Retailers turn to non-food to drive growth
by sales of food but rather by the ever-widening range of non-food
goods, claims a new report. But while Carrefour and its French
compatriots continue to dominate in terms of sheer size, it is the
British groups which are leading the push towards strong non-food
brands, writes Chris Jones.
The new report, from British market research group Mintel, shows that across 19 European countries, sales through all food retailers climbed by almost 16 per cent between 1999 and 2003 to reach more than €870 billion, meaning that food retailers accounted for almost half of all retail sales over that period.
But the Mintel data also showed that in all but four of the countries (France, Spain, Sweden and Denmark), food retailers increased their share of total retail revenues despite the fact that food is a mature market. This, the analysts suggest, shows that non-food is becoming an increasingly important revenue stream for the major supermarket groups.
"The driver in the European food retailing market has generally been the development of non-foods," said Mintel retail analyst Richard Perks. "There has undoubtedly been an increase in the non-food ranges in the larger food retailers and so non-food products have become an increasingly important part of the overall food retailing scene."
This, in particular, has helped Britain's leading supermarket operator Tesco narrow the gap with Europe's number one Carrefour, despite the fact that the French group was the pioneer of the hypermarket format which combines food and non-food sales.
Indeed, Tesco now claims to be biggest UK retailer of certain products. In the baby goods market, for example, it claims to sell more than specialists Boots and Mothercare combined, while DVDs and clothing are other major centres of growth.
"The French hypermarkets have been destination stores for non-food products for many years, but they have still to develop truly strong non-food brands, unlike Tesco and Asda in the UK which have developed strong, well-focused ranges which are attracting shoppers in their own right.
"Indeed, in the UK, spending on food grew by just over 3 per cent in 2003, but grocers increased sales by over 4 per cent. Although this may not sound much, it suggests that non-food sales at the market leaders grew by 10 per cent or more during the year," said Perks.
This is not to say that Carrefour has struggled particularly over the last year, according to Mintel - difficulties in the French market have been more than offset by strong growth elsewhere - and the giant French group is at little risk of losing its crown to its cross-Channel rival just yet.
Nonetheless, the recent rumours of a possible takeover bid for Carrefour by Tesco (not to mention earlier talk of a potential offer from Wal-Mart) have underlined what many see as the relative fragility of Carrefour, focused as it is on a store sector (hypermarket) and country (France) where growth has been in steady decline for the last year.
In contrast, Tesco posted a 54 per cent increase in sales between 1999 and 2003, helped by a 65 per cent increase in selling space as the company expanded rapidly into other countries and other store formats (notably c-stores). Wal-Mart, meanwhile, lifted its European sales by 32 per cent on a mere 10 per cent increase in selling space thanks entirely to the rise up the rankings of its Asda subsidiary.
Yet despite its relatively low levels of consumer spending - highlighted by the recent debate over changes to legislation curbing retailers' ability to set prices - France remains the most important retail market in Europe with sales of €184 billion in 2003 and four of the top ten grocers - Carrefour (1), Intermarché (3), Auchan (7) and E Leclerc (10). It also accounted for two of the fastest-growing chains, Système U and Casino.
Britain is the second largest market, with sales of €144 billion, but the dominance of Tesco and Asda is underlined by the fact that they are the only two British retailers in the top ten list (at two and eight, respectively). Up-market chain Waitrose was also highlighted as an out-performer by Mintel.
The discount-focused German market is the third largest in Europe with sales of €123 billion, despite also suffering from a lack of growth in recent years. The biggest German discounter, Aldi, is also one of the top 10 players in Europe, at number four in the rankings, while Edeka is fifth, followed by Rewe in sixth place and the Schwartz group, including the Lidl discount chain, in ninth.
Italy is the fourth largest market, with sales of €96 billion, followed by Spain with € 72 billion. The retail sector in both countries is dominated by foreign players, in particular French groups, although Perks highlighted the performance of the home-grown Coop Italia over the last year - another group which outperformed the market in terms of sales growth.
While these five countries account for 70 per cent of European food retail sales, they are likely to play a decreasing role in the future, according to Mintel, with only Spain likely to be among the leading markets over the next five years. Instead, the growth is likely to come from new EU members like Hungary, Poland and the Czech Republic, which, along with Spain, are expected to post sales growth of over 30 per cent between 2003 and 2008.
But most of this growth will not come from local players: Carrefour, Tesco and Ahold are the leading operators in many of these countries, while the central and eastern European region is also being targeted by the big German discount groups.
Two other Mediterranean markets, Portugal and Greece, also have good prospects, according to Mintel, while food retailers are expected to increase their share of all retailing in eight countries - Belgium, Germany, Hungary, Italy, Netherlands, Poland, Portugal and the UK - over the next five years.
"In the case of Hungary, Italy, Poland and Portugal the food retail sector is still fragmented and there is scope for the big multiples to continue growing, including their non-food sales. In Germany and the Netherlands the retail picture at large has been so poor in the last few years and consumer spending so depressed that this has favoured the grocery sector. Given its largely non-discretionary nature we think this will continue to be the case in the short-term," Perks said.
"Meanwhile, two of the leading grocers in the UK, Tesco and Asda are among the country's most dynamic retailers. Although an economic slowdown is expected in the UK, in such circumstances, we believe that the food retailers should continue to prosper. Their good value for money and lower priced retail formats are ideal for a recession and we expect to see them continue to gain market share," he added.
