European Grocery Retailing - Planet Retail

1 planetretail.net

European Grocery Retailing Change is the only constant

May 2014 Kelly Tackett Research Director

2

1. Market Overview

2. Leading Retailers

3. Key Trends

4. Takeaways

Agenda

1. Market Overview

4

Economic recovery is not universal…

Serbia

Russia

Azerbaijan

Armenia

Georgia

Ukraine

Belarus

Moldova Romania

Hungary

Poland

Bulgaria

Greece

Cyprus

Macedonia

Albania

Bosnia & Herzegovina

Croatia Slovenia

Italy

Slovakia

Czech Rep Germany

Sweden

Lithuania

Latvia

Estonia

Finland

Norway

France Austria

Switzerland

Belgium

Netherlands

Spain Portugal

United Kingdom

Ireland

Denmark

+3.2%

+3.2% +5.8%

+4.2%

+8.9%

+3.1%

+3.1%

+1.3%

+1.2%

+0.4%

+0.7%

+0.5%

+0.3% +0.0%

-0.8%

-1.0%

-1.9%

-1.2%

-1.1%

-1.4%

-3.9%

Source: Planet Retail.

GDP Real Growth 2013 (%)

+2.5%

+2.0%

+1.8% +1.6%

+3.5%

+1.5%

+1.1%

+0.9%

+0.9%

+0.9%

+0.8%

+0.8%

+0.3%

+0.4%

-0.3%

-0.9%

-1.0%

-1.4%

5

Spending power varies dramatically…

5.3

5.0

4.2

3.8 3.7

3.6 3.5 3.4 3.3 3.2

2.8 2.6 2.5 2.5

2.4

2.1 2.1 1.9 1.8 1.8

1.6 1.6 1.5 1.5 1.5

1.4 1.4 1.3 1.1 1.1

1.0 0.9 0.8 0.8

0.6 0.5

0.3 0.3 0.2 0.2 0.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

No

rway

Swit

zerl

and

Irel

and

Den

mar

k

Luxe

mb

ou

rg UK

Cyp

rus

Swed

en

Fin

lan

d

Fran

ce

Au

stri

a

Ger

man

y

Net

herl

and

s

Bel

giu

m

Slo

ven

ia

Latv

ia

Icel

and

Po

lan

d

Ital

y

Cze

ch R

epu

blic

Spai

n

Esto

nia

Slo

vaki

a

Po

rtu

gal

Cro

atia

Lith

uan

ia

Hu

nga

ry

Bu

lgar

ia

Mac

edo

nia

Gre

ece

Ro

man

ia

Ru

ssia

Serb

ia

Bo

snia

an

d H

erz.

Mo

nte

neg

ro

Ukr

ain

e

Geo

rgia

Aze

rbai

jan

Arm

enia

Mo

ldo

va

Bel

aru

s

MGD Grocery Spend per Capita 2013 (€ ‘000)

MGD Grocery Spend defined as sales of total grocery products (edible grocery, household & petcare, health & beauty and foodservice) from modern grocery distribution retailers and wholesale enterprises (MGD) per capita. Source: Planet Retail

6

Consumers are very different…

15 Groups 67 Types

7

Grocery retail markets have different heritages…

Positive retail sales do not necessarily reflect the full picture…

32.1%

9.1%

15.1%

12.6%

39.1%

27.8%

6.6%

32.2%

1.5% 1.5%

2.8% 6.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

France Germany

% o

f G

roce

ry S

ales

Grocery Market: Breakdown by Channel 2002 (%)

Cash & Carries & Wholesaleclubs

Convenience & Forecourtstores

Discount stores

Supermarkets &Neighbourhood stores

Superstores

Hypermarkets

‘Other’ comprises Department & Variety Stores, Non-store Commerce, Other Grocery formats, Other Non-Food Formats, Catering and Wholesale.. Source: Planet Retail.

http://www.flags.net/FRAN.htm

http://www.flags.net/GERM.htm

8

But ‘change’ is a common denominator…

Busy lifestyles

Increasing access to

technology

Changing Demographics

Two working parents

Hectic work/home schedules

Smartphone/tablet penetration

Home access to the internet

Increasing single person households

Commuting

Ageing population

Urban dwelling

Tech-savvy generations becoming key consumers

Shoppers becoming more informed

9

And grocery channels are changing around this…


10

Growth by channel – Western Europe…

0

50

100

150

200

250

300

350

400

450

Hypermarkets &Superstores

Supermarket &Neighbourhood

Discount Convenience &Forecourt

Drugstores Cash & Carries

Sale

s (E

UR

bn

)

Western Europe: Total Banner Sales by Channel, 2008-2018f (EUR bn)

2008

2013

2018f

Note: f – forecast; Source: Planet Retail

11

Key Markets – Germany

25.7%

18.5%

16.0%

Top 3 Grocery Players by Total Banner Sales (2013e)

0 2 4 6 8

Hypermarkets

Cash & Carries

Convenience

Discount stores

Supermarkets

Drugstores

CAGR (%)

Germany: CAGR Growth by Channel, 2013-2018f (%)**

Note: f – forecast Source: Planet Retail

Top 3 Grocery Players by Food Retail Format Market Share

(2013e)

€50.2 bn

€36.9 bn

€34.1 bn

**Please note, hypermarkets includes superstores, convenience includes forecourts & supermarket includes neighbourhood stores.

3.2% GDP CAGR 2013-2018F

2.1% Grocery banner retail sales CAGR 2013-2018F

12

Key Markets – France

18.7%

17.3%

12.5%


0 2 4 6

Supermarkets

Hypermarkets

Discount stores

Drugstores

Cash & Carries

Convenience

CAGR (%)

France: CAGR Growth by Channel, 2013-2018f (%)**



(2013e)

€45 bn

€42 bn

€31 bn


3.0% GDP CAGR 2013-2018F


13

Key Markets – UK

26.1%

14.9%

14.0%


0 2 4 6 8 10 12

Hypermarkets

Drugstores

Supermarket

Cash & Carries

Convenience

Discount stores

CAGR (%)

UK: CAGR Growth by Channel, 2013-2018f (%)**



(2013e)

€57.9 bn

€31.7 bn

€30.4 bn


4.9% GDP CAGR 2013-2018F


14

Key Markets – Italy

8.0%

6.4%

5.6%


-1 0 1 2 3 4 5

Cash & Carries

Convenience

Supermarkets

Hypermarkets

Drugstores

Discount stores

CAGR (%)

Italy: CAGR Growth by Channel, 2013-2018f (%)**



(2013e)

€13 bn

€10 bn

€9 bn

**Please note, hypermarkets includes superstores, convenience includes forecourts & supermarket includes neighbourhood stores. * Based on food retail format market share.

2.4% GDP CAGR 2013-2018F


15

Key Markets – Spain

23.3%

14.3%

10.2%


0 2 4 6 8 10 12

Hypermarkets

Discount stores

Cash & Carries

Supermarkets

Convenience

Drugstores

CAGR (%)

Spain: CAGR Growth by Channel, 2013-2018f (%)**



(2013e)

€20 bn

€16 bn

€9 bn


1.9% GDP CAGR 2013-2018F


16

Key Markets – Portugal

20.3%

19.4%

8.1%


-2 0 2 4 6 8 10

Convenience

Cash & Carries

Hypermarkets

Supermarkets

Discount stores

Drugstores

CAGR (%)

Portugal: CAGR Growth by Channel, 2013-2018f (%)**



(2013e)

€5 bn

€5 bn

€2 bn


3.0% GDP CAGR 2013-2018F


2. Leading Retailers

18

Competitive Environment

65.0 64.6 61.0

51.6 50.2 49.2 46.6

44.5

39.0

32.8

0

10

20

30

40

50

60

70

Ret

ail B

ann

er

Sale

s (E

UR

bn

)

Western Europe: Top 10 Grocery Players by Total Banner Sales, 2013e (EUR bn)

e – estimate Source: Planet Retail.

19

Competitive Environment

0

10

20

30

40

50

60

70

80

90

Ret

ail B

ann

er S

ales

(EU

R b

n)

Western Europe: Top 10 Grocery Players by Total Banner Sales, 2018f (EUR bn)


20

Key Players – Carrefour

Turn around ailing hypermarket format

Improve its price image

Expand smaller formats under the Carrefour Express, City and Contact banners

Grow multi-channel via drive format

Carrefour is focussing on revitalising operations in core markets – with further disposals of peripheral operations a possibility.

#1 Carrefour

Multi-channel is a key priority for Carrefour with the expansion of the ‘Drive’ concept.

Carrefour is expanding it’s smaller format s such as Carrefour City above.

21

Key Players – Schwarz Group

Aims to become the largest food retailer in Europe

Working to propel Lidl past Aldi as largest discounter in Europe

Introducing minimum turnover per outlet requirements

Investing heavily on the instore experience

Schwarz Group is one of the most aggressively growing companies, with a presence in 25+ European markets.

#2 Schwarz Group

Lidl has been rolling out instore bakeries across W Europe as it looks to attract a broader spectrum of shoppers.

Schwarz Group’s Lidl banner is seeing continued expansion albeit at a slower pace.

22

Key Players – Tesco

Strategic shifting to EDLP with incremental EUR 245 million investment

Focusing on the refurbishment of big-box stores in 2014

Expanding convenience formats – will open 150 Express per annum

Will double the number of click & collect locations

Tesco has unveiled the next phase in its UK improvement plan with seven areas targeted - EDLP, product innovation, service, GM, destination stores, convenience, Clubcard and multi-channel.

#3 Tesco

Tesco is rapidly rolling out c-stores – Express and One Stop.

Tesco has successfully launched the Clubcard Fuel Saver programme.

23

Key Players – Metro

Exiting non-core markets to focus on core and key emerging markets

Refining cash & carry concept in saturated markets of WE to boost attractiveness to business customers

Adapting to changing customer needs with diverse formats

Closing unprofitable hypermarkets

Undertaking a series of long-overdue store refurbishments

For some time now, Metro Group has been battling on all divisional fronts due to its portfolio of structurally troubled formats.

#4 Metro Group

The Real remodels feature a higher-quality service counter for fresh items, including bakery.

The Casa dell’HoReCa features easier customer navigation with colour-coded departments.

24

Key Players – Edeka

Diminish the diversity of banners and regional and local idiosyncracies

Support its independent shopkeepers with the development of new supermarket concepts

Reassess and reposition its Netto discount chain

Strengthen national buying by bundling sourcing at the Hamburg headquarters

Edeka is reviving its co-operative roots as it refocuses on the strengths of its regional set-up and its thriving independent retailers.

#5 Edeka

Edeka’s Omega 3 sausages were developed in collaboration with the Frauenhofer Institute.

The Für Dich (For You) ranged supplied by candy manufacturer Katjes is available exclusively at Edeka.

3. Key Trends

26

Death of the hypermarket?


Difficulty in finding / securing appropriate

sites

Increasingly restrictive planning legislation

Apparent ‘saturation’ in some markets

Lack of investment

Rising land and development costs

Online migration (esp in General

Merchandise)

Shifting consumer trend towards convenience

Less ‘one-stop’ shopping / ‘format

fatigue’

Difficulty in finding / securing appropriate

sites

Rising land and development costs

Online migration (esp in General

Merchandise)

27

Countries most exposed to ‘Big Box’

31% 30%

29%

24%

22% 21%

20%

19% 19%

18% 18% 17%

15% 14% 14%

10% 9%

8% 8% 8% 7%

7% 6% 6%

4% 4%

3%

1% 1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Hypermarket (>5,000 sq m) Penetration of Grocery Market by Country (%)

MGD Grocery Spend defined as sales of total grocery products (edible grocery, household & petcare, health & beauty and foodservice) from modern grocery distribution retailers and wholesale enterprises (MGD) per capita. Source: Planet Retail

28

Some perspective…

Hypermarkets are not dead, many will continue to prosper

Huge variations by location, generalizations are dangerous:

– Country / market

– Site / catchment

But we are likely to see an inevitable slowdown in development of new hypermarket space in some countries

Hypermarket sales will continue to grow, although at a slower rate than some other channels (discount stores, c-stores, E-commerce)

A large number of hypermarkets are very challenged and many have been subject to under-investment

A number are ‘over-spaced’ and are in need of a radical rethink…

29

Selected options for ‘over-spaced hypermarkets’…

No single ‘catch all’ cure, but a number of options – employed in isolation or in unison, according to the needs of the individual

store and the catchment it serves….

Option 1

Option 2

Option 3

Option 4

Downsize or sub-let surplus space to 3rd parties

Re-allocate GM space to extend food offer

Re-think product mix of GM space

Improve in-store catering / foodservice

30

Option 1 – downsize or sublet…

Nando’s

Wembley Park.

Sports Direct

Three UK sites.

Xercise4Less

Stockton-on-Tees.

31

Option 2 – re-allocate GM to extend food offer…

32

Option 3 – rethink product mix of GM space…

33

Option 4 – improve in-store catering…

34

0

50

100

150

200

250

300

350

400

450





Sale

s (E

UR

bn

)


2008

2013

2018f


Flight to convenience…

35

C-stores – a pan-European perspective…

25,442

11,940

8,286

6,585

4,023

3,034 2,370

1,931 1,907 1,808 1,340 1,308 1,187 1,178 1,161 1,071 980 921 781 696

0

5,000

10,000

15,000

20,000

25,000

30,000

No. of C-stores and Forecourt Stores 2013 – Top 20 European Markets

Source: Planet Retail

36

C-stores – the recipe for success…

A new business model, different from supermarkets and big box

More strategic location planning

A higher cost model

Requiring a higher margin product mix

Focus on fresh foods and food-to-go

Greater emphasis on private labels

Catering for a wide range of shopping visits and occasions: - ‘Top up’ shopping

- Breakfast and Lunch - Evening meal solutions.

37

C-stores go hand-in-hand with e-commerce…

38

Discounters – the march continues (?)…

0

50

100

150

200

250

300

350

400

450





Sale

s (E

UR

bn

)


2008

2013

2018f


39

What exactly is a discounter?

Limited assortment, low prices and no services

“I am convinced that the two principles, that of small ranges

and low prices, cannot be separated.”

Karl Albrecht Aldi Founder & Owner

(1953)

40

Discounters – the European Top 10…

Note: f – forecast; * part of Carrefour until 2011; ranked by 2012 sales. Source: Planet Retail

37.5 38.1

5.3

9.4 8.2

2.6 3.6 5.6

2.6 2.8

53.8

46.2

13.7 11.9

8.3 7.3 6.6 5.7 4.2 3.3

68.6

53.4

15.4 13.6

9.3

13.3

8.3 7.1

5.2 3.7

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

Schwarz Group Aldi Edeka Rewe Group Dia* JerónimoMartins

Reitan DanskSupermarked

NorgesGruppen Norma

Ban

ner

Sal

es (

EUR

bn

)

2007

2012

2017

Europe: Top 10 Discount Store Operators by Total Sales, 2007-2017f (EUR bn)

41

A one-dimensional model is diversifying…

In the face of saturation and decelerating growth, discounters are having to change tact and adapt their business models….

Tactic 1

Tactic 2

Tactic 3

Shift in product mix towards freshness

Increased brand listings

Move towards convenience formats

42

Shift towards freshness

Dia Fresh (Spain)

Penny (Germany, Czech Republic, Italy)

Instore bakery trial, Aldi Süd’s Hofer (Austria)

43

Shift towards brand listings - Aldi

Rationale behind the brand additions:

Revitalising sales in saturated markets

Attracting more/new shoppers

Increasing average spend

Countering the success of its main rival, Schwarz Group’s Lidl

Part of a strategy to become a one-stop destination

Sales rank

FMCG brand company

Brand listings at Aldi*

Examples

1 Nestlé Nescafé in Switzerland

2 P&G Gillette in Austria

3 PepsiCo Pepsi in Slovenia

4 Unilever Lusso in Switzerland

5 Mondelez Toblerone in Germany

6 Coca-Cola Co. Römerquelle in Austria

7 ABInBev Stella Artois in the UK

8 Philip Morris Intl. Marlboro in Germany

9 L’Oréal Garnier Fructis in Hungary

10 Japan Tobacco Winston in Switzerland

Red: Recently added permanent listings (ca. 2010-2013) Broad brand portfolio, in most markets Limited brand portfolio, in selective markets Minor brand portfolio, in a small number of markets Ranking: OC&C Analysis for 2011, excluding regional meat companies. Source: Planet Retail.

Aldi: Brand listings of Top 10 FMCG brand companies

44

Move towards convenience formats – Aldi and Lidl

45

Grocery E-commerce – fad or the future?…

10%

7%

7%

27%

10%

8%

33%

31%

11%

13%

Source: Planet Retail’s Online Shopper Survey data.

Proportion of web shoppers who have made grocery purchases online.

46

The great unknown…

“We don’t know where the online train is going and how fast it is

running. I only know that we need to be on board.”

ALAIN CAPARROS CEO Rewe Group

Indicative of how many European grocery retailers currently feel.

47

Still more questions than answers…

Who are the main key customer groups?

What are the geographic

implications?

What’s the impact on bricks and

mortar stores?

Am I just cannabilising

existing sales?

Can it ever be profitable?

Which is the best model –

store-picking or dedicated DC?

Home delivery or Click & Collect?

How do channels interract?

Am I just doing it because

everyone else is doing it?

48

Grocery E-commerce - ‘how not to do it’….

Grocery E-commerce may be high growth but it is not straightforward – it needs to be high profile and executed skilfully.

49

Grocery E-commerce – drive format…

The Drive concept is a blend between pure e-commerce and traditional bricks and mortar stores Click & collect, external to a store or as a free-standing unit.

50

Drives – different business models…. C

apit

al E

xpen

dit

ure

Order Capacity

Tesco operates “van sheds” on store car parks for shoppers to collect their groceries quickly by car.

Ahold in the US is experimenting with compact standalone Drives by their stores.

Metro Group’s Real integrated infrastructure alongside stores is the most common form of Drive to date.

Catalan retailer Bonpreu has invested heavily in a standalone Drive format, designed to secure a catchment area in its own right.

4. Key takeaways

52

Channel convergence…

C-STORES

HYPERMARKETS

DISCOUNTERS E-COMMERCE

Big Box servicing online home delivery, Click & Collect, Drive formats.

Hypermarkets opening dedicated discount areas and formats.

Discounters opening more convenience-based formats.

C-stores deployed as E-commerce fulfillment outlets.

53

Change is the only constant…

• European retail markets are undergoing substantial change

• Suppliers need to evolve to move with retail change • Polarity of maintaining volumes and driving margin

• Different strategies for different channels (and markets, retailers)

• Retailers will be looking to suppliers to help them through change • Key watchwords – FLEXIBILTY AND COLLABORATION.

Thank You

55

United Kingdom

AirW1 20 Air Street London W1B 5AN UK

T: +44 (0)20 7715 6000 E: [email protected]

Germany

Dreieichstrasse 59 D-60594 Frankfurt am Main Germany

T: +49 (0) 69 96 21 75-6 E: [email protected]

China

10-1-202 88 Tongxing Road Qingdao 266034 China

T: +852 2996 3157 E: [email protected]

USA

130 Fifth Avenue 7th Floor New York NY 10011 USA T: +1 (212) 201 6700 E: [email protected]

India

ICC Chambers 4th floor Saki Vihar Road Andheri (E)-Mumbai - 400072 India


Japan

c/o INSIGHT INC. Atami Plaza 1401 Kasuga-cho 16-45, Atami-shi Shizuoka 413-0005 Japan


Hong Kong

Suite 3201-03, 32/F, Tower 1 The Gateway, Harbour City 25 Canton Road Tsimshatsui, Kowloon Hong Kong


Researched and published by Planet Retail Limited

Company No: 3994702 (England & Wales) - Registered Office: c/o Top Right Group Limited, The Prow, 1 Wilder Walk, London W1B 5AP

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European Grocery Retailing - Planet Retail

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