Marcos Fava Neves

The food chain's giants: Retailers

By Marcos Fava Neves (chinadaily.com.cn)
Updated: 2010-10-07 09:00

In a recent meeting I've seen the 2010 retailer's sales forecasts. Wal-Mart, the leader, will sell amazing 337 billion Euros in 15 countries and 8400 stores. Carrefour is the second, and will sell 115 billion Euros in 35 countries. The next is Tesco, far away with 78 billion Euros. Although these numbers are absolutely impressive, since they are even bigger then countries, the concentration of retail has decreased. In 2003 the top 20 retailers had 23,4% of market share, and in 2010 they have around 21% of total sales in the world. Why this fact happened?

One explanation is here: when comparing the size of retail markets in several countries, the changes are impressive. In 2006, this was the sequence of the largest markets, with countries and billion Euros of sales in brackets: USA (612), China (328), Japan (297), France (206), India (190), UK (188), Germany (150), Italy (127), Russia (116) and Mexico (112) were the ten biggest. Using recent numbers to project 2014, the ten largest markets will be China (761), USA (745), India (448), Japan (360), Russia (322), Brazil (284), France (228), UK (198), Germany (168) and Indonesia (167). The reader may note that the BRIC countries, in three years from now, will be 4 of the 6 largest markets. In these emerging countries, retail concentration is smaller, being a possible explanation.

I want to bring some points that I consider part of an agenda for food retailers, the "giants", four our thinking process.

To start, a subject that I dedicated one article on China Daily: private or retailers labels (1). This is definitely one of the most important points. The penetration in the % of food sales is increasing, and in some chains, mostly in Germany, they may have 60 or 70% of penetration. In Switzerland, 47% of market is conquered by private labels. Several other European countries have more than 30% of share. Brazil, India, China and Russia still have less than 10% of private labels share, so we may expect several changes and impacts in the future.

Another point, probably linked to the decline in the concentration ratio of retailers is the trend towards neighborhood concept (2) with bigger proximity and convenience. Retailers have a multi-format development: hypermarkets, supermarket, members club, convenience and discount stores. But neighborhood stores are increasing towards consumer's trends of buying less and more frequently.

Information and communications (3) with consumers, since retailers dominate two valuable assets: information about consumers (what, who, when, why they buy) and space for interactions and selling. Retailers are selling this information to food companies and will offer more space for food industry communications inside the stores, representing an increasing source of income. For the industry, since almost 70% of the buying decisions are taken at the point of sales, this strategy represents an opportunity to win the battle over the shopper's preference.

Retailers also face new challenges towards operations management (4). These include the permanent reduction of transactions costs, smaller number of suppliers (without increasing dependency) and technology (electronic data interchange systems). This also means better product assortment to maximize shelf space.

Services towards convenience (5) are also a trend in the competitive arena for some retailers. Services as delivery, packaging presents, offering ready to eat meals (home meal replacement), bakery, butchery, coffee shops and others. There is also a trend towards a "green movement" (6) saving energy and measuring carbon emissions (be identified as environmentally friends). Some retailers are adopting a strategy of sustainable initiatives of sourcing (7), using fair trade concepts and others towards an increase in inclusion of small holders as suppliers, even increasing their transaction costs.

Internationalization and global sourcing (8) continues to be a trend and retailers faces the challenges of different cultures. But this also allows retailers to find the best suppliers all over the globe and bring their products to all stores. Retailers are also facing stronger competition from very different formats (9) like direct sales, on line sales, door-to-door distribution systems and a increasing share of consumers expenditures done on foodservice (restaurants, caterers and other formats).

Last but not least is a trend towards collective operations (10) with other retailers, sharing buying structures and centers, stock management, marketing, layout, technology, which maybe a first step towards a future merger of the giants.

These were my ten topics of discussions nowadays involving the giants of the food chain. What may be useful here is to discuss more deeply these topics raising opportunities and impacts towards food chain participants.

The author is professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil (www.favaneves.org) and international speaker.