The bigger, the better in European retailing

Related tags European union Euro Portugal Tesco Carrefour

Those European retailers with the biggest international spread -
Carrefour and Tesco - top the latest rankings, but the continued
downturn in the global economy means that this policy of expansion
is not without its risks, according to a new report from Mintel.

Increasing internationalisation of the food retail market has led to a number of changes in the latest European retail rankings. Carrefour remains the continent's biggest food retailer, nearly twice the size of its nearest rivals, but Tesco has overtaken Intermarche to move into second place.

Carrefour's increasingly global business has enabled it to strengthen its market-leading position, according to market research group Mintel, and it is a similar ability to adapt its format to international markets elsewhere in Europe and beyond which has lifted Tesco up the ranking.

Pan-European or even global mass is becoming even more important, the report claims. The quest for buying power and economies of scale is leading retailers to gain size on both a domestic and international level.

But this growth is not without its down side. Even the mighty Wal Mart, the world's biggest retailer, is struggling to understand the complexities of the German market, while Intermarche's acquisition of Spar Handels in Germany continues to be loss making.

Future developments are likely to focus on the countries in Eastern Europe and the lesser-developed areas of southern Europe. "In the future, as the food retail sector becomes even more competitive, the companies able to control their entire store network, such as Carrefour, Tesco and Ahold, will have a considerable competitive advantage over voluntary groups, such as Leclerc and Intermarche,"​ said Richard Perks, author of the Mintel report.

The economy will play a major factor in the growth of retail sales in the coming year, the report claims, with most European economies already showing a downturn in 2001. The UK was the exception to that rule, but the continued boom there, based as it is on low interest rates and high levels of borrowing, will surely burst soon.

The launch of the Euro took its toll on businesses throughout the Euro Zone, and in particular in Germany, but the signs of recovery for the single European currency have led to renewed confidence in many countries.

"The uncertainties at present are enormous. There is the ever-present threat of further attacks on the US or its allies. There are the falls of stock markets around the world. The collapse of major groups, Enron and Worldcom, accounting irregularities at Xerox and the much publicised problems of Vivendi may have relatively little direct impact on consumers but the longer term impact is as yet difficult to assess,"​ said Perks.

And that of course is the downside with the global expansion of retail groups. No matter how successful a company may be in its local market, and indeed how successful it is at implanting its stores in a new country, international businesses are at greater risk of exposure to the vagaries of the world's economy.

Ahold's recent shock announcement of a decline in quarterly profits is evidence of this - the decline was due entirely to its Latin American operations. Portugal's Jeronimo Martins is another good example - the Portuguese economy has never been the strongest in Europe, and but JM's exposure to markets in Latin America and Eastern Europe has simply compounded its financial worries.

Of course, companies as big as Carrefour, Wal Mart, Ahold and Tesco are better able to swallow the cost of these downturns, and the likelihood is that markets in Eastern Europe will continue to strengthen as countries there join the European Union, making the short-term problems there well worth the cost.

But such economic uncertainty means that it remains hard for other players, even those which are successful in their home markets, to expand beyond their national boundaries, for the time being at least. There are still great opportunities for international growth in the food retail market, but the question is how many companies will be able to successfully take advantage of them?

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