European Grocery Retailing

Change is the only constant

May 2014 Kelly Tackett

planetretail.net
1 Research Director
Agenda

1. Market Overview
2. Leading Retailers
3. Key Trends
4. Takeaways

2
1. Market Overview
Economic recovery is not universal
GDP Real Growth 2013 (%)
+1.5% Finland
+0.8%
Sweden
-1.4%
Norway
+0.8%
+4.2% +1.3%

+3.1% Estonia
+0.4% Russia
Latvia
Denmark
Lithuania +0.9%
+1.8% +1.6%
Belarus
Ireland Netherlands +0.5%
United +0.3% Poland
Kingdom +8.9%
-0.3% -0.8% Germany +0.9%
Belgium Czech Rep
+2.0% +1.1% +3.5% Ukraine
+0.4% Slovakia
+0.3% -0.9% +0.0%
Austria Hungary
France Switzerland
+2.5% Romania Moldova
Slovenia +1.2%
Croatia
Italy +3.1% +0.9% +3.2%
-1.1% Bosnia &
-1.0% Herzegovina Serbia +3.2%
Bulgaria +5.8%
-1.9% +0.7%
Macedonia Georgia
Portugal
Spain Albania Armenia
Greece

-1.4% Azerbaijan
-1.2%

-3.9%
Cyprus

Source: Planet Retail.

-1.0%
4
Spending power varies dramatically
MGD Grocery Spend per Capita 2013 ( 000)
6.0

5.3
5.0
5.0

4.2

4.0 3.8
3.7
3.6 3.5
3.4
3.3 3.2

3.0 2.8
2.6 2.5 2.5
2.4
2.1 2.1
2.0 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
1.0 0.9 0.8 0.8
0.6
0.5
0.3 0.3 0.2 0.2
0.2

0.0

Bulgaria

Ukraine
UK

Spain

Russia
Switzerland

Luxembourg

Germany

Czech Republic
Slovenia

Georgia
Hungary

Moldova
Latvia

Poland

Greece

Serbia
Bosnia and Herz.
Belgium

Italy
Ireland

Finland

Slovakia

Montenegro
Norway

Denmark

France

Netherlands

Estonia

Armenia
Croatia
Lithuania
Cyprus
Sweden

Iceland

Macedonia

Romania

Azerbaijan

Belarus
Austria

Portugal

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

5
Consumers are very different

15 Groups 67 Types

6
Grocery retail markets have different heritages
Grocery Market: Breakdown by Channel 2002 (%)
Positive retail sales do not necessarily reflect the full picture
100%
2.8%
1.5% 6.8%

90% 6.6% 1.5%

Cash & Carries & Wholesale
clubs
80%
Convenience & Forecourt
32.2% stores
70%
39.1%
Discount stores
% of Grocery Sales

60%

50% Supermarkets &

Neighbourhood stores
40% 15.1% 27.8% Superstores

30%
Hypermarkets
20%
32.1% 12.6%
10%
9.1%
0%
France Germany

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

7
But change is a common denominator

Hectic work/home schedules

Two working
parents

Commuting
Busy lifestyles
Smartphone/tablet
penetration
Increasing single
person households

Tech-savvy generations
Increasing becoming key consumers
Urban dwelling Changing
access to
Demographics
technology
Shoppers becoming more informed

Ageing population Home access to the internet

8
And grocery channels are changing around this

Positive retail sales do not necessarily reflect the full picture

9
Growth by channel Western Europe

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

450

400

350

300
Sales (EUR bn)

250 2008
2013
200 2018f

150

100

50

0
Hypermarkets & Supermarket & Discount Convenience & Drugstores Cash & Carries
Note: f forecast;
Source: Planet Retail Superstores Neighbourhood Forecourt

10
Key Markets Germany
Top 3 Grocery Players by Total Banner Sales
(2013e) 3.2% 2.1%
GDP CAGR Grocery banner
2013-2018F retail sales CAGR
50.2 bn 2013-2018F
36.9 bn
34.1 bn Germany: CAGR Growth by Channel, 2013-
2018f (%)**
Drugstores
Top 3 Grocery Players Supermarkets
by Food Retail Format Market Share
Discount stores
(2013e)
Convenience
25.7% Cash & Carries

18.5% Hypermarkets

0 2 4 6 8
16.0% CAGR (%)
Note: f forecast
Source: Planet Retail
**Please note, hypermarkets includes superstores, convenience includes forecourts &
supermarket includes neighbourhood stores.

11
Key Markets France

Top 3 Grocery Players by Total Banner Sales

(2013e)
3.0% 2.7%
GDP CAGR Grocery banner
2013-2018F retail sales CAGR
45 bn 2013-2018F

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

Convenience
Top 3 Grocery Players Cash & Carries
by Food Retail Format Market Share
(2013e) Drugstores

Discount stores

Hypermarkets
18.7%
Supermarkets

17.3% 0 2 4 6
CAGR (%)
12.5% Note: f forecast
Source: Planet Retail
**Please note, hypermarkets includes superstores, convenience includes forecourts &
supermarket includes neighbourhood stores.

12
Key Markets UK
Top 3 Grocery Players by Total Banner Sales
(2013e) 4.9% 4.0%
GDP CAGR Grocery banner
2013-2018F retail sales CAGR
57.9 bn 2013-2018F
31.7 bn
30.4 bn
UK: CAGR Growth by Channel, 2013-2018f
Top 3 Grocery Players (%)**
by Food Retail Format Market Share Discount stores
(2013e)
Convenience
26.1% Cash & Carries

Supermarket
14.9%
Drugstores
14.0% Hypermarkets

0 2 4 6 8 10 12
CAGR (%)
Note: f forecast
Source: Planet Retail
**Please note, hypermarkets includes superstores, convenience includes forecourts &
supermarket includes neighbourhood stores.

13
Key Markets Italy

Top 3 Grocery Players by

Total Banner Sales (2013e)
2.4% 2.1%
GDP CAGR Grocery banner
2013-2018F retail sales CAGR
13 bn 2013-2018F

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

Discount stores
Top 3 Grocery Players by Food Drugstores
Retail Format Market Share
(2013e) Hypermarkets

Supermarkets

Convenience
8.0% Cash & Carries

6.4% -1 0 1 2 3 4 5
CAGR (%)
5.6% Note: f forecast
Source: Planet Retail
**Please note, hypermarkets includes superstores, convenience includes forecourts &
supermarket includes neighbourhood stores. * Based on food retail format market share.

14
Key Markets Spain

Top 3 Grocery Players by Total Banner Sales

(2013e)
1.9% 3.8%
GDP CAGR Grocery banner
2013-2018F retail sales CAGR
20 bn 2013-2018F

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

Drugstores
Top 3 Grocery Players
Convenience
by Food Retail Format Market Share
(2013e) Supermarkets

Cash & Carries

Discount stores
23.3%
Hypermarkets
14.3% 0 2 4 6 8 10 12
CAGR (%)
10.2% Note: f forecast
Source: Planet Retail
**Please note, hypermarkets includes superstores, convenience includes forecourts &
supermarket includes neighbourhood stores. * Based on food retail format market share.

15
Key Markets Portugal

Top 3 Grocery Players by Total Banner Sales

(2013e)
3.0% 4.6%
GDP CAGR Grocery banner
2013-2018F retail sales CAGR
5 bn 2013-2018F

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

Drugstores
Top 3 Grocery Players by Food Retail
Discount stores
Format Market Share
(2013e) Supermarkets

Hypermarkets

20.3% Cash & Carries

Convenience
19.4% -2 0 2 4 6 8 10
CAGR (%)
8.1% Note: f forecast
Source: Planet Retail
**Please note, hypermarkets includes superstores, convenience includes forecourts &
supermarket includes neighbourhood stores. * Based on food retail format market share.

16
2. Leading Retailers
Competitive Environment
Western Europe: Top 10 Grocery Players by Total Banner Sales,
2013e (EUR bn)
70 65.0 64.6
61.0
Retail Banner Sales (EUR bn)

60
51.6 50.2 49.2
50 46.6
44.5
39.0
40
32.8
30

20

10

e estimate
Source: Planet Retail.

18
Competitive Environment
Western Europe: Top 10 Grocery Players by Total Banner Sales,
2018f (EUR bn)
90
Retail Banner Sales (EUR bn)

80

70

60

50

40

30

20

10

Note: f forecast
Source: Planet Retail

19
Key Players Carrefour
#1 Carrefour
Carrefour is focussing on revitalising
operations in core markets with further
disposals of peripheral operations a possibility.
Turn around ailing hypermarket format
Improve its price image
Multi-channel is a key priority for Carrefour with the

Expand smaller formats under the Carrefour Express,

expansion of the Drive concept.

City and Contact banners

Grow multi-channel via drive format

Carrefour is expanding its smaller format s such as

Carrefour City above.

20
Key Players Schwarz Group
#2 Schwarz Group
Schwarz Group is one of the most aggressively
growing companies, with a presence in 25+
European markets.
Aims to become the largest food retailer in Europe
Schwarz Groups Lidl banner is seeing continued
expansion albeit at a slower pace.
Working to propel Lidl past Aldi as largest
discounter in Europe
Introducing minimum turnover per outlet
requirements
Investing heavily on the instore experience

Lidl has been rolling out instore bakeries across

W Europe as it looks to attract a broader
spectrum of shoppers.

21
Key Players Tesco
#3 Tesco
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.
Strategic shifting to EDLP with incremental EUR 245
million investment
Focusing on the refurbishment of big-box stores in Tesco has successfully launched the Clubcard
Fuel Saver programme.
2014
Expanding convenience formats will open 150
Express per annum
Will double the number of click & collect locations

Tesco is rapidly rolling out c-stores Express and

One Stop.

22
Key Players Metro
#4 Metro Group
For some time now, Metro Group has been battling
on all divisional fronts due to its portfolio of
structurally troubled formats.
Exiting non-core markets to focus on core and key
emerging markets
Refining cash & carry concept in saturated markets The Casa dellHoReCa features easier customer
of WE to boost attractiveness to business customers navigation with colour-coded departments.

Adapting to changing customer needs with diverse

formats
Closing unprofitable hypermarkets
Undertaking a series of long-overdue store
refurbishments

The Real remodels feature a higher-quality service

counter for fresh items, including bakery.

23
Key Players Edeka
#5 Edeka
Edeka is reviving its co-operative roots as it
refocuses on the strengths of its regional set-up and
its thriving independent retailers.
Diminish the diversity of banners and regional and
local idiosyncracies
The Fr Dich (For You) ranged supplied by candy
manufacturer Katjes is available exclusively at Edeka.
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

Edekas Omega 3 sausages were developed in collaboration

with the Frauenhofer Institute.

24
3. Key Trends
Death of the hypermarket?
Increasingly restrictive Apparent saturation
Positive retail sales do not necessarily
planning legislation reflect
in somethe full picture
markets

Difficulty in finding /
securing appropriate Lack of investment
sites

Rising land and Less one-stop

development costs shopping / format
fatigue

Online migration (esp Shifting consumer

in General trend towards
Merchandise) convenience

26
Countries most exposed to Big Box
Hypermarket (>5,000 sq m) Penetration of Grocery Market by Country (%)
35.0%

31%
30%
30.0% 29%

25.0% 24%

22% 21%
20%
20.0% 19% 19%
18% 18%
17%

15%
15.0% 14% 14%

10% 9%
10.0%
8% 8% 8%
7%
7% 6% 6%

5.0% 4%
4%
3%
1% 1%

0.0%

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

27
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

28
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 Downsize or sub-let surplus space to 3rd parties

Option 2 Re-allocate GM space to extend food offer

Option 3 Re-think product mix of GM space

Option 4 Improve in-store catering / foodservice

29
Option 1 downsize or sublet

Nandos
Wembley Park.

Sports Direct
Three UK sites.

Xercise4Less
Stockton-on-Tees.

30
Option 2 re-allocate GM to extend food offer

31
Option 3 rethink product mix of GM space

32
Option 4 improve in-store catering

33
Flight to convenience
Western Europe: Total Banner Sales by Channel, 2008-2018f (EUR bn)

450

400 2008
2013

350 2018f

300
Sales (EUR bn)

250

200

150

100

50

0
Note: f forecast;
Hypermarkets & Supermarket & Discount Convenience & Drugstores Cash & Carries
Source: Planet Retail Superstores Neighbourhood Forecourt

34
C-stores a pan-European perspective
No. of C-stores and Forecourt Stores 2013 Top 20 European Markets
30,000

25,442
25,000

20,000

15,000

11,940

10,000
8,286

6,585

5,000 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

Source: Planet Retail

35
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.
36
C-stores go hand-in-hand with e-commerce

37
Discounters the march continues (?)
Western Europe: Total Banner Sales by Channel, 2008-2018f (EUR bn)

450

400 2008
2013

350 2018f

300
Sales (EUR bn)

250

200

150

100

50

0
Note: f forecast;
Hypermarkets & Supermarket & Discount Convenience & Drugstores Cash & Carries
Source: Planet Retail Superstores Neighbourhood Forecourt

38
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)

39
Discounters the European Top 10

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

68.6
70
2007
65
2012
60
2017
53.8 53.4
55
Banner Sales (EUR bn)

50 46.2
45
40 37.5 38.1

35
30
25
20
15.4
13.7 13.6 13.3
15 11.9
9.4
10 8.2 8.3 9.3 7.3 8.3
6.6 7.1
5.3 5.6 5.7
4.2 5.2
5 2.6 3.6 2.6 2.8 3.3 3.7

0
Schwarz Group Aldi Edeka Rewe Group Dia* Jernimo Reitan Dansk NorgesGruppen Norma
Martins Supermarked

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

Source: Planet Retail
40
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 Shift in product mix towards freshness

Tactic 2 Increased brand listings

Tactic 3 Move towards convenience formats

41
Shift towards freshness

Penny (Germany, Czech Dia Fresh Instore bakery trial, Aldi

Republic, Italy) (Spain) Sds Hofer (Austria)

42
Shift towards brand listings - Aldi
Aldi: Brand listings of Top 10 FMCG brand companies
Rationale behind the brand additions:
Sales FMCG brand Brand listings
Revitalising sales in saturated markets rank company at Aldi*
Examples

Attracting more/new shoppers 1 Nestl Nescaf in Switzerland

Increasing average spend 2 P&G Gillette in Austria

Countering the success of its main rival, 3 PepsiCo Pepsi in Slovenia

Schwarz Groups Lidl 4 Unilever Lusso in Switzerland

Part of a strategy to become a one-stop 5 Mondelez Toblerone in Germany

destination 6 Coca-Cola Co. Rmerquelle in Austria

7 ABInBev Stella Artois in the UK

8 Philip Morris Intl. Marlboro in Germany

9 LOral 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.

43
Move towards convenience formats Aldi and Lidl

44
Grocery E-commerce fad or the future?

Proportion of web shoppers who have made grocery purchases online.

27% 8%
11% 10%

10% 33%
7%

31%
13%

7%

Source: Planet Retails Online Shopper Survey data.

45
The great unknown

We dont 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.

46
Still more questions than answers
Can it ever be
profitable?
Home delivery
Whats the Which is the or Click &
Am I just
impact on best model Collect?
cannabilising
bricks and store-picking or
existing sales?
mortar stores? dedicated DC?
How do
channels
interract?
What are the
geographic
implications?
Am I just doing
it because
everyone else is
Who are the doing it?
main key
customer
groups?

47
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.

48
Grocery E-commerce drive format
The Drive concept is a blend between pure e-commerce and
Click & collect, external to a store or as a free-standing unit.
traditional bricks and mortar stores

49
Drives different business models.

Metro Groups Real

integrated
infrastructure
alongside stores is the
Capital Expenditure

Ahold in the US is most common form of

experimenting with Drive to date.
Tesco operates van
compact standalone
sheds on store car
Drives by their stores.
parks for shoppers to
collect their groceries
quickly by car.

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

Order Capacity

50
4. Key takeaways
Channel convergence
HYPERMARKETS
Big Box servicing Hypermarkets opening
online home delivery, dedicated discount
Click & Collect, Drive areas and formats.
formats.

E-COMMERCE DISCOUNTERS

C-stores deployed as E- Discounters opening

commerce fulfillment more convenience-
outlets. based formats.
C-STORES
52
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.

53
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