, internet retailing has reached critical mass, thus making it a key channel for most retailers. Retailers can benefit from personalising their marketing, promotions and offers, and use customer transactions to collect data about their shoppers.
Media product stores have stepped up initiatives to offer
media downloads while reducing prices of physical media in order to compete more effectively.
Retailers are adapting their sites to benefit from the rise
social networking sites, become more prominent, internet retailers not only need to adapt their sites accordingly but embrace new ways of advertising and communicating with shoppers without being seen as intrusive.
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enable pure-play internet retailers to offer more flexible and convenient delivery services. The clothing and footwear internet retailer Asos aims to widen its reach by offering its clothes at bricks-and-mortar stores through an agreement with a major high street chain. It was in negotiation with Alliance Boots in the first half of 2010 to set up a partnership to create a collection service at Boots parapharmacies/drugstores. In Taiwan, the internet retailer books.com.tw benefits from its click and collect partnership with the 7-Eleven convenience stores to boost sales.
Support for non-food strategy for Casino in France, Sainsbury in the UK and Wal-Mart in the US
In April 2010, Sainsburys launched a click-and-collect service at selected outlets for its non-food internet retailing
assortment consisting of 8,000 products, including clothes, homeware and furniture. This follows the offering of the non-food ranges in internet retailing since August 2009. These initiatives are part of the retailers wider strategy to double the size of its non-food activities between 2010 and 2015, and compete against the larger players Tesco and Wal-Mart in this area, by allocating up to 50% more selling space to non-food ranges. For its Cdiscount.com site, focused on nonWorld: Internet Retailing Company Sales (by food products, Casino launched a clickGBO) Retail Value rsp excl Sales Tax and-collect service available at some 4,000 Gant Casino hypermarkets in France in October 2009, which is likely to boost the 3,000 groups fledgling non-food sales. This service was extended to selected Casino 2,000 supermarkets in 2010. In October 2010, Wal-Mart started offering 1,000 same-day store pick up services for electronic goods at some stores, in order to 0 make this service more competitive against 2005 2006 2007 2008 2009 2010 its main rival, Best Buy, which achieves Wal-Mart Stores Inc Casino Guichard-Perrachon SA around 40% of its internet retailing sales J Sainsbury Plc through click-and-collect delivery.
US$ million
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A higher cost-base could remain a major obstacle for department Major players show more ambition online Implications store operators to compete on for retailers With sales through department stores seeing stagnation or price alone against pure-play declines in most developed markets, a number of major internet retailers. operators are rapidly developing their online presence. However, in Japan, despite the sharp long-term decline of their World: Historic/forecast Retail core channel, the major department stores still have a modest Value rsp excl Sales Tax Constant 2010 Prices share in internet retailing. In the UK, internet retailing has long been a core element of the 600,000 John Lewis chains strategy, whose internet retailing sales 2010 accounted for 18% of the total brands sales in 2010, compared 2015 450,000 to under 12% in 2008. Growth was supported in 2009 and 2010 by a revamped fashion site with more brands, which the 300,000 company expects will contribute to increasing online sales by between 15% and 20% by 2011. Rival Selfridges followed in John Lewiss footsteps with the launch of its online shop in the 150,000 first half of 2010. Among future new entrants, Finlands largest department stores 0 retailer Stockmann launched an online shopping service in October 2010. This will be supported by the groups Hobby Hall division, which operates in homeshopping. The Stockmann sites main product categories will be clothing and footwear, consumer electronics, and home furnishings and housewares.
US$ million 25
markets has been felt first and foremost by non-grocery retailers, which have often seen a gradual erosion of their sales and more intense price competition from online rivals. As this trend affects department stores strongly, most operators are adopting more ambitious internet retailing strategies.
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Market Sizes: Retail Value rsp excl Sales Tax Forecast Constant 2010 Prices
45,000 40,000 35,000 US$ million 30,000 25,000 20,000 15,000 10,000 5,000 0 2010 2015
and footwear products represent a major growth area within internet retailing in most developed markets. In Germany, the well-established homeshopping channel, with the key players Arcandor and Otto, has led to the early development of clothing and footwear sales through internet retailing, as both companies transferred their homeshopping activities to the internet. This has helped H&M to venture into this market early, and contributed to the company generating over 6% of its total sales in Germany from internet retailing in 2010. In the UK, the major success of the pure-play internet retailer Asos illustrates the rapid growth in internet retail sales of clothing and footwear, with consumers increasingly confident in ordering clothes online. This trend is being replicated in most European markets and is encouraging major clothing and footwear retailers to join pure play retailers.
Germany - Clothing and Footwear Specialist Retailers Germany - Clothing and Footwear Internet Retailing UK - Clothing and Footwear Specialist Retailers UK - Clothing and Footwear Internet Retailing
Key Point: As impulse purchases are essential for clothing and footwear retailers, they should design sites that encourage browsing to maintain this element, while also focusing on clickand-collect services and in-store promotions.
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major clothing and footwear retailers to be present online in order to generate sales from the growing number of consumers who see internet retailing as a major channel to browse and purchase clothes. Leading clothing and footwear have generally been late entrants in internet retailing in Western Europe. The Zara online stores by Inditex opened in September 2010 in major European markets including France, Italy, Spain and the UK. In the same month, H&M unveiled its UK site, which also enables the company to diversify its offering, with a range of soft furnishings. Following its success in the US, with sales exceeding US$1 billion in 2009, Gap entered internet retailing in Canada and the UK in August 2010. Thanks to a dedicated European distribution centre for its UK operations, Gap also intends to venture into nine other European markets over the following months. This move follows an earlier agreement between Asos and Gap to sell Gap clothes on the Asos.com site in the UK in 2009, which gave Gap a small presence in internet retailing and was a first step to gauge demand for its products in this channel.
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impact on non-grocery channels, it is also influencing retailers strategies in the grocery retailing channel, most notably hypermarket operators, as more consumers use the internet as the first port of call for finding non-food product bargains.
Casino Guichard-Perrachon SA: Retailing - Company Shares (by GBO) - Retail Value rsp excl Sales Tax
6,600 6,000 5,400 4,800 million 4,200 3,600 3,000 2,400 1,800 1,200 600 0 Hypermarkets 2005 Internet Retailing 2010
retailing presence in order to offset the saturation of their hypermarket activities. Casinos hypermarket sales in France saw stagnation in 2008 and 2009, as they suffered from aggressive price competition from the larger operators Auchan, Carrefour and E Leclerc, hindering sales and reducing margins in the channel. In contrast to the hypermarket stagnation, as Frances third largest internet retailer, Casino has rapidly increased its sales in internet retailing with the Cdiscount.com brand, selling non-food products including consumer electronics. By comparison, its rival Carrefours internet retailing strategy has remained over-cautious, with modest sales, as delivery services are still restricted to a few major cities. In Germany, Metro is a late entrant in internet retailing. It launched an online shop for its Real hypermarket division in May 2010, in a move which should contribute to improve the chains performance, following the stagnation of its hypermarket sales in 2008 and 2009.
Key Point: In order to complement and support the success of the Cdiscount.com online shopping site in France, Casino could capitalise on the high brand awareness of its store-based brands Casino and Gant Casino by operating internet retailing websites under these brands too.
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offers no internet retailing services for physical products, although it offers a range of services including flower delivery, holidays, mobile phone vouchers and photo printing. Venturing into internet retailing could offer major growth opportunities for Aldi in Germany, to offset the maturity of the discounters channel and the limited potential for network expansion. Although it does not have transactional functions, Aldis website is one of the most visited among German retailers, on a par with Lidl, often exceeding two million monthly visits. Hence, it is a powerful advertising tool in order to generate footfall at its stores.
a modest presence in this channel, and their websites are used more for advertising promotional offers. However, Lidl has had a modest internet retailing presence in Germany since November 2008, following tests conducted in 2006. It offers a selection of non-food products, such as clothes, consumer electronics, homewares and stationery, alongside services such as flower delivery, photo processing and holiday booking. In 2009, Lidl started to advertise its online offer in small catalogues displayed at its German stores. Thanks to the high growth forecast in this channel in Germany and the popularity of the Lidl.de site among consumers to check weekly offers, it is likely that Schwarz will acquire a considerably stronger presence in this channel. Edekas discounter chain Netto launched an online shop for non-food products in August 2010 in Germany, with a small assortment of less than 200 products. Key Point: For the discounter Aldi, offering weekly nonfood promotions through internet retaining, using a clickand-collect service, would be a cost-effective way to gauge potential growth in the channel and drive footfall. The high level of traffic to its website would increase the chances of success and reduce the need for advertising.
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beauty products in Germany and the UK in summer 2010. Beyond the earlier trial in the Seattle area for the delivery of fresh food under the AmazonFresh site, this represents a new venture into grocery products for Amazon.
For its European launch, Amazon has made a
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Germany United Kingdom
10 8 6
both markets. In the UK, it is unlikely to become a major competitor to the three largest grocery retailers in internet retailing, Tesco, Asda and Sainsbury. In Germany, internet retailing sales of beauty and personal care and food and drinks remained modest in 2009, and Amazon will face few major competitors selling grocery products online. However, Metros launch of the Real online shop in May 2010, with an initial offer of 2,000 products, should contribute to boost sales of these product categories.
4
2 0
Beauty and Personal Care Internet Retailing - US$ million Food and Drink Internet Retailing - US$ million % CAGR - Beauty and Personal Care Internet Retailing % CAGR - Food and Drink Internet Retailing 30
% CAGR 2010-2015
minimal investment by choosing to offer grocery products under partnerships with third-party retailers rather than by stocking and delivering the items itself. Hence, this launch could be a seen as test for a possible future expansion. However, under this model, Amazons chances of success will be hindered by high delivery charges. As each partner has to charge for delivery, this prevents shoppers from grouping products into a single order to pay only one delivery fee.
Market Sizes: Retail Value rsp excl Sales Tax Historic vs Forecast Current/constant
5,500 5,000 4,500 12 14
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service, which has strengthened the companys reputation for offering a wide choice and allowed it to offer competitive prices. Amazon's profit margins are also likely to be improved by the greater use of the Marketplace, as it obtains a fixed fee from these sales. This activity has been a major growth contributor for Amazon, with Marketplace orders accounting for around 30% of its total unit sales in 2009, compared to around 25% in 2004, making Amazon a more direct competitor to eBay. The success of Amazon with third-party sales has encouraged other retailers to innovate to make their internet retailing site a well-known portal for smaller retailers. The US department stores Sears, which already had experience of offering products from third-party sellers, started testing in July 2010 a scheme allowing local retailers in the Chicago area to sell products through its website. This scheme enables the company to widen its offering with items meeting local demand and not available at its main Kmart and Sears sites.
Rakuten develops the online shopping centre model in Japan and abroad
The virtual shopping centre site Rakuten Ichiba is widely used by small and large retailers alike in Japan, with over
33,000 merchants which are selected by Rakuten operating on the portal, offering around 50 million products. Rakuten gets a commission of around 2.6% on the retailers sales. The huge popularity of the Rakuten Ichiba site among Japanese consumers, with over 60 million users in 2010, enables those retailers to reach a wider audience. Rakutens major ambitions for growth outside Japan, through a similar business model, are likely to fuel the popularity of virtual shopping malls in the other markets where it operates. After gaining a large presence in Taiwan, Rakuten acquired its peers PriceMinister in France and buy.com in the US during the first half of 2010.
sites such as Amazon and eBay offers the potential to attract new customers thanks to the high level of web traffic on these internet sites. The department store operator Debenhams opened a dedicated site on Amazon and eBay in late 2009, to complement to its debenhams.com site, selling around 1,000 outlets on Amazon and 100 on eBay. For retailers with a more developed internet retailing presence, such as Argos and Tesco, the opening of clearance outlets on eBay allows them to sell discontinued products that can no longer be sold at their main online store.
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major grocery retailers, such as Tesco in the UK and WalMart in the US for books, CDs and DVDs, will continue to dent sales of media products stores. These factors contributed to the demise of the Zavvi chain in the UK in 2008 and Hughes & Hughes in Ireland in early 2010. Hence, store-based retailers will need to continue innovating in internet retailing, with a focus on media downloads. In the UK, HMV launched a dedicated site under the HMV Digital brand in July 2010, following the acquisition of the 7digital download site in 2009, giving it access to 6 million tracks. However, alongside other competitors, HMV will struggle to gain a foothold against Apples iTunes, and opted for an aggressive pricing strategy to undercut Apple.
World: Market Sizes Retail value rsp excl Sales Tax Historic vs Forecast
160,000
120,000 80,000 40,000 0 Media Products Media Products Stores Internet Retailing 2010 2015 % CAGR 2010-2015
14
12 10 8 6 4 2 0 -2 % CAGR 32
internet retailing sales grow by 75% to exceed US$1 billion in its financial year to April 2011, which will help compensate for the stagnation of store-based sales. This will be largely driven by the popularity of digital books, with the success of its Nook device, competing against Amazons Kindle, sales of which rocketed in the last quarter of 2009 in the US.
Media product stores will suffer further from the wide choice and Trend drivers low prices of media products in internet retailing Implications Media downloads will be offered by for retailers a plethora of retailers
on mobile phones rather than on dedicated devices, especially for reading manga. This trend could also become popular outside Japan, as the popularity of smartphones will continue to surge.
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built mostly by the major retailers adoption of a store pick-up delivery model. For example, Sainsbury and Tesco both cover over 90% of the UK population, while Ocado, which delivers through a centralised depot, covers only around 65%. After having expanded their internet retailing operations rapidly through this logistics strategy, the UKs major grocery retailers are increasingly testing the opening of warehouses to support their online growth. Following Tescos example, Wal-Marts Asda opened a warehouse in the north of London in 2010, in a region where it has few stores to rely on for picking up products.
Internet Retailing: Company Sales (by GBO) Retail Value rsp excl Sales Tax
2,800 2,400 2,000 million 1,600 1,200 800 400 0 2005 2006 2007 2008 2009 2010
that the UK retailers business model allows contrasts with the strategy of the large French grocery retailers to serve only selected large cities from warehouses, which has contributed to hinder internet retailing sales. In Germany, most major grocery retailers have not started venturing into internet retailing. However, different shopping habits also play a role in defining these strategies, as British consumers often prefer less frequent weekly grocery shopping trips, thus making the use of online shopping more convenient than for French and German shoppers.
Euromonitor International
areas through internet retailing services. Thanks to the increasingly widespread use of internet retailing in some mature markets, the volumes ordered from these remote areas could become high enough to allow retailers to make deliveries in these territories profitable. In 2010, the Australian retailer Wesfarmers widened its geographical reach to cover selected areas in the Northern Territories and Tasmania, where customers can order goods from the Coles website. Its main rival, Woolworths, also cited the launch of its Big W online store in May 2010 as a way to increase its reach and target new customers in rural areas which are not covered by its stores. Similarly, in Canada, the DIY retailer Home Depots internet retailing service is available in the Northwest Territories, Nunavut and Yukon, in areas where the population density is too low to justify the opening of physical stores.
High delivery charges remain an obstacle to operating profitably in less populated areas
Ikea is among the retailers set to increase its internet retailing presence to expand its catchment area, as the high
costs of opening new stores make it unprofitable to open them in small and medium-sized cities in North America and Western Europe. However, as with other furniture retailers, Ikeas internet retailing sales are likely to remain hindered by high delivery costs. In the UK, the Ikea Direct service, using dedicated vans, has delivery charges ranging from 35 to 120, which do not sit comfortably with Ikeas low price ethos. However, utilising small warehouses as click-and-collect depots could allow the group to meet demand in these areas.
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Trend drivers
brand awareness outside the UK, especially in Europe, partly due to its former presence with physical stores in Western Europe and its current presence in Eastern Europe. The launch of international delivery services, which extended to over 70 countries by the end of 2009, has offered the company a way to capitalise on this with a minimal investment, while also targeting expatriate British consumers. The US department stores operator Nordstrom is also targeting expatriates with the launch of an international delivery service, available in 30 countries in November 2009. In contrast, companies lacking brand awareness can struggle to be visible online. This element could have contributed to the failure of Casinos venture in the UK and Ireland with Cdiscount, which was halted in 2009, less than six months after its launch. With the planned launch of Asos in several major markets, including France, Germany and the US in 2010, the company will need to avoid this potential pitfall.
Internet retailing expansion enables some retailers to expand internationally rapidly and in a costeffective way. Establishing strong brand awareness and achieving high web traffic while having no stores and making sites adapted to local payment and delivery methods remain key challenges.
major obstacles to its development, internet retailing sales are booming in key emerging markets, and international retailers with a store-based presence are increasingly venturing into this channel. In China, retailers can benefit from the growing popularity of internet retailing for non-food products in first-tier cities, as illustrated by the success of Joyo Amazon. Carrefour started to operate through internet retailing in China in 2009, following in the footsteps of Auchan, which has offered online shopping since 2008. In Brazil, Casino and Wal-Mart were both early entrants in operating online, while Carrefour launched its transactional site in March 2010. Casino has a rapidly growing presence with the website extra.com.br, and its ambitions were further highlighted by the acquisition by its Brazilian unit CBD of a controlling stake in the Ponto Frio chain in June 2009, including its online retailing activities. As part of a longer term objective of operating in internet retailing in all the markets in which it has physical stores, Tesco announced in early 2010 its plans to venture into internet retailing in several emerging markets, including Hungary, Poland and Thailand.
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in its infancy, with an estimated 2% of European adults using m-commerce in 2010. However, in the more mature Japanese market, retailers including Aeon and Seven & I generate significant revenues through m-commerce. The rapid rise of music and book downloads, spearheaded by Apple and Amazon, was a key contributor to the strong growth of m-commerce. It also fuelled the popularity of e-book reader devices, such as Amazons Kindle and Barnes & Nobles Nook, alongside Apples iPhone and iPad, and future devices and applications will make it easier and more convenient for shoppers to use mobile internet retailing. Amazon has been at the forefront of using m-commerce, with a dedicated site since 2001, and its sales from mobile devices reached US$1 billion globally in 2009, while its rival eBay expects to achieve US$1.5 billion in sales in 2010.
retailers use them in order to advertise their brands and get customer feedback. However, only a few retailers, such as1-800-Flowers in the US, have launched services allowing the ordering of products directly from these sites. Retailers presence on social network sites can prepare them for the launch of their own online shops. For example, Inditex had over 4 million fans on Facebook prior to its internet retailing launch in several European markets during summer 2010. This could help the group build a strong loyal customer base through internet retailing.
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Introduction Channel Strategies and Format Innovations Growth Strategies through Internet Retailing Global Expansion in Emerging Markets Private Label and Product Mix Key Conclusions
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and modest population growth restrict the potential for organic expansion in developed markets, while the high level of concentration limits the opportunities for acquisitions.
emerging markets, where the competitive landscape is more fragmented and where foreign retailers benefit from greater operational efficiency, while a high quality reputation helps them target the urban middle-classes.
While some of the largest emerging markets, such as First-tier cities in Brazil, China and Russia are
increasingly expensive locations for retailers, and have a dense retail infrastructure marked by the presence of many global brands.
China and Russia, remain key battlegrounds offering significant untapped growth opportunities for global retailers, especially in second-tier cities, retailers will also increasingly venture into smaller and more fragmented markets such as Indonesia and Vietnam.
expansion model in various emerging markets, and are increasingly used by global retailers to reduce risks, especially in smaller markets.
markets, retailers are developing closer partnerships with franchise partners, which are becoming ever more experienced in working with global brands. This model is likely to be used in particular by small store format retailers and non-grocery retailers.
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Note: 2009 provisional data Key: Among the top 2 retailers 1; between the top 3 and 5 retailers 4; below the top 5 retailers 6
Casino have a more limited international presence, confined to a few selected markets where they have achieved a strong position. They also limit risks by generally operating in major emerging markets through partnerships with local partners such as RT Mart in China for Auchan and Big C in Thailand for Casino.
expansion, retailers need to be early entrants. Auchans position as the largest hypermarket operator in Russia was helped by an early market entry and the steady pace of expansion to maintain its leadership against dynamic domestic chains. By contrast, Carrefour entered the market only in 2009, and exited it at the end of the year, after only a few months of operations, as it could not see acquisition prospects to gain a scale of operations to become profitable.
China: major ambitions for Tesco but lags behind other global players
Tesco entered the Chinese market at a relatively late stage compared to Auchan and Carrefour, and will need to
acquire or set up a partnership with another major local chain in order to gain a stronger foothold. Although Tesco has ambitious targets in China, its main direct rivals, Auchan, Carrefour and Wal-Mart, are likely to continue expanding at a similar or faster pace, while competition from more efficient domestic rivals is set to intensify.
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hypermarkets seeing only modest profit margins, have dented the groups ability to maintain its wide global presence and to invest in all its markets, which has led to renewed shareholder pressure to exit As major retailers seek to leave countries where they several emerging markets, while focusing Implications lack the potential to be among the two or three largest on expansion in larger ones, such as for retailers players in their key channel, to focus on their stronger Brazil and China. markets, this leads to higher market concentration. Carrefours CEO, Lars Olofsson, stated Aldis first market exit in Greece that it would consider leaving the markets In July 2010, Aldi announced its intention to sell its 38 stores in where it sees little prospects of achieving Greece, to focus on markets with more favourable expansion leadership if it receives suitable offers. prospects. This move was the first market exit for the company. Aldi Hence, having already abruptly decided to entered Greece in late 2008, and its expansion had been slower than exit Russia at the end of 2009, Carrefour it expected, with 100 stores initially planned by the end of 2009, and its sold its assets in Thailand to Casinos Big price positioning was not as competitive as in other European markets. C subsidiary in November 2010, while Casinos market exit strategy: potential divestment in negotiations with several bidders are still Argentina? ongoing for its stores in Malaysia and Singapore, despite the groups statements Casino, which in previous years has exited Poland and Taiwan, faces surrounding its expansion plans in both similar challenges to Carrefour in its domestic market, with low profit markets as recently as early 2010. margins at its French hypermarkets, and as a result is likely to explore possible divestment opportunities. Casino has a modest presence in However, Carrefours CEO also stated in Argentina, where it sold its Leader Price discounter chain in January May 2010 that its operations in all global 2010, and the group may opt to focus on other Latin American markets markets are profitable and therefore will Brazil, Colombia and Uruguay where it has a stronger position. not need to precipitate divestments.
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through acquisitions, still abounds in China, as the retail infrastructure is Global players are also likely to modernising and new consumption habits favour larger retail formats. continue seeking suitable acquisition Beyond the coastal areas, the potential for expansion in second-tier and targets, as illustrated by Carrefour's third-tier cities in China's hinterland remains important, driven by the purchase of a majority stake in the emergence of a middle class. local chain Baolongcang, present in the Hebei, region in July 2010. Hence, the four major global grocery retailers with the strongest presence in China, Auchan, Carrefour, Tesco and Wal-Mart, all continued to expand Despite a more modest presence in rapidly organically in their core hypermarket channel with the opening of China compared to the other three key between 20 and 30 stores annually, despite the global economic crisis in global players, Tesco Chinas CEO 2009 that led them to curtail investments in some other global markets. Ken Towle issued in a bullish Beyond hypermarkets, Carrefour plans to open over 100 discounters in statement in 2009, with 2 billion 2010, as this smaller format gives the retailer additional growth prospects. investment over a five-year period and claiming that its sales in China could Auchan and Wal-Mart both benefit from a multi-brand strategy by operating match its domestic sales in the long the local banner of their Chinese partner (RT Mart and Trust-Mart respectively) in addition to their international chains. The dynamism of their term. Such an ambitious objective would require Tesco to make major local partners helped widen their lead over other foreign retailers in 2009. acquisitions in China, and venture into China: Hypermarkets Company Shares (by GBO) Retail Value rsp Excl Sales Tax 2007-2010 smaller store formats. 14 As domestic hypermarket chains are 12 rapidly expanding and improving their 10 8 operations to become more efficient, 6 they compete aggressively against 4 foreign players. Hence, the latter will 2 0 seek to acquire them in order to reduce competition, in addition to gain 2007 2008 2009 2010 a greater scale of operations. Tesco Plc Carrefour SA Wal-Mart Stores Inc Auchan Group SA
% share 41
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the grocery retailing competitive environment in South Africa is highly concentrated, with the two largest players, Pick 'n Pay and Shoprite, having a combined share of 40%. Benefiting from their operational expertise and large scale of operations, the two South African retailers are at the forefront of international retailers investing in other African markets, offering more modern store formats and more efficient operations than local retailers.
a lack of modern retail chains, Nigeria is increasingly seen by international retailers as an attractive new market. As the third largest supermarket operator in the Middle East and Africa, Spar is present in seven markets. For its latest market entry in Nigeria, in summer 2010, Spar entered into an agreement with the local retailer Artee Group, which operates the supermarket chain Park n Shop. In the hypermarket channel, the South African retailer Shoprite, which was the first mover in Nigeria under this format, expects to open 20 new outlets between 2010 and 2012, backed by major investment in logistics infrastructure.
Africa, Massmart, whose two main chains are Makro warehouse clubs and Game variety stores, is the player with the widest international presence in Africa, covering 14 markets. Wal-Mart decided to enter the African markets in September 2010 with a US$4 billion non-binding bid for Massmart. With solid net profit margins of almost 3% in the year to June 2009, and sales growth of over 8%, Massmart is a sound takeover target for Wal-Mart for its market entry in Africa. The competitive environment in South Africa and beyond will be affected by the presence of Wal-Mart, which is likely to expand aggressively and use its bargaining power to drive prices down.
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a wider geographic coverage than most other global retailers, especially in several emerging markets where other global retailers remain absent.
summer 2010, Mango was present in around 100 markets, compared to around 75 for Inditex. Over 90% of Mangos new store openings were outside Spain in 2009, when it entered Belarus, Guatemala, Iran and Iraq. In 2010, the company focused on new store openings in Asia and Eastern Europe. Of the 425 new stores that Inditex plans to open in 2010, around 95% will be outside Spain and 40% will be located in Asia. Following new ventures in Bulgaria and Kazakhstan in 2010, Inditex plans to enter Australia and South Africa in 2011. Across many Asian markets, both retailers increasingly compete against the Japanese group Fast Retailing, which is aggressively developing the presence of its Uniqlo stores, notably in China and Malaysia.
700 Inditex, with a notable absence from Latin America and 600 a modest and recent presence in Asia-Pacific, confined 500 to China. However, the Swedish group will accelerate 400 expansion in emerging markets, with plans to enter 300 Turkey in November 2010, and Croatia, Morocco and 200 Romania in 2011. The group also stated its interest in 100 entering Argentina and Brazil, though without specifying 0 a timeframe. EE EE LA LA AP AP With stores in only around 25 countries as of summer 2005 2010 2005 2010 2005 2010 2010, Gap also intends to broaden its global reach INDITEX - Industria de Diseo Textil more rapidly in emerging markets through franchise Hennes & Mauritz (H&M) AB agreements, with market entry in Thailand in spring C&A Mode Brenninkmeijer & Co Punto Fa SL (Mango) 2010 and in the Chinese cities of Beijing and Shanghai Note: EE = Eastern Europe, LA = Latin America, AP = Asia Pacific by the end of 2010. Units 43
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are developing their international presence through franchise deals. Building on its presence in around 20 markets globally, the UK-based department store chain Debenhams opened its first store in Vietnam at the end of 2009, and unveiled a new agreement with a partner in South Korea to open its first stores. While the venture into Vietnam is justified by the lack of maturity of this market, the retailer could struggle to be a profitable operator in South Korea, where domestic department stores Lotte, Hyundai and Shinsegae are highly efficient players. In the Middle East and Africa, Debenhams is reported to be seeking to build upon its existing presence in Egypt, Jordan, Iran and Kuwait, with new ventures in Libya and Morocco. Its rival Marks & Spencer also plans to enter Egypt by the end of 2010, with its first outlet in Cairo under a franchise agreement with Al Futtaim, in an attempt to tap into the growing demand from a young urban population. A larger second outlet is planned for 2012. Under a franchise agreement with Retail Arabia International, the UK retailer House of Fraser is also planning to be present in Middle East markets, with the first stores due to open by 2012. This would mark the companys first foray outside the British Isles. Harrods only operates outside the UK through concessions in department stores in Japan and Singapore, and through airport stores in Malaysia and Singapore. The Harrods brand, benefiting abroad from a luxury positioning associated with British lifestyle, could tap into the rapidly growing demand for luxury products in Chinas major cities.
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covering over 30 markets with a bias towards mature developed markets, alongside strong positions in several emerging markets. They rely mostly on company-owned stores for international growth. Both groups generally buy the land where they build new stores, a process which can be costly and time-consuming. Hence, they have also signed partnership agreements with local partners to operate franchised outlets in several small markets in Asia-Pacific and the Middle East and Africa. These franchise agreements allow the two groups to step up their presence in emerging markets, with a more flexible approach, while reducing costs and risks, especially in the Middle East and Africa.
Strong ambitions for both group in the Middle East and Africa
Carrefour and Ikea have increasingly expanded their franchised
store network in the Middle East and Africa through their local partner Majid Al Futtaim. Carrefour opened its first outlet in Iraq in September 2010, in the northern city of Erbil, in Kurdistan. This follows market entries in Iran and Pakistan under the Hyperstar banner in 2009. With the same local partner, Ikea recorded strong success in the United Arab Emirates, where it benefits from high GDP per capita and the lack of strong direct competitors. This highlights major growth prospects in the gulf countries. Ikea plans to enter Oman and Qatar, with one store in each location, and to relocate its flagship store in Abu Dhabi in early 2011. The two partners are also evaluating opportunities for the Ikea chains market entry in Egypt.
Inter IKEA Systems BV: Retailing Retail Sales excl Sales Tax 2005-2010
2,000
US$ million 1,600 1,200 800 400 0 Asia Pacific 2005 Middle East and Africa 2010 45
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several key emerging markets in Asia-Pacific, such as China, Malaysia and Thailand, with its 7-Eleven convenience stores, Seven & I will increasingly rely on franchised outlets. With around 500 new outlets opened in 2009, to exceed 5,000, Seven & Is dominant position in Thailand against its main convenience stores rival Itochu, with the Family Mart chain, was More franchised convenience stores in developed strengthened in 2009. The proportion of franchised markets stores, which was around 45% at the end of 2009, Seven & Is greater focus on franchised stores to underpin is predicted to increase to 60% over a five-year international growth will also be used to grow in developed period. markets, most notably in the US. As part of its intention to Relying more exclusively on franchisees is also open 500 new stores over a three-year period, Seven & I will part of Seven & Is expansion drive in Malaysia, more aggressively encourage existing convenience stores with up to 200 new stores planned for 2010. In owners to become 7-Eleven franchisees, and will convert China, local authorities have given Seven & I directly managed stores into franchised ones through its permission to open franchised stores in Business Conversion Program (BPP). Guangdong Province, creating major new Supermarkets and hypermarkets: new franchise expansion prospects for the retailer. Itochu will agreements for expansion in the Middle East and Africa also focus on franchise stores to expand its Family Franchise deals are increasingly used by international Mart chain more rapidly in China, with over 250 retailers to enter Middle East and African markets. Carrefour new stores expected in 2010. opened its first hypermarket in Morocco in early 2009, under Among discounter chains, Carrefour expects to an agreement with the local retailer LabelVie, while John open over 150 new outlets in Turkey between the Lewis developed a partnership with Fine Fare Food Market to end of 2010 and late 2012 under its Dia banner, open around 20 Waitrose supermarkets in the UAE and the with more than half being franchised stores. Gulf countries by the end of 2010.
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markets in Asia to expand their store network in an attempt to offset the growing saturation of their domestic markets.
Tianjin, and the group plans to open five stores over a three-year period in other Chinese first-tier cities, as well as in other countries in the future, which will see it take on the Chinese retail giants Gome and Suning. Yamada Denkis direct rival in Japan, Best Denki, also announced that it is considering market entry in China, building on its growing presence in Taiwan, where it acquired the local chain JECO in August 2010. However, major difficulties in its domestic market, which will lead to the closure of around 60 outlets in 2010 and 2011, could hinder its capacity to invest overseas.
focus on the major cities of Chengdu, Dalian, Qingdao, Shanghai and Suzhou. The company has also grown through acquisition, with the purchase of the Times chain at the end of 2009. It also plans to enter Vietnam with its first department store in Hanoi by 2013, which will be the companys fourth department store outside South Korea. Rival Korean retailer Shinsegae stated in May 2010 that it will accelerate expansion in China and open 100 new EMart hypermarkets stores by 2015. However, following a slow start that has seen the company miss its sales targets for 2008, it will still face strong challenges as it needs to increase its price competitiveness and local market knowledge against larger players such as Auchan and Carrefour.
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foreign chains have seen rapid expansion in India, as a part of their wider growth strategies in emerging markets. Having established a presence in major cities, Benetton plans to expand with new outlets in second-tier and third-tier cities. Marks & Spencer also expects Grocery retailers: cash-and-carry and joint ventures with local partners to build its presence in selected As an early entrant, Metro already has a strong presence in India through cashsecond-tier cities with the and-carry, a channel open to FDI as it does not threaten small retailers. Most opening of over 30 outlets other global grocery retailers, notably Tesco and Wal-Mart, are recent entrants. between 2010 and 2013, to Tesco is using a combination of a cash-and-carry presence and joint venture reach a total of 50, while agreements for hypermarkets. Under a joint venture with the Tata Group, Tesco simultaneously building a supplies its hypermarket chain Star Bazaar, present in major cities, and has plans stronger local supply chain to to open its first cash-and-carry outlets in 2011. Carrefour is set to adopt a similar boost the proportion of strategy, but starting from a cash-and-carry store, with a first unit due to open in domestically-sourced products the last quarter of 2010 in New Delhi. The company will also seek to open from 40% to 70%. franchised stores with a local partner as a way to expand nationwide, though no Among recent global entrants in agreement with an Indian retailer had been reached as of September 2010. clothing and footwear retailing, Wal-Mart entered India under the Bharti Wal-Mart joint venture, with an aim to Inditex opened its first Indian open over 10 cash-and-carry stores in 2011 and venture beyond the state of Zara stores in May 2010 in the Punjab. Although it faces supply chain difficulties, Wal-Mart stated that it was also first-tier cities of Mumbai and considering opening stores under its own brand if the rules on FDI change. New Delhi.
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Introduction Channel Strategies and Format Innovations Growth Strategies through Internet Retailing Global Expansion in Emerging Markets Private Label and Product Mix Key Conclusions
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A greater focus on budget private label has been The global economic downturn has increased
consumers acceptance of value products, a trend which is likely to continue shaping demand patterns even after economic conditions have recovered.
apparent for most grocery retailers, especially in Western Europe, as they have sought to protect their margins while offering low price variants that can compete effectively against discounters. Numerous retailers have accompanied the development of their private label offer with a reduction in their overall product assortment.
Grocery retailers have attempted to increase the Consumer demand is increasingly geared
frequency of customers visits and to increase the average ticket by offering more fresh food and non-food products, as well as extra services.
Store-based retailers offering a wide range of non-food A greater number of customers shop online for
non-grocery retailing.
products, such as hypermarkets and mass merchandisers, have adapted their non-food assortment to focus on a reduced range of products and categories which offer the strongest margins and growth prospects.
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food, Switzerland is the European market with the highest share of private label, with a share of 42%, compared to 32% and 38% respectively in Germany and the UK. The highly concentrated nature of the grocery retailing environment in Switzerland and the importance of discounters boosts the total share of private label. Private label ranges show a high level of sophistication to compete against premium branded products. For its Lidl chain, Schwarz focuses strongly on its offer of locally sourced food for its private label assortment, including a dedicated organic range called BioTrend, in an attempt to compete more effectively against the large supermarket operators Coop and Migros. The Lidl chains market entry in 2009, following the venture of Aldi in 2006 to challenge Migros with its Denner chain, has contributed to more intense price competition, affecting the two largest grocery retailers, Coop and Migros. Despite intense price wars in grocery retailing, sales of the Migros supermarket chain increased, helped by the extension of its low-price private label range M-Budget.
Private Label Sales: Retail Value rsp - US$ mn - Major Industries (1) 2009
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 140
120 100 80 60 40 20 0 -20
US$ million
Other major industries (1) Packaged Food Period growth 2004-2009 % Note: (1) Beauty and Personal Care, Home Care, Hot Drinks, Soft Drinks
potential for development, while levels of maturity vary greatly between markets. In Russia, private label remains in its infancy, with a share of 0.2% in packaged food in 2009, as consumers are still showing greater trust in branded food products. By contrast, in the Czech Republic and Poland, as a result of the strong presence of international players, including Schwarz and Tesco in both markets, and Carrefour and the discounter Jernimo Martins with the Biedronka chain in Poland, the share of private label is comparable to some Western European markets for packaged food.
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Retailers risk damaging their margins by focusing too strongly on low-price ranges. Implications The global economic recovery could see a gradual for retailers shift in consumer demand away from budget private label towards more premium ranges and branded products. Carrefour Discount ranges success in
grocery retailers have been adapted with a view to competing more effectively against discounters, and strengthening their price credentials in the midst of the global economic downturn. For Carrefour in France and Tesco in the UK, the launch of new value ranges helped contain the trend towards consumers trading down to discounters.
France
The success of the Carrefour Discount range,
launched in France in April 2009, contributed to half of 2008 and extended in 2009, enabled it to compete more improving Carrefours price image of its directly against discounters. Although it put some pressure on supermarkets and hypermarkets and stemming margins, Tescos strong bargaining power helped mitigate this. the popularity of discounters. Helped by high-profile advertising, sales of the range are During the first quarter of 2010, the range estimated to have reached 1 billion in 2009 in the UK, a similar accounted for almost 15% of the total groups figure to the premium range Tesco Finest. Following these good private label sales in France. The ranges results, the range was offered at Tesco stores in Eastern Europe. popularity will help the group achieve its long but Wal-Mart reinstates some premium products in the term goal to have private label account for 50% UK of its volume sales of grocery items in France, Following a lacklustre sales growth performance against Tesco compared to a share of less than 40% in 2009. and Sainsburys, Wal-Mart opted to refocus on more premium This would bring the group in line with Tesco in private label ranges in 2010, as it acknowledged that its the UK. assortment of products with a premium price positioning was Carrefour Discount products were subsequently lacking depth, and it started offering more choice of such items. introduced in Spain in June 2010, in an attempt This move illustrates the risk for large grocery retailers of to compete against similar budget private label narrowing their ranges excessively towards budget ranges and ranges launched recently by Auchan and Eroski. losing out to retailers with a more comprehensive offer.
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development in grocery retailing in Asia-Pacific compared to Western Europe, but several retailers are adopting more ambitious private label strategies.
Aeon and Seven & I, both have ambitious growth targets for private label sales in 2010. Seven & I plans to increase its offer of private label from around 1,300 to 1,600 items over the financial year ending February 2011 and to raise their sales by 20% to 380 billion, building on the strong performance of the 7 Premium range sold mostly at 7-Eleven convenience stores. Aeon is even more bullish and expects private label sales to reach 750 billion in the year ending February 2011, double the amount of two years earlier, helped by the launch of additional non-food products, including clothes. Among foreign-owned rivals, Wal-Mart focuses on private label at its Seiyu stores. While private label accounted for only 5% of the chains sales in 2007, this proportion is expected to reach 10% in 2010, partly helped by closer sourcing synergies with the groups other global ranges. Tesco launched its first 100 private label products at Tesco Express stores in Japan in early 2009 and intends to expand this assortment to 500 items over 2010. However, such targets may be over-ambitious, as the price advantage of private label is being increasingly eroded by the major price reductions of branded products. Hence, Seven & I is slowing down the widening of its private label offer, with around 300 new items planned in 2010, compared to 500 in 2009.
Retailers often achieve higher Trend margins on private label items than drivers on branded goods and use these ranges to increase brand loyalty. European retailers operating in Asia are set to be prominent in Implications boosting private label sales, as for retailers they benefit from the expertise gained in their domestic markets.
Europe, Tesco offers its private label ranges in Asian markets. In Malaysia, it launched in early 2010 a selection of 200 products offered in the UK, and the group expects private label to account for 15% of its total sales in an unspecified timeframe. Indian consumers are also set to become more familiar with Tescos private label ranges, following an agreement with the Star Bazaar chain in early 2010 to sell 50 products, mostly beauty ranges. In China, where Carrefour has been a pioneer in offering private label items, other foreign retailers are making similar moves. Aeon launched a range of private label food in late 2009, and Seven & I extended its 7 Premium range in early 2010, to include bakery products.
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either cooked at its stores or that can be selected from a buffet, in a move that enables the chain to compete more directly against foodservice operators selling bento boxes and to give it an edge over 7-Eleven. The new format will initially be tested at around 200 stores in Tokyo and in the Kansai area in 2010.
Fresh food focus to give competitive advantage, increase footfall and offer more convenience
In the battle between Australias two largest grocery retailers, Woolworths and Wesfarmers, the former uses fresh
food as a more important aspect of its strategy, under the slogan The Fresh Food People. Stores refurbished in 2009 and 2010 feature improved displays for fruit, vegetables, meat and bakery products. The US parapharmacies/drugstores operator Walgreen is widening its offer of fresh food, as it seeks to exploit its chains broad presence at high traffic locations by encouraging customers to visit the stores more frequently as an alternative to supermarkets or convenience stores. In the longer term, the retailer intends to sell fresh food across all its stores to bring greater convenience. As part of this strategy to increase fresh food sales, it will start testing in autumn 2010 the offer of chilled food at selected locations. Among US mass merchandisers, Target is challenging Wal-Mart more directly by improving its fresh food assortment, including bakery and meat, through the PFresh concept, and the retailer expects customers to increase their store visit frequency. After its initial successes and the planned conversion of over 350 units in 2010, Target will accelerate its roll-out in 2011. Similarly, one key aspect of Wal-Marts vast Project Impact programme is an expanded selection of fresh food.
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recession in most developed markets in 2009, most grocery retailers see longer term potential in diversifying and venturing more aggressively into nonfood products as the economy recovers. Non-food is set to become a more important cornerstone of Wal-Marts strategy in the UK for its Asda chain, under an ambitious target to overtake Tesco in terms of sales of non-food products sales by 2015, with a focus on clothing and homewares. This objective will be partly supported by the opening of 150 Asda Living stores. The Netherlands largest grocery retailer, Ahold, started to offer a nonfood selection with five major ranges of AH labelled products at some of its largest Albert Heijn supermarkets and at all hypermarkets in early 2010, supported by weekly promotions. The group will compete against chains with a strong image, such as Hema and Ikea.
Grocery retailers intend to increase the average ticket by offering wider and more competitive ranges of non-food products. Allocating extra selling space to non-food products at Implications supermarkets, and making these new departments more for retailers profitable than the equivalent grocery areas, creates major challenges for retailers with little experience of non-food. Trend drivers
purchase non-food products, at the expense of store-based channels. Thanks to the growing sales of non-food products through its online store Cdiscount in France, Casino has at least partially offset the stagnation in these categories at its hypermarkets. As they increase their presence in internet retailing, most grocery retailers have greater opportunities to expand into non-grocery products at a minimal cost, as they can use warehouse space in a more optimised way, rather than the stores selling space for product storage In the UK, Sainsburys started selling non-food items online in summer 2009, a move accompanied by allocating more selling space to non-food products, including clothing, consumer electronics and homewares, at its hypermarkets. As part of Tescos wider ambitions to make F&F one of the worlds largest clothing labels, it launched the new premium F&F Couture range exclusively online in the UK in March 2010. Key Point: For their non-food assortment, grocery retailers face more direct competition from pure-play internet retailers with aggressive prices often helped by lower cost structures. Hence, grocery retailers need to closely integrate their non-food strategy with a multi-channel approach.
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vulnerable to online competition is a key challenge for hypermarket operators. In a statement highlighting the need to streamline its hypermarket offering to meet new demand patterns and improve its performance, Carrefours CEO Lars Olofsson stated that the concept of the hypermarket selling everything under one roof is a thing of the past. The new store concept, dubbed Planet, introduced in August 2010 at two locations near Lyon, focuses on a narrower range of non-food categories where the chain is most competitive, including clothing, homewares and consumer electronics. The Carrefour Planet stores also offer additional services, such as a Kids Workshop and a caf. The revamp is set eventually to be implemented at 500 European locations, with 1.5 billion investment by 2013. Although Carrefours move towards a streamlined assortment should help improve its sales per square metre, the strong results of Auchan in France illustrate how hypermarkets can remain successful in operating large outlets selling a wide range of non-food product categories at low prices, with Auchans success built on giving choice and a more premium feel to its hypermarkets.
France: Hypermarkets Retail Value rsp excl Sales Tax ( per sq m) 2005-2010
13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000
categories, such as media products, diversification helps maintain sales growth. The US-based electronics and appliance specialist retailer Best Buy increasingly focuses on offering high-margin digital products, as well as services including installation and advice, building on its strong image in the latter area with the Geek Squad brand. For the media product store chain HMV, battling with falling CD sales in the UK, diversification efforts have included a recent move to sell clothes, as well as venturing into adjacent areas of the entertainment industry, such as ticketing, cinema and concerts.
per sq m
2005
2010
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number of products sold (SKUs) in order to cut costs. They often delist branded products which do not belong to the two or three biggest selling brands in each product category. The US discounter Supervalu embarked on a programme to cut the number of SKUs to simplify its assortment in the second half of 2009 in an attempt to compete more effectively against Wal-Mart on price. In a similar way, Carrefour intends to reduce the number of SKUs at its hypermarkets, with a 15% cut for food products and 50% for non-food items.
reduction programme introduced under the Project Impact name in the US. This plan was combined with a stronger focus on private label.. Although this contributed to the success of the Great Value range, sales of which are estimated to have exceeded US$12 billion in 2009, this move is likely to have had a negative impact on overall sales. Hence, Wal-Mart started in the first half of 2010 to reintroduce some of the branded products that had been previously delisted, as it was risking losing footfall as a result of not offering some brands. Sobeys has experienced a similar setback for its Loblaw supermarket chain in Canada, where around half of the products that it removed from the store shelves at the end of 2009 had to be relisted in June 2010.
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Introduction Channel Strategies and Format Innovations Growth Strategies through Internet Retailing Global Expansion in Emerging Markets Private Label and Product Mix Key Conclusions
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Key Conclusions
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Impact 2009
Impact 2010
Convenience and low prices will be key attributes Low prices and of new store formats in order to match convenience discounters and internet retailers. Large store aspects for formats will often streamline their offer or cut new formats prices to be more competitive.
formats in Poland and Turkey Seven & Is launch of a small concept for its Ito-Yokado chain
Wal-Mart pushes suppliers to
While price will remain a top priority for Low prices consumers during the post-recession period, against offering environmental issues will increasingly come to greener the fore. Retailers will need to offer low prices products without compromising on green ethos.
Internet retailing and multi-channel opportunities Franchise and new market entries to drive global expansion Product mix favours premium private label
become greener and will work in collaboration with farmers to reduce the environmental impact of farming.
With internet retailing now ingrained in shopping Rakuten and 7-Eleven agreed to develop multichannel routines, retailers will focus on multi-channel synergies to offer new store-based services and services in Taiwan by using the latters stores as payment use internet retailing to garner more consumer and collection points data and improve customer loyalty. With the growing saturation in large first-tier cities in major emerging markets, such as China and Russia, expansion opportunities in these markets will increasingly lie in secondary cities, alongside entering new smaller markets.
Wal-Marts decision to invest
in Africa before it has ventured into Russia highlights the approach to invest in less saturated markets. The exclusivity deal between The ongoing blurring of the boundaries between Duchy Originals and Waitrose private label and branded products, with a greater stresses the opportunities for focus on premium private label, will help retailers retailers to create a distinct increase their margins and could lead to a premium image for private reduction of the offer of branded products. label
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Key Conclusions
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Losers
Carrefour SA
Aldi Group
Report Definitions
Euromonitor International
Definitions
All values expressed in this report are in US dollar terms using a fixed 2010 exchange rate, unless otherwise stated. 2010 figures are based on part-year estimates. All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data
are expressed in current terms; inflationary effects are taken into account, unless otherwise stated. Retailing coverage: Hypermarkets Supermarkets Discounters Small grocery retailers: convenience stores, independent small grocers, forecourt retailers Mixed retailers: variety stores, department stores, mass merchandisers, warehouse clubs Health and beauty specialist retailers: chemists/pharmacies, parapharmacies/drugstores, beauty specialist retailers, other healthcare specialist retailers Clothing and footwear specialist retailers Home and garden specialist retailers: furniture and furnishings stores; DIY, home improvement and garden centres Electronics and appliance specialist retailers Leisure and personal goods specialist retailers: booksellers and stationers; audio-visual stores; toys and games stores; sports goods stores; pet shops and superstores; other leisure and personal goods specialist retailers Non-store retailing: vending, homeshopping, internet retailing, direct selling Modern grocery retailing is the sum of the following channels: hypermarkets, supermarkets, discounters, convenience stores and forecourt retailers Traditional grocery retailing is the sum of the following channels: independent small grocers, food/drink/tobacco specialists, and other grocery retailers
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