The growing levels of consolidation in the European food retailing sector are continuing to drive sales growth, with turnover forecast to rise 17 per cent between 2001 and 2006, according to a report published recently by Mintel's Retail Intelligence division.
Although there are several giant groups already active on the market, including Wal-Mart, Carrefour and Ahold, the report suggests that consolidation is far from over, and many more acquisitions and mergers can be expected in the years to come.
But these changes will not necessarily take the form of the traditional big-player-buying-out-little-player scenario. Instead, Retail Intelligence's senior European retail analyst Richard Perks suggests that the growth will be driven by a move into non-food retailing.
"Sales through supermarkets and superstores which have capitalised on their non-food offer have continued to outperform those of the food trade as a whole and the effect on specialist retailers in all these markets will be dramatic," he said.
This kind of store is not new, of course, and the French-style hypermarket concept, offering everything from white goods to mobile phones alongside the traditional fresh produce and milk, has been responsible for a large part of the 22.7 per cent growth in retail growth registered by Retail Intelligence between 1996 and 2001.
But these one-stop shops have not been the only drivers of growth. Advances in distribution technology, computing power and associated systems have made it much easier for retailers with cash to invest to steal a march on the opposition, allowing shelves to be filled more rapidly, and reducing costly warehouse space to a minimum.
Making sure that the products that consumers want are always on the shelves is the challenge which now faces the industry, and those groups which can successfully manage this will have a clear competitive advantage over their rivals.
"Food retailers must have a clear idea of their target market, its needs and aspirations, because any shortcomings in the offer will be punished as customers switch to competitors," Perks said.
As the proliferation of loyalty card schemes across Europe clearly shows, keeping hold of customers is a top priority for retailers, but Retail Intelligence argues that loyalty is more likely to come from providing consumers with one-stop shopping and clear product offer than from loyalty card schemes.
"It is time to give loyalty cards a rest," said Perks. "They have proved a useful promotional tool, but loyalty has to be earned and cannot be bought by a few points on a card."
Moreover, such schemes are expensive to operate and are not guaranteed to generate the expected profits. Safeway, the UK retailer, is a good example of this, having gone from strength to strength in the two years since it scrapped its loyalty scheme because it has focused all its efforts on what its customers want rather than what it thought they wanted.
Hypermarkets a thing of the past?
While the hypermarket format is still very much alive and well on the Continent, strict new planning regulations in countries such as France and Belgium make it unlikely that any new stores of this size will be built.
But this is not a bad thing for the industry, Perks argues, as smaller stores have already learnt the trick of reducing the amount of stock in store to release space for more products.
This kind of in-store expansion will continue, but the major supermarket groups will also look to other formats to boost growth. IN the UK, where large store developments are still permitted, the likes of ASDA and Tesco are developing the hypermarket format to expand their non-food offerings, while Tesco and Sainsbury are both working on new convenience store formats.
"As a result, it is the high street retailers in the middle that are being squeezed as the performance of Iceland and Somerfield makes clear" Perks added.
International growth
Developing new formats inside existing markets is one way of increasing growth, but international acquisition still remains a popular means of expanding market share.
"Saturated domestic markets and the quest for ever-greater buying power and synergistic economies of scale are meaning that gaining size on both domestic and international levels have become one of the pre-eminent goals of grocery retail companies," Perks said.
Wal-Mart, the world's leading retailer, is an excellent example. Since moving into Germany with the acquisition of Wertkauf and Interspar, and into the UK with the acquisition of ASDA, Wal-Mart has shown that it sees Europe as more than a test market.
The arrival of Wal-Mart provoked concern among Europe's leading players. Carrefour, the European number one, announced its merger with Promodes, while UK retailer Tesco pushed on with its expansion in eastern Europe and the Far East.
"The process of internationalisation will continue. There is still scope for the majors to expand in the less developed southern and eastern areas of Europe but internationalisation is not an end in itself, Perks warns. "Indeed, food retailers who want to generate real growth on top of that must expand their non-food ranges and that requires space.