Supermarket update: Wal-Mart and Somerfield

Related tags Wal-mart Supermarket Retailing

Following up on the company's policy on further international
expansion, Wal-Mart's chief executive Lee Scott, indicated the
world's largest retailer was now ready to go after the market's
currenttop dogs.

In an interview with the UK's Financial Times newspaper this week Scott said Wal-Mart was looking at expansion in central and eastern Europe, where companies such Metro, Tesco and Auchen are majorplayers.

The further expansion of Wal-Mart's presence in Europe from the UK and Germany will present a new marketing opportunity for food and drink processors, although they will have the retailer'spowerful bargaining position to contend with.

In central and eastern Europe, where other international retailers are starting to consolidate their operations, Scott said acquisition would make more sense than establishing new operations.However he did not say when Wal-Mart might make a move in the markets it is targeting.

Scott has visited Poland, Hungary and Russia recently, the newspaper reported. About 19.7 per cent of Wal-Mart's $285bn in revenues are earned outside the US domestic market. The company has statedin its annual reports it wants that figure to rise to 30 per cent under an expansion programme.

In the UK, Wal-Mart owns the Asda chain of stores, which made up 46 per cent of the group's international sales. In Germany Wal-Mart owns the Wertkauf chain and became Germany'sfourth-largest hypermarket retailer with the acquisition of 74 Interspar stores.

The company's international segment had an operating income increase of 26.1 per cent and a sales increase of 18.3 per cent compared to fiscal 2004. The largest contributors tothe growth were the company's operations in Mexico and the UK.

In fiscal 2005, the company added 232 new supermarkets to its international portfolio, including the acquisition of Bompreço S.A. Supermercados do Nordeste in Brazil.

United drops bid for Somerfield​ While the UK's United Co-operatives has pulled out from a bidding war for the Somerfield group, two other groups are still vying to get control of the supermarket chain.

The bidding war is part of the further consolidation in the UK's supermarket sector, in which smaller players have been dominated by Tesco, Asda, Sainsbury's and the Safeway/Morrison groups. Thefour chains hold an 80 per cent share of the UK market. Somerfield is the UK's fifth-largest supermarket chain.

In April Somerfield announced that a consortium made up of investment firms had made a bid for the company, valuing the group at about £1.1bn. The company had previously rejected a £1.04bn offerfrom the Baugur Group, a retailer in Iceland, which is now part of the consortium. London & Regional, a property group, has reportedly made a similar offer.

The Somerfield group includes 664 Somerfield stores and 560 Kwik Save outlets. The group has annual sales of about £5bn. The company will publish its annual report on 6 July.

United Co-operatives​, which owns 1000 retail outlets in the north of England, announced it was considering a bid for Somerfield​in early May. United, is the UK's second- largest co-operative in the retail market. The company did not comment on the reason's for its withdrawal, but stated it reserved the right to renew its bidunder the UK's takeover laws.

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