Global Retailing

Global Retailing: Expansion
Strategies of the World's Leading

Retailers
July 2009
Retailing Expansion Strategies
Euromonitor International >
Key Strategies and Recent Performances

International Expansion Strategies
Organic Growth vs Acquisition Strategies
Channel Opportunities
Pricing and Private Label Strategies
Improving Brand Image, Loyalty and CSR Profile
Key Conclusions
Key Growth Strategies: Summary

International expansion
Pricing strategies and discounting
The internationalisation of the retailing industry remains

in its infancy, and most leading players have
considerable scope to expand their international
operations, especially grocery retailers, as they often do
not operate through franchises.
With the global recession hitting consumer confidence

and reducing the disposable incomes of many
households, retailers are increasingly using price-cutting
campaigns and heavy discounting in order to maintain
their customer base.
The economic crisis in developed markets increases the

need for many international retailers to become more
present in emerging markets in the long term, in order to
reduce their dependence on mature developed markets,
although in the short term it has the effect of reducing
their profits and their ability to invest abroad.
Discounters are set to make further inroads in the midst

of the economic crisis, thus contributing to price wars in
grocery retailing.
Development into new store formats

Retailers are continuing to innovate in terms of formats,
and grocery retailers are attempting to become less
reliant on large out-of-town stores in developed markets.
This has led to the development of hybrid formats, such
as smaller hypermarkets and discounter/supermarket
concepts.
Developing internet retailing presence

A greater number of retailers are expected to operate in
internet retailing. Internet retailers which undercut storebased players on price are set to benefit from the global
economic downturn. Grocery retailers will also develop
synergies between store-based and non store-based
channels.
Focus on private label

Major grocery retailers are increasingly focusing on
private label in order to boost their low-price credentials,
with an emphasis on value private label ranges,
especially in developed markets facing recession in
2009. Private label also enables retailers to gain greater
control over their brand strategy and image.
Boosting brand image, loyalty and CSR profile

Beyond the price aspects, it remains essentials for all
retailers to retain a strong brand image, increase the
emotional attachment to their brands and build customer
loyalty to ensure long-term growth.
Hence, retailers' innovations will focus on new services,
loyalty schemes and processes to make their
businesses more sustainable, which will also help them
reduce costs.
3
Quarterly Results Highlight Importance of Pricing Strategy

The recent quarterly results of the largest global grocery retailers show the importance of pricing strategies in the
midst of the economic crisis.
Wal-Mart's low-price positioning helped it record a robust performance, although the economic downturn affected
negatively non-food sales and its profits in the US. Seven & I also recorded a resilient performance, with its
convenience stores retaining their appeal among cost-conscious consumers.
In contrast, Carrefour's sales were undermined by the disappointing results of its hypermarkets, only partially offset by
its discounter operations, while Tesco lost ground to UK rival grocery retailers perceived as cheaper, most notably
Morrison and Wal-Mart's Asda chain.
Company Net Sales 2006-2008

Currency
(billion)
2008 last
quarter
sales
2007 last
quarter
sales
2006 last
quarter
sales
% growth
2007/2008
% growth
2006/2007
Quarter
ends
US$
108.0
106.3
98.1
1.7
8.4
Jan *
Carrefour SA
25.7
25.6
23.5
0.7
10.2
Dec
Tesco Plc
n/a
n/a
n/a
12.0
11.8
Nov
Seven & I Holdings Co Ltd
1,464.3
1,439.2
1,379.6
1.7
4.3
Nov
% growth
2007/2008
% growth
2006/2007
Quarter
ends
Company name (GBO)

Wal-Mart Stores Inc
Note: * January of the following year eg 2008 figures refer to financial year ending January 2009
Company Profits 2006-2008

Company name (GBO)
Wal-Mart Stores Inc
2008 last
2007 last
2006 last
Currency
quarter net quarter net quarter net
(million)
profits
profits
profits
US$
3,792.0
4,096.0
3,940.0
-7.4
4.0
Jan *
34,164.0
33,141.0
36,169.0
3.1
-8.4
Nov
Notes: Quarterly net profits figures for Carrefour and Tesco not available
* January of the following year eg 2008 figures refer to financial year ending January 2009
Domestic Performances Still Key to Quarterly Sales Growth

Low prices give Wal-Mart an advantage
Carrefour sales dip in the economic downturn, whilst Tesco
Over the fourth quarter of its 2008 financial

lost market share
year, Wal-Mart's global sales increased at a
Both Carrefour's and Tesco's sales were impacted by the economic
much reduced pace than over the first three
downturn, due to their mid-market positioning in their domestic
quarters of the year. Sales outside the US fell
markets. Carrefour saw a 2% dip in sales in its domestic market in
by 8%, mostly as a result of the appreciation of
the last quarter of 2008. This downward trend became more
the US dollar against other currencies in the
pronounced in the first quarter of 2009, with global revenues falling
group's main markets. In constant currency
by 3%, as hypermarket sales declined in France and Spain.
terms, international sales grew by 9%.
However, discounter operations continued to record growth in Spain.
Wal-Mart's performance in the US was helped
Tesco does not publish detailed actual quarterly sales data, but does
by its low-price positioning, which helped attract
provide growth rates. Tesco's sales were resilient in the third quarter
cash-strapped consumers hit by the economic
ending November 2008, with a 12% rise in global sales, helped by
crisis. However, the economic downturn
the weakness of sterling. In the UK, although sales recorded a rise of
affected non-food sales negatively.
6%, Tesco lost market share to rival grocery retailers which are
perceived as cheaper in the last quarter of 2008, most notably
Seven & I's convenience stores weather
Morrisons and Wal-Mart's Asda chain.
downturn well
Seven & I's sales in Japan were up in the last
quarter of 2008, albeit modestly, with its
convenience stores attracting thrifty consumers
in the midst of Japan's economic crisis,
offsetting the fall in supermarket and
department store sales. Shoppers increasingly
avoided trips to out-of-town stores and
restaurants, preferring convenience stores,
such as 7-Eleven, to purchase hot meals. A
greater focus on low prices and private label
also helped Seven & I weather the downturn in
Japan successfully.
Company Domestic vs International Retail Sales 2008

Company name
(GBO)
%
%
domestic international TOTAL
sales 2008
sales 2008
International
sales 2008
(US$ billion)
Wal-Mart Stores
Inc
73.4
26.6
100.0
93.3
Carrefour SA
49.9
50.1
100.0
65.1
Tesco Plc
70.8
29.2
100.0
31.8
Seven & I Holdings

Co Ltd
70.7
29.3
100.0
21.5
5
Recent Quarterly Profits: Resilience for Global Players

Wal-Mart's profits show slowdown
Wal-Mart recorded lower net profits in the fourth quarter of 2008, partly as a result of the negative effect of the
recession on non-food sales in some of the company's major markets.
Profits were also impacted by lawsuit settlements, while internationally they suffered from negative currency
effects. In constant currency exchange rate terms, operating profits from non-US operations grew by 5%,
showing that the longer term profit trend is steady.
Seven & I's profit growth remains slightly positive

Seven & I's profits growth remained positive in the third quarter, helped by the success of its convenience
stores operations. However, this positive trend was also due to changes in legislation, making it easier for
consumers to buy cigarettes at convenience stores than at vending machines. The price wars between
Japanese retailers started to impact Seven & I's profits negatively at the end of 2008 and in early 2009,
particularly for its supermarkets and department stores.
Tesco vs Carrefour Contrasting profits performances
Carrefour and Tesco do not release quarterly profit figures. Their first half figures for 2008 showed contrasting
performances. Carrefour's net income grew by 1%, to 750 million, while Tesco's trading profits were up by
9%, to 1,367 million. Over the second half of the year, the gap between the two groups' results widened.
Carrefour's annual net income deteriorated, with a 33% fall to 1.3 billion, whereas Tesco's annual operating
profits increased by 15% to 3.2 billion, helped by favourable exchange rates.
In their respective domestic markets, Carrefour's profitability remained more modest than Tesco's, partly as a
result of Carrefour's greater reliance on non-food sales in its hypermarkets, which are suffering during
France's recession.
Economic Crisis Creates Uncertainty and New Challenges

Retailers in uncharted territories amid economic and banking crisis
The sharp deterioration of the global economy in the second half of 2008 and in 2009 creates new challenges
affecting the vast majority of retailers.
The uncertainty surrounding the health of the global economy led to a rapid fall in consumer confidence, and retailers
were forced to re-evaluate their strategies and become more cautious. For example, the banking crisis, affecting
lending, has made takeover bids more difficult. This situation particularly affects private equity-backed retailers.
However, the greater amount of vacant sites following a rise in bankruptcies among retail chains creates new
acquisition opportunities for retailers with liquidities, such as Wal-Mart, Tesco and Carrefour.
Those non-grocery retailers most reliant on big ticket purchases are set to see the sharpest falls in revenues, and
grocery retailers will need to adjust to food prices being set to remain at historically high levels, despite commodity
prices falling and an easing of food price inflation in the second half of 2008. As grocery retailers attempt to cut prices
in a negative economic environment, this is set to lead to an erosion of their margins.
These factors will also encourage greater adaptability in the supply chain to be able consistently to offer low prices
without hindering margins, which may also push local sourcing.
Non-grocery retailers will increasingly need to compete with discounters and dollar/pound/100 yen shops variety
stores by offering similarly simple price structures, or alternatively through a differentiation strategy favouring a
premium assortment and branding.
The spectre of deflation

Japan is likely to experience deflation in 2009, with consumer prices having experienced stability in February. A
similar situation could affect several major Western European economies, following the example of Ireland, where the
consumer price index saw a fall in early 2009.
Government authorities, especially in emerging markets, could intervene to curb inflation and limit the increases in
food prices. The Chinese government announced a freeze of utility prices in 2008.
7
Retailers Adapt to New Macro-economic Conditions

More intense price wars and all-out discounting
% growth
Perhaps the most potent reaction to the economic crisis from retailers is the pervasive discounting and price cutting
campaigns.
Price wars are set to redefine the retail landscape, with major players cutting prices and focusing on value private label
ranges, especially in the many developed markets facing recession in 2009.
The fall in key raw materials and commodity prices in the second half of 2008 allowed price cuts to take place without
jeopardising retailers' margins, a situation which is likely to be reversed in the longer term.
Tesco has cut prices on some items in Ireland and the UK, in order to compete against the discounter chains Aldi, Lidl and
Netto. A new low-cost range was added to its offering in Ireland and the UK in summer 2008, and has met with success.
Similarly, in Belgium, the supermarket chain Delhaize cut the prices of 500 branded food items in 2008, in reaction to price
pressure from the dynamic discounter operator Colruyt.
Carrefour opted to reduce the prices of 10,000 items by up to 25% in Spain in early 2009, partly as a reaction to the
success of the budget supermarket chain Mercadona, which aggressively cut prices and reduced its assortment of
branded products to focus on private label.
Price wars are particularly apparent in Japan, between the two largest retailers, Aeon and Seven & I, and Wal-Mart's Seiyu
chain, with Aeon announcing discounts on over 5,000 products in March 2009, including 1,700 Topvalu private label items,
while Seven & I dropped the prices of around 2,600 products at Ito-Yokado supermarkets.
Top 10 Retailing Markets: Real GDP Historic/Forecast 2008-2009
9
6
3
0
-3
-6
2008
USA
Japan
China
Germany
United
Kingdom
France
Italy
Russia
Spain
2009
Canada
World Retailing: Company Value Sales

World - Retailing Ranking and Value Sales 2004-2008
Company name (GBO)
Four year
trend
2004 ranking 2008 ranking
2008 retail
sales (US$
billion) *
% growth
2004-2008
CAGR
2004-2008
Wal-Mart Stores Inc
350
48
10
Carrefour SA
130
36
Tesco Plc
109
64
13
73
59
12
Target Corp
68
35
CVS Corp
20
67
161
27
Schwarz Beteiligungs GmbH
10
67
59
12
Aldi Group
65
42
Walgreen Co
13
62
61
13
Kroger Co
10
61
15
Auchan Group SA
11
11
59
40
Royal Ahold NV
12
56
Rewe Group
12
13
56
34
Home Depot Inc, The
14
53
13
Sears Holdings Corp
17
15
49
61
13
Note: * 2008 estimates
Leading Companies in 2008 Highlights

Three largest global retailers
show resilience
Discounters and health and

beauty retailers still on the rise
The world's largest retailer, Wal-Mart increased its share in its

domestic market, helped by aggressive pricing. Although
Carrefour and Tesco face more difficulties in the wake of the
economic crisis in their home markets, they show resilience,
while rapid expansion in emerging markets continues to boost
their global sales.
The discounters Aldi and Schwarz (Lidl) and health and
beauty retailers CVS and Walgreen recorded high CAGRs
between 2004 and 2008, and grew strongly in 2008. CVS's
growth was strengthened by the acquisition of Caremark.
Greater price consciousness among European consumers in
an economic slowdown is boosting discounters. Health and
beauty retailers remain driven by the ageing of the population
in developed markets.
Weak housing market affects

Home Depot
The fall in consumer confidence and the decline in house

prices in the US affected Home Depot, which was the only of
the top 15 retailers whose sales fell significantly in 2008.
Mid-market players suffer in the

US
The economic slowdown and consumer caution is affecting

mid-market retailers, which are struggling against cheaper
rivals. In the US, Kroger, Royal Ahold (Giant and Stop &
Shop) and Target underperformed in 2008, and lost share to
Wal-Mart.
10

Key Conclusions
11
Domestic vs International Sales for Largest Retailers

Retailers continue to expand in major emerging markets
Global retailers will increasingly expand in large emerging markets, in order to offset stagnation in mature
markets affected by recession. This will drive the performance of Wal-Mart in China and Mexico, of Carrefour
in Brazil, China and Romania and of Tesco in China and Poland.
World: Retailing Domestic vs International Sales 2008
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
International sales
Domestic sales
12
Global Retailers Still Consider Domestic Market as a Priority

Global retailers generate the majority of their revenues from their domestic markets, with the exception of
Netherlands-based Royal Ahold and France-based Auchan. Hence, their performance in domestic markets
remains essential to maintaining profitability and funding overseas growth. Wal-Mart remained driven by
robust UK and US growth in 2007 and 2008, while market saturation has affected Carrefour in France and
Seven & I in Japan.
Tesco faced slower UK sales growth in 2008 in the UK, due to the economic slowdown and the greater
dynamism of retailers with a lower price positioning, such as Morrison and Wal-Mart. By contrast, in the US,
Wal-Mart is benefiting more from its low-price positioning, as many US consumers trade down to cheaper
outlets.
In contrast to international European retailers expanding their internationally presence, most US retailers, with
the exception of Wal-Mart, have little or no presence abroad. However, several US-based non-grocery
retailers, such as health and beauty retailers CVS and Walgreens, illustrate how aggressive expansion in their
domestic market can offset an exclusive reliance on the home market, although they suffered from
unfavourable economic conditions in 2008. CVS was driven by the acquisitions of Albertson's drugstores
activities in 2006 and of Caremark in 2007.
13
Retailers Increasingly Focus on Key Major Markets

Number of Markets of Operations Modest rises in number of markets
The internationalisation of retailing through new market entries has
in Retailing 2004/2008
40
2004
35
30
25
20
15
10
5
0
2008
gathered pace in several small markets in Latin America for Wal-Mart,

and in Eastern Europe for Schwarz (Lidl).
However, the number of markets grew moderately for most retailers,
as market entries are often offset by divestments in less profitable
markets (eg Carrefour exiting Switzerland and Schwarz leaving
Norway), as retailers adopt a more structured and coherent approach
to their internationalisation strategy.
However, operators using franchise agreements, such as Inditex, can
benefit from greater flexibility. Inditex operated in 65 markets in 2008.
This model could be widely adopted by other non-grocery groups,
such as H&M and Fast Retailing (Uniqlo), which could greatly quicken
the pace of the internationalisation of retailing.
Focus on fewer key markets

Retailers whose resources or size do not match the global reach of
Carrefour and Wal-Mart are likely to achieve profitability by selecting
fewer markets where they have experience, such as China, Russia
and Taiwan for Auchan. In order to reduce their debt, Casino and
Royal Ahold exited several markets to focus on a small number of
less saturated countries where they have stronger positions: the
Baltic countries and Latin America. respectively.
By contrast, Carrefour has selected as many as 11 major emerging
markets: Argentina, Brazil, China, Colombia, Indonesia, Malaysia,
Poland, Romania, Taiwan, Thailand and Turkey, which should
account for over 33% of its global sales in 2010, compared to around
25% in 2007. Tesco was successful in strengthening its position in
existing markets, hence it did not seek to enter new ones.
14
Foreign Retailers Contribute to Consolidation in BRICs

Retailing: Market Sizes Retail Value
RSP at Constant Prices 2003-2013
As they focus on a more limited global presence in key

markets, major global retailers will keep investing
heavily in the BRIC markets, which offer untapped
potential and a rapidly rising number of middle-class
consumers living in urban areas.
10
2003-08
2008-13
% growth
8
6
The grocery retailers Auchan, Carrefour and Wal-Mart

are the largest foreign operators in the BRIC markets,
followed by Avon and IKEA.
4
2
0
World
Brazil
China
India
Russia
Retailing: GBO Shares of Top 10

Retailers Retail Value Sales Excluding
Tax 2007-2008
50
2007
% breakdown
Expansion of existing players and new entrants

alike
2008
40
30
20
10
0
Germany USA
Brazil
China
India
Russia
In all four markets, new foreign entrants have played a

significant role in consolidating the retail environment.
Future new entrants will continue to do so, although the
economic crisis will lead to a slowdown in investment
from foreign retailers in the BRIC markets.
Luxury retailers are expected to see strong growth
through standalone stores and department store
concessions, despite a slowdown, as they are hit by the
crisis in their major developed markets.
As India's legislation does not allow foreign direct
investment for multi-brand retailers, foreign chains have
a considerably smaller presence, and the overall
retailing markets remains highly fragmented, with the
development of store chains in its infancy. This
contrasts with Brazil, where foreign and domestic chains
have established extensive store networks.
15
Brazil: A More Consolidated Market Among BRICs

Low-income shoppers targeted through discounters
Carrefour and Wal-Mart's success in Brazil has partly been driven by their expansion through low price
fascias, such as Wal-Mart's discounter chain Todo Dia and Carrefour's Dia, whose reduced product
assortments target low-income consumers and benefit from their low-price brand image.
In 2009, Wal-Mart is continuing to focus on the Todo Dia chain, challenging the dominance of the Dia chain.
Brazil Retailing: GBO Market Shares 2004/2008
10,000
2004
2008
US$ million
8,000
6,000
4,000
2,000
0
Casino GuichardPerrachon SA
Wal-Mart Stores Inc
Carrefour SA
C&A Mode
Brenninkmeijer & Co
Avon Products Inc
16
Existing Global Players Expand in Brazil

Although more concentrated and mature than other BRIC markets, Brazil remains a core emerging market for
several global players, such as Carrefour, Casino and Wal-Mart.
Wal-Mart intends to accelerate its expansion. It plans to open 80-90 hypermarkets and supermarkets, with
expansion into new large cities and the central states. Wal-Mart's multi-channel strategy also included an
entry into Internet retailing in 2008.
Casino's strong sales performance growth in 2008 was driven by its presence in convenience stores, as well
as by non-food products, especially consumer electronics. However, the group's retail sales performance was
negatively impacted by the conversion of some supermarkets and hypermarkets to the cash-and-carry format
(sales of which are not included in retail market data), which represents a major source of growth for Casino.
Similarly, Wal-Mart plans to boost investment in its Maxxi Atacado warehouse clubs, with the opening of
several new outlets in 2009.
Among smaller regional retailers, the Chilean group Cencosud has strong growth prospects, with plans to
invest US$3 billion and to double sales over the next five years.
Tesco has no plans to venture into Latin America, a move which would require substantial resources and
where it would meet considerable competition from rival players. However, if the Fresh & Easy venture in the
US proves successful, this chain could be adapted and launched in Latin American markets, especially
Mexico.
17
China: Expansion of Foreign Retailers Not Slowing Down

China Retailing: Foreign Retailers GBO
Market Shares 2004/2008
6,000
US$ million
5,000
2004
2008
4,000
3,000
2,000
1,000
0
Wal-Mart Auchan Carrefour Best Buy Amway

Stores Inc Group SA
SA
Co Inc
Corp
Non-grocery retailing: foreign retailers expanding

against dominant local retailers
Large domestic players such as Gome and Suning are
increasingly powerful and efficient. They will continue to
expand aggressively organically and through acquisitions
to maintain their lead over foreign players, although the
sharp slowdown affecting the Chinese economy has led
Gome to cut its network expansion programme.
In early 2009, the German group Metro announced the
launch of the Media Markt chain in China, where it sees
long-term potential for over 100 stores, which will
compete against Gome and the US-based chain Best
Buy. Seven & I intends to develop its presence through
department stores, in addition to extending its
convenience store operations.
Large foreign operators expand into new channels

and cities
In 2008, Wal-Mart expanded in China at a faster pace than
its main international rivals Auchan and Carrefour. Its
strong performance in its domestic market and robust
profits should allow the group to maintain capital
expenditure in 2009 and accelerate expansion in 2009,
either organically or through acquisition.
Although it lags well behind the largest international
operators in size, Tesco will also continue to be in a strong
position to invest in store network expansion in 2009, due
to high levels of profits.
Both Carrefour and Tesco are expected to develop their
presence in large first-tier cities through small Express
supermarkets selling a larger proportion of fresh food.
Such concepts, which Wal-Mart still shuns, enable the two
groups to target wider consumer groups, especially single
households. In Shanghai, both retailers compete against
Seven & I, which is expanding its 7-Eleven chain.
Carrefour and Wal-Mart have expanded by opening new
outlets in more remote areas, including in the Western
Provinces for Carrefour, as first-tier cities are increasingly
seeing saturation in hypermarkets, and suitable sites in are
more difficult to find. This move brings new challenges, as
transport infrastructures are less developed, and consumer
tastes and income levels differ greatly from first-tier cities.
Flats screen TVs are more popular in China's coastal
areas than in the poorer hinterland.
18
India: Fragmented Market Dominated by Local Players

Alternatives to FDI to enter the fragmented Indian market
India's fragmented retail environment is entirely dominated by home-grown retailers, which are taking part in the rapid
modernisation of the retail infrastructure, with the development of chained outlets, such as Subhiksha and Reliance
supermarkets and Pantaloon's Big Bazaar hypermarkets, offering staple food at rock-bottom prices.
As the legislation restricting foreign direct investment (FDI) in multi-brand retailing is likely to be maintained, the
development of international retailers is expected to remain slower than in other emerging markets.
However, global retailers are finding other ways to enter India, for example through cash and carry outlets. Following
Metro's lead, Wal-Mart plans to open its first such store in 2009, with the longer term goal of 15 units. Under a joint venture
agreement with Bharti, Wal-Mart will provide logistics expertise and build a distribution centre. Carrefour is also following
the cash and carry model, with a first store to open by early 2010, and Tesco announced a similar market entry approach
in late 2008. Of the three global retailers, Wal-Mart appears to have the edge, due to its earlier entry and more ambitious
target.
Department stores operators are opting for joint ventures. In spring 2008, Marks & Spencer formed a joint venture with
Reliance Retail, with plans to open 50 stores over a 5-year period, while John Lewis is looking for an Indian partner.
Foreign retailers will look to sign joint-venture agreements to enter this channel, which is expected to grow rapidly as the
number of middle class consumers rises.
India Retailing: Top Five GBO Market Shares

2007-2008
% share
0.8
2007
0.6
2008
0.4
0.2
0.0
Pantaloon
Retail India
Ltd
RPG Group
Subhiksha
Trading
Services Pvt
Ltd
Reliance
Group
Aditya Birla
Nuvo Ltd
Trend to Watch: Foreign retailers

entering India will face major
challenges in creating a local supply
chain and will need to invest heavily
in distribution infrastructure to
support their local partners and
match local retailers' low prices.
19
Russia: Global Retailers Still Fighting for Market Entry

A key battleground for existing global retailers and new entrants alike
Auchan, IKEA and Metro are among a handful of retailers which have succeeded in Russia through large
store formats and which will pursue aggressive expansion. New entrants include Carrefour, with a first store
due to open in Moscow in spring 2009 and another two outside Moscow by the end of the year. Carrefour is
also rumoured to have made a non-bidding offer in early 2009 for the supermarket operator Seventh
Kontinent.
Wal-Mart is also likely to enter Russia, probably through the acquisition of a large domestic player, such as
Lenta or Sedmoi Kontinent. The fall in the value of the Rouble and in commercial property prices since 2008
make the timing right for a major acquisition for Carrefour, Tesco or Wal-Mart. Wal-Mart's lack of presence in
Eastern Europe would, however, make synergies more difficult to achieve for the group, compared to
Carrefour and Tesco.
Foreign luxury goods retailers, such as PPR, are expected to see slower growth, due to the recession in
Russia in 2009, partly fuelled by a fall in fall in gas and oil prices.
Foreign retailers expand in first-tier as well as lower-tier cities
Russia offers untapped potential and a rapidly rising number of middle-class consumers in major cities.
Building on its success in the first-tier cities, Auchan is increasing its presence in second-tier cities in Russia,
for example in Siberia, with the integration of the Alpi chain.
However, Auchan still continues expanding in Moscow and St Petersburg, where it opened a new, smaller
format (Auchan City), due to the relative maturity of the hypermarket format. This indicates that smaller
formats, such as supermarkets and discounters, could offer greater growth potential for foreign retailers.
20
Russia: Domestic Groups Remain Powerful

10,500
Russia Retailing: Domestic Retailers GBO Market Shares

2006-2008
2006
US$ million
9,000
2007
2008
7,500
6,000
4,500
3,000
1,500
0
X5 Retail Group NV
5,000
Eldorado OOO
Tander ZAO
Evroset Group
Russia Retailing: Foreign Retailers GBO Market Shares

2004/2008
2004
2008
US$ million
4,000
3,000
2,000
Large domestic players,

such as X5 Retail Group
are increasingly powerful
and efficient. They will
continue to expand
aggressively organically
and through acquisitions to
maintain their lead over
foreign players, although
the global economic and
financial crisis hitting
Russia forces them to have
a more cautious outlook.
Large, dynamic local
retailers represent strong
competitors for
multinational companies,
as well as opportunities, as
they can become takeover
targets, such as Lenta and
Sedmoi Kontinent.
1,000
0
Auchan Group SA Inter IKEA Systems
BV
Metro AG
Avon Products Inc
21
Smaller Emerging Markets Offer Strong Prospects

Focusing on smaller emerging markets
In addition to the BRICs, most global retailers will focus on smaller and less saturated dynamic retail markets. Carrefour
and Tesco are expanding in Turkey and Metro in Vietnam with cash and carry outlets. Medium-sized international players
should particularly take advantage of the growth potential in smaller emerging markets, which require more modest
investment than the BRIC markets and have strong growth prospects. Rapid expansion has been experienced by Casino
in Colombia and Royal Ahold in the Baltic markets. Auchan created a joint venture with Nakheek Properties in summer
2008 to open its first hypermarkets in the UAE in 2008, with future plans to expand across the Gulf region, and also
opened a first store in Ukraine in April 2008.
Multinational retailers also seek to achieve synergies across regions by investing in markets next to BRIC countries, for
example Carrefour and Wal-Mart in Argentina. Wal-Mart's acquisition of CARHCO in 2006 also gave the group a presence
across smaller and less mature Latin American markets (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua)
and illustrated the benefits of expanding across neighbouring markets. Entry in Chile, achieved in early 2009 through the
purchase of a majority stake in D&S, will cement the group's leadership and create more synergies in Latin America.
10.0
8.0
6.0
4.0
2.0
0.0
08-13 CAGR
Actual increase 08-13 (US$ million)
400,000
300,000
200,000
100,000
0
US$ million
% CAGR
Retailing: Forecast Retail Value RSP Excluding Sales

Tax 2008-2013
Some retailers with little or no

foreign presence opt to limit risks
and investments by expanding
abroad through smaller markets
than BRICs. The John Lewis
Partnership launched the Waitrose
chain in the UAE with a franchise
partner in 2008, and Alimentation
Couche-Tard set up the Circle K
chain in Vietnam.
Trend to Watch: A wave of foreign retailers are preparing to enter

Vietnam in 2009 as the market becomes more open to foreign investors.
22
International Brand Strategies: Towards Global Brands

Giving major grocery chains a more global reach
Multinational operators are increasingly converting local
fascias to their main international brands to cut marketing
and associated costs, and to develop stronger global
brand awareness.
Large global grocery retailers, such as Carrefour, Seven &
I and Tesco will often seek to follow the model of nongrocery global chains in order to create more synergies
across their global operations.
Carrefour is rebranding Champion supermarkets as
Carrefour Market in France, following the success of this
new banner in Spain, and announced in 2009 that it would
drop the GB banner in Belgium, replacing it with Carrefour.
Thus, Carrefour intends to emulate the successful
international brand strategy adopted by Tesco, with its
main banner, which continued in 2008, as the group
renamed its Hymall stores to Tesco in China in 2008.
Similarly, in 2009, Auchan is finalising the rebranding of its
various national supermarket chains in France, Italy,
Poland and Spain to the Simply Market banner.
However, managing re-branding local chains without
losing customer loyalty will remain a challenge for global
retailers. Hence, global retail fascias will increasingly
adapt their product assortment to local market conditions.
Consolidation will continue to drive major brands, as many
acquired chains will be re-branded into the group's most
high-profile fascias across several markets.
Non-grocery retailers achieve widest global reach

through major brands
Several non-grocery chains, such as H&M, IKEA and Zara
(Inditex), are set to remain among the leading global retail
chains and build upon their international brand recognition.
Products sold by these chains are less culturally sensitive
and are better adapted to global sourcing from a logistics
point of view than is the case for grocery chains. Clothing
and footwear retailers, such as C&A, H&M and Inditex, are
set to likely to extend their lead over less global players.
Among electronics and appliance specialist retailers, global
brands, such as Best Buy and Media Markt, are expected
to focus on global expansion. Although they will suffer from
the global recession in 2009, they will see opportunities to
acquire vacant sites as some smaller rivals fail to survive.
Some local brands retain their appeal

Retailers are likely to retain some local fascias with strong
brand identities. For example Wal-Mart's Asda chain in the
UK and Seiyu in Japan would not benefit from a
rebranding. Wal-Mart's failure with its eponymous chain in
Germany and South Korea shows the potential pitfalls of
establishing a global banner, especially in markets where
local consumers would associate it with low quality.
Hence, Wal-Mart will focus on greater synergies between
these brands and its Wal-Mart branded operations by
improving global sourcing rather than re-branding stores.
23

Key Conclusions
24
Retailers Opt for Greater Control through Organic Growth

Organic growth slower but gives more control
Organic expansion strategies allow retailers to exert
greater control over the pace of expansion, their store
locations and their brand strategies.
However, organic expansion is often slower than through
acquisitions, and faces obstacles, such as the lack of
available sites to open new stores, especially in developed
markets, as well as in large cities in emerging markets.
Non grocery retailers focus on organic growth

The majority of non-grocery retailing operators with widely
recognised global brands have successfully entered
foreign markets through organic expansion rather than
through acquisitions.
Among those retailers with the widest global presence are
H&M, IKEA and Inditex, which rely almost exclusively on
an organic growth strategy, which may incorporate a
degree of expansion through franchising, in order to
minimise the risks of investing in new emerging markets.
In emerging markets, where the amount of new retail
space created is significant, such as China, retailers
expand aggressively, especially in second-tier cities.
Adidas plans to open around 2,000 stores between 2008
and 2010.
Grocery retailers in organic expansion plans

Due to their privately-owned status, grocery retailers
such as Aldi, Auchan and Schwarz choose to expand
in new markets mostly through organic growth, and
have a more cautious approach to acquisitions than
listed companies.
However, a majority of publicly listed global grocery
retailers, such as Carrefour and Wal-Mart also rely
heavily on organic expansion in developed markets,
such as Spain and Canada respectively.
Room for organic expansion remains important in
grocery retailing in developed markets, including
Japan and the US. In both markets, Seven & I plans
vast investment programmes, to open 1,000 outlets in
the US between 2008 and 2012, and 300 stores in
Japan by 2011.
Tesco's strategy, based on organic growth in the US
with the Fresh & Easy chain, enabled the company to
develop an entirely new concept, and to gauge the
market environment closely through store tests. While
the group may initially struggle, as it had to scale
down its initial expansion target for 2008, it should
ultimately be successful, due to the choice of a small
supermarket format a channel which remains highly
fragmented in the US.
25
Partnerships Increasingly Used as Market Entry Strategy

Partnerships help develop retail chains in
India
In India, due to regulations restricting foreign direct
investment (FDI) in multi-brand retail chains,
foreign retailers are required to develop
partnerships with local companies. However, the
complexities of operating in such a large and
diverse market make it advisable to have a local
partner, regardless of the legal constraints.
Indian companies setting up retail chains, such as
Reliance, can benefit from foreign retailers'
experience to help develop their retail and logistics
infrastructure, while foreign retailers can gain a
foothold in India and become familiar with the retail
environment, potentially with a longer term view to
invest more directly if the legislation changes.
For example, Bharti and Wal-Mart agreed on a
partnership to open cash and carry outlets by the
end of 2009, and Tesco has tied up with the Tata
Group under a similar agreement. At the time of
writing, Carrefour was in talks with several
potential partners Indian companies to support its
plans to open cash and carry outlets by 2010.
The Indian group Reliance Retail created a joint
venture with the UK-based supply chain specialist
Wincanton in 2008, which will improve the
efficiency of its back-end operations.
Partnerships with local retailers give flexibility

Joint venture agreements are often the best option for retailers to
expand in markets where they have little or no experience, or in
smaller countries. This enables them to limit risks, while their
local partners benefit from the expertise of an international
retailer. Several foreign retailers entering the UAE market have
opted for this approach, including Auchan and The John Lewis
Partnership.
In larger markets, such as China and Russia, retailers with a
large network opt to have partnerships with a number of regional
partners. This approach enables them to adapt to differences in
market conditions across these two vast markets. For example,
SPAR has formed partnerships with five different regional
supermarket chains in China, which helped the group to grow
rapidly across several provinces in 2007 and 2008. Similarly, the
group operates in Russia through agreements with six partners.
Recommendation:
Multinational retailers
seeking to set up
partnerships to enter
India or other large
emerging markets need to
be early entrants in order
to be in a position to find
the most suitable partners.
26
Key Acquisitions
Date
2009
Amount
US$1.5
billion
1.6 billion
July 2008 (US$3
billion)
Companies
New Ranking in
Channel (Country)
Wal-Mart acquires a 58%

#1 in supermarkets
stake in Chile's largest
(Chile)
supermarket operator D&S.
The Co-operative Group

acquires rival supermarket
chain Somerfield.
#3 in supermarkets
(United Kingdom)
South Korean retailer Lotte

RMB1.3
acquires the Chinese
# in supermarkets
June 2008 billion (US$
supermarkets operator CTA (China)
180 million)
Makro.
Won2
trillion
May 2008
(US$1.9
billion)
Tesco takes over the

Homever chain.
2008
Tengelmann sells the Plus

chain in Europe. In
Germany, the Edeka Group #3 in discounters
acquires a majority stake in (Germany)
Plus and sells around 400
outlets.
n/a
#2 in hypermarkets
(South Korea)
Strategic Goals and Risks

Goals: Enter selected emerging markets by
gaining a strong presence and scale of
operations and using the local company's market
knowledge.
Risks: Small market size and population of
chosen market.
Goals: Offset stagnation in a saturated channel
facing low organic growth prospects and a lowmargin environment.
Risks: High cost of acquisition and banner
conversion.
Goals: Enter a major emerging market to kickstart international expansion.
Risks: Relative lack of experience in
international markets.
Goals: Strengthen position in a mature market
using existing store network.
Risks: High costs of acquisition in a market
showing a rapid slowdown due to a deteriorating
economy in 2008 and 2009.
Goals: Acquire the size and scale of operations
to compete more directly with larger operators
Aldi and Schwarz.
Risks: Low margins and market saturation.
27
Acquisitions Used in Both New and Saturated Markets

Targeted expansion in emerging markets
Multinational retailers continue to make acquisitions to strengthen their positions in a few selected emerging
markets. The advantage of such a strategy is to rapidly gain a strong presence and scale of operations, while
using a local company's market knowledge. However, the costs and risks involved can be high. Tesco's
acquisition of Homever in South Korea illustrates these risks, in a market showing a rapid slowdown due to a
deteriorating economy in 2008.
Hence, small and medium scale acquisitions are mostly favoured, due to the high risks and debt associated
with integrating large organisations. Examples of such strategies include cash-rich Wal-Mart's acquisition of
the Chilean group D&S.
Acquisitions offset developed market saturation
Acquisitions enable retailers to offset stagnation in the most saturated channels, facing low organic growth
prospects and a low-margin environment, or where there is a heavily dominant operator. The department
stores channel's poor prospects in Japan make Isetan and Mitsukoshi's merger a sound option for these
players, while the intense competition among discounters in Germany makes Edeka's acquisition strategy the
best option to become a leading player against Aldi and Schwarz.
The dominance of Woolworths in Australia creates difficult conditions for smaller operators, which encouraged
Wesfarmers to seize the opportunity to take over its rival Coles Group. Wesfarmers' acquisition shows an
uncommon example of a company acquiring a larger rival in order to gain the required scale of operations in a
mature domestic market.
28
Potential Future Acquisitions Highlights

Best Buy's expansion in China and Europe
Potential
Bidders
Probability
Lenta, Sedmoi
Russia
Kontinent
Agrokor,
Carrefour,
Wal-Mart
Medium
am/pm (chain
owned by Rex
Holdings)
Japan
FamilyMart,
Lawson
Medium
DSG
International,
Kesa
Eastern
Europe,
Western
Europe
Best Buy,
Gome
Electrical
Appliances
Low
Delhaize,
Jeronimo
Martins
Western
Europe
Tesco, WalMart
Low
Companies
Country/
Region
Following its recent tie-up with Carphone Warehouse, the USbased electronics and appliance specialist retailer Best Buy is
likely to acquire some or all assets of another European
group, such as DSG International or Kesa, despite difficulties
in its home market that reduce its potential to invest abroad. In
particular, the group will seek to acquire out-of-town chains. In
China, the purchase of Jiangsu Five Star Appliance in
February 2009 provides the group with a wide local network,
which makes the group unlikely to make further acquisitions.
On the acquisition trail in China and Russia
Financial crisis changes the M&A landscape
More consolidation is expected in major emerging markets,

through mergers between local players and takeovers by
global retailers. In Eastern Europe, Carrefour and Wal-Mart
may be interested in bidding for the Russian retailers Lenta or
Sedmoi Kontinent to gain a foothold in Russia, while Tesco is
more likely to focus on strengthening its dominance in Poland
through organic growth than to enter Russia. The three
groups may also seek to purchase some Chinese
supermarket chains present in large cities.
As a consequence of the global financial crisis since autumn 2008, and the world economy's sharp downturn, retailers are
expected to become more cautious in making takeover bids. Hence, the owners of the Irish supermarket chain Superquinn
could not find any bidders for the chain at the end of 2008. This prudence is further accentuated by restricted lending by
banks. Gloomier prospects for the economy will also impact retailers in emerging markets. The Chinese group Gome
Electrical Appliances is slowing down capital expenditure significantly in 2009.
However, with shares of some retailers having plunged, cash-rich groups, such as Tesco and Wal-Mart, will be hunting for
potential bargains to increase their global reach. This will be further fuelled by the collapse of many retail chains in the US
and Western Europe. The most likely bidders will be retailers with a discount positioning.
29

Key Conclusions
30
Discounters and Internet Retailing

Discounters are expected to perform better than supermarkets and hypermarkets between 2008 and 2013,
particularly in Western Europe, where the latter two formats will suffer from their maturity and their higher price
positioning during an economic downturn. However, hypermarkets will see strong growth in emerging markets,
driven by a rise in car ownership levels.
Internet retailing is expected to outpace all store-based formats, as most retailers will either enter or expand in
the internet retailing channel, while a significantly higher proportion of the world population will have access to
the internet. Homeshopping operators will increasingly refocus their operations on internet retailing.
% CAGR
2008-13 CAGR %
2008-13 Absolute - US$ million
1,600,000
12
1,400,000
10
1,200,000
1,000,000
800,000
600,000
400,000
200,000
US$ million
14
World: Forecast Retail Value RSP Excluding Sales Tax

2008-2013
Trend to Watch:
Retail channels are
set to become more
blurred, as
companies offer more
services, such as
online ordering for
in-store collection.
31
Discounters Set for Rapid Expansion

World Discounters: Retail Sales Excluding
Tax 2004/2008
70,000
2004
2008
US$ million
60,000
50,000
40,000
30,000
20,000
10,000
0
However, discounters face challenges in small

markets with greater maturity and strong
competition. Schwarz made losses in the Czech
Republic and Sweden in FY 2006/2007.
Carrefour and Wal-Mart benefited from this
channel's growth in Latin America in Argentina
and Mexico, respectively.
Favourable macro-economy and

demography
The economic crisis, coupled with high commodity
and food prices, should drive the popularity of
discounters over supermarkets and convenience
stores in developed markets.
The greater proportion of single or two-person
households may benefit discounters, a format often
used for top-up shopping, at the expense of
hypermarkets used for weekly shopping.
Beyond price
Offsetting channel maturity in Western Europe

Western Europe accounts for the majority of world sales through
discounters. The relative saturation in Germany has encouraged
Aldi and Schwarz (Lidl) to expand in less saturated markets in
Eastern Europe, and to enter new markets in Western Europe,
especially Greece and Switzerland.
Discounters are set to increase customer loyalty

and create a stronger bond with customers by
offering more services.
Discounters are challenging consumer perceptions
to reverse the stigma associated with this format in
terms of product quality and shopping environment
in some markets, with city centre stores, and
improved product choice and quality.
32
Strong Growth for Most of the Leading Internet Retailers

World Internet Retailing: Retail Sales
Excluding Tax 2004/2008
20,000
2004
2008
18,000
16,000
US$ million
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Note: (1) Company name refers to the entity as it was known in

2008. This company operated under a different GBO name in 2004.
Grocery retailers remain minor players

Tesco and Wal-Mart were both early entrants and invested
significantly in internet retailing in their domestic markets, and
as a result have become major operators. This contrasts with
Carrefour's overly cautious approach, with deliveries confined
to a few large French cities. Carrefour would benefit from
replicating rival Casino's strategy with Cdiscount and acquire
a non-food internet retailer with expertise in internet retailing.
Most key players see stellar performances

Amazon's sales were driven by a widening of its product
range and by expansion outside the US, in China, Japan and
Western Europe. Otto also enjoyed international growth, with
a presence spanning Western Europe and North America,
benefiting from consumers moving away from homeshopping
towards internet retailing, and being less reluctant to order
clothing and footwear items online.
Apple benefited from its strong brand awareness in consumer
electronics and media downloads, although it is challenged by
rival operators with more aggressive pricing.
The US-based heath and beauty retailer CVS registered a

rapid rise in internet retailing sales following the acquisition of
rival Caremark in 2007.
Amazon and PPR, whose success was partly driven by their
offer of a large choice of consumer electronics and low prices,
including frequent promotions, undermined the performance
of computer manufacturers Dell and Hewlett-Packard.
33
Internet Retailing Offers Potential Despite Challenges

Growth opportunities still abound
Growth potential for retailers in developed markets remains
significant, by targeting broader demographic groups, including
"silver surfers" and young adults who have been exposed to
internet since their childhood, and recently joined the
economically active population.
Following in the footsteps of the early entrant Amazon, mcommerce also offers growth potential, and many retailers are
likely to adapt their sites to mobile devices. Amazon has had a
customised site since 2001, and Tesco was developing one in
2008. In the more mature Japanese market, retailers including
Aeon and Seven & I generate significant revenues through mcommerce.
Grocery retailers will continue to venture into non-food,
increasingly through internet retailing. Casino recorded
successes with Cdiscount in France, which helped the retailer
to offset the slowdown in non-food sales at its hypermarkets,
and Tesco has ambitious plans with Tesco Direct.
In contrast, Carrefour, present mostly in less developed
markets for internet retailing in Southern Europe, has invested
little in this channel and is rapidly losing ground to rivals.
Across most emerging markets, soaring sales

are expected, fuelled by a strong rise in the
number of internet and credit cards users.
New challenges for internet retailers
Online virtual shopping centres will become more
popular, giving small players a considerably wider
audience at the expense of larger retailers. Japanbased Rakuten entered Taiwan in 2008, and plans to
be in over 20 markets by 2012.
The influence of price comparison sites and auction
sites is set to rise and put further pressure on prices
and reduce margins.
Advertising expenditure from retailers through the
internet will rise, and building brand awareness online
will become more costly.
The global economy's crisis in 2009 is set to lead to a
decline in discretionary spending and affect internet
retailing sales, albeit to a lesser extent than storebased retailing.
Grocery retailers are increasingly attempting to take advantage

of consumers turning to internet retailers to purchase clothing
and footwear items. Hence, Tesco plans to open a dedicated
apparel site for UK consumers in 2009, while Wal-Mart's
George clothing and footwear brand has been present online
since 2008.
34
Convergence between real and virtual stores

Retailers are expected to invest in technologies that will provide more convergence between internet retailing
and store-based retailing, for example in terms of advertising and product feedback, in order to build customer
loyalty.
The internet will more often be used to improve the in-store environment, and could also help cut the number
of store employees. Japan's department stores chain Mitsukoshi has tested "intelligent fitting rooms" to allow
shoppers to check available sizes and styles of the items that they are trying.
Seven & I relies on its extensive network of 7-Eleven convenience stores in Japan and Taiwan in order to
develop its popular "click and collect" in-store activity.
Retailers will increasingly empower their customers to develop "social shopping" through the internet, by
reviewing and recommending products, in an attempt to build upon the popular model used by Amazon.
Internet Retailing: Forecast Retail Value RSP Excluding Sales Tax 2008-2013
240
% period growth
200
160
120
80
40
0
World
Asia Pacific
Australasia
Eastern
Europe
Latin America Middle East North America

and Africa
Western
Europe
35
More Complex Internet Retailing Operations

More clever and interactive sites to drive web traffic
Retailers will attempt to drive web traffic through advertising and links, as well as by developing mobile
commerce enabled websites, which have become widely used in Japan and South Korea.
Websites are likely to be more interactive in order to keep customers returning to the site, for example by
providing free games or product reviews written by users. Retailers' websites also enable them to track
consumer response to advertising and product features.
Retailers embracing web 2.0 and social networking sites
More direct interaction with consumers through "brand communities" on social networking sites and through
their own sites will help retailers gauge their brand image, though grocery retailers have been slow movers.
Amazon innovated in 2008 by announcing the launch of applications linking its site to Facebook. This gives
Facebook users access to the Amazon "wish lists" of other users, while allowing Amazon to recommend items
based on the user's Facebook profile. HMV adopted a different approach in the UK in 2008 by launching its
own social networking site, called getcloser.com.
The US department stores chain JC Penney has a partnership with Kaboodle.com, with a guide called "Backto-School Central" on Kaboodle's site featuring items provided by JC Penney.
36
The Rise of Hybrid Formats

Learning from the discounters
The gap between discounters, convenience stores
and supermarkets will erode further. Aldi is testing
new city centre concepts in the Netherlands and
the UK, and Rewe launched the Penny Market
Ambiente stores in Italy in 2008, featuring a
greater choice of fresh fruit and vegetables, to
give a supermarket feel.
Carrefour is expanding its Maxi Dia format in
Spain, combining a larger surface area and choice
from supermarkets with discounter prices, while
Auchan is replacing its national supermarket
brands in several European market with a more
discount-orientated concept, under the Simply
Market banner, which has performed strongly.
In the US, Tesco's Fresh & Easy supermarkets
also adopt some of the discounter ethos, with a
large selection of private label, especially by North
American standards. Although launched in an
unfavourable economic environment, this concept
is likely to succeed in the longer term.
and from internet retailers

New formats will blur the boundary between storebased and non-store retailing, (eg downloading kiosks
at HMV stores in the UK, click and collect websites,
etc). The internet retailer books.com.tw is growing
rapidly, thanks to a click and collect partnership with
7-Eleven convenience stores in Taiwan.
Concepts reaching beyond traditional retailing

As retailers attempt to launch stores that are
entertainment destinations, they will favour concepts
combining leisure activities and shopping.
The cross-over between retail and foodservice will
continue, with coffee shop chains moving into
retailing, such as Starbucks selling take-home coffee,
kitchenware and CDs, while retailers such as 7Eleven are relying more on cafs and takeaway food.
At city centre locations, retailers are likely to test new
concepts that bridge foodservice and grocery retailing
in order to evaluate their potential to generate
additional footfall. Casino launched such a store in
early 2009 in Paris, with Chez Jean, which offers both
a coffee shop area and a convenience store area.
37
Retailers Focus on Multi-channel Brands

Physical multi-channel brands
The world's leading brands are focusing on developing
their presence across several channels, such as
Carrefour and Tesco from convenience stores to
hypermarkets.
Carrefour has been rebranding Champion supermarkets
to Carrefour Market in France since 2008, following the
success of this strategy in Spain, and started testing
convenience stores in France and Spain under the
Carrefour City banner in 2009.
In Western Europe, the popularity of discounters,
recently boosted by the economic crisis, is likely to lead
to the emergence of a diversity of formats based on
discounters' brands, pioneered by Carrefour in Spain,
with the successful Maxi Dia concept offering larger
surface area and choice.
Marks & Spencer unveiled a new

international delivery service in several
markets in 2008 .
Most brands develop their reach in internet

retailing
Most retailers with physical stores will continue
expanding in non-store retailing. Best Buy, Tesco and
Wal-Mart will maintain strong growth in internet retailing,
while among the top web-only brands, Amazon and
Rakuten are set to improve their positions rapidly.
Brands with little or no presence in internet retailing are
likely to lose ground, with the exception of discounter
fascias (Aldi, Lidl), whose business model may not
require this move.
Multi-channel retailers with well-known brands
internationally would benefit from entering new markets
through internet retailing, as this allows them to reduce
costs and minimise risks compared to opening new
stores.
Such a move was unveiled in autumn 2008 by Marks &
Spencer, with the company planning to deliver products
to Australia, Canada, France, Germany, New Zealand,
Spain and the US.
Recommendation: Multinational internet retailers

need to adapt their sites to national preferences in
terms of payment methods, such as EC direct debit
and Giro Pay popular in Germany, and home
banking widely used in the Netherlands.
38
Demographics Favour Smaller Grocery Formats

Smaller households will boost smaller grocery formats
Partly as a result of a rise in the number of single-person and two-person households, especially in developed
markets, one-stop weekly shopping will continue to lose ground to more frequent shopping trips, leading to a
relative saturation of larger formats, such as mass merchandisers and hypermarkets.
Hence, the battleground between the largest retailers will move towards smaller formats in the US (Tesco vs
Wal-Mart vs Seven & I) and in Western Europe (Carrefour vs Tesco). A greater focus on convenience should
help to generate higher margins. In Japan, convenience stores are expected to continue expanding faster than
supermarkets and hypermarkets, and operators will increasingly innovate in order to target specific
demographic groups such as elderly people.
Forecast Occupants Per Household
at 1 January 2008-2013
% retail value rsp
Market Sizes Forecast at Constant Prices

2008-2013
70
60
50
40
30
20
10
0
-10
-20
% period growth
2008-2013
Hypermarkets
France
Supermarkets
Germany
Discounters
Japan
Convenience
stores
UK
USA
Asia-Pacific
-2.8
China
-2.6
Japan
-2.3
North America
-1.0
USA
-0.9
Western Europe
-0.7
France
-1.5
Germany
-1.3
UK
-0.5
39

Key Conclusions
40
Aggressive Pricing Strategies in Grocery Retailing

Mid-market grocery retailers revert to price cut
campaigns and fuel price wars to halt exodus to
discounters
Price wars, with heavy discounting and price cutting
campaigns, which characterise grocery retailing in most
developed markets, are intensifying in 2009 as a result of
the recession and the resulting slump in consumer
confidence affecting most of these markets.
Retailers have also adapted their advertising strategies in
order to communicate their more aggressive price
positioning and their price cutting campaigns, since price
perception is essential to retain customer trust.
Carrefour publicised its price cuts of up to 25% on 10,000
products in Spain in early 2009, while and Seven & I
announced in April 2009 a price cut campaign covering
2,400 products at its Ito-Yokado supermarkets in Japan,
following a similar move the previous month from its main
rival Aeon. Although a fall in commodity prices allowed
these price cut campaigns, they were also made possible
by retailers putting greater pressure on suppliers to cut
their prices, while in Japan, the strength of the yen against
other major currencies helped fuel the price wars.
Discounters, such as Aldi and Schwarz, have a clear price
perception advantage which mid-market grocery retailers
are keen to emulate. Tesco, which does not operate a
discounter chain, succeeded in limiting the loss of
customers to discounters in the UK by extending its
discount private label ranges at the end of 2008.
Low-price store concepts on the rise

Store concepts with a focus on low prices are expected to
continue gaining in popularity. Following the successful
launch of its low-price supermarket chain The Price in
summer 2008, Seven & I is stepping up the expansion of
this concept in 2009, which offers items at prices between
10% and 30% lower than at Ito-Yokado supermarkets in
Japan. The concept is based on a standard Ito-Yokado
store but with a greater focus on food products and fewer
items, in order to cut costs.
With this concept, Seven & I appears to be well positioned
against its main rivals Aeon and Wal-Mart, although the
latter has plans to improve the image of its large Seiyu
outlets through a major store refurbishment programme,
while also implementing far-reaching price cut campaigns.
Carrefour recorded a robust sales performance in Spain in
2008, thanks to the success of its Dia soft discounter stores
and its larger Maxi Dia concept, which helped maintain
share against the dynamic low-price supermarket chain
Mercadona. Carrefour may attempt to test the development
of similar concepts to Maxi Dia throughout Europe.
Recommendation: Although retailers will need to keep

focusing on price cuts and budget ranges during the
global economic downturn, product and concept
innovations will remain essential to increase customer
loyalty and be well positioned for the economic recovery.
41
Wider Reach for Private Label, but Low Prices Remain Key
Retailers seek wider target through broader positioning
Private label innovations will continue to aim at targeting a wider
range of consumers through varied positionings, from budget to
premium, and encompassing food and non-food.
In the US, the strong performance of the Trader Joe's chain illustrates
that private label ranges can achieve differentiation through an exotic
offer, while being positioned at the low end of the price scale. US
Grocery retailers are seizing the opportunity to change consumers'
perception towards a greater acceptance of private label, with WalMart relaunching in 2009 its Great Value range.
Within non-food, the US chain Safeway and the South Korean fascia
E-Mart introduced lines of private label baby products, while the
Japanese retailer AEON launched a range of consumer electronics
produced by Sanyo.
Seven & I: Houji Cha tea, part of the Seven Premium

private label range
Low price to remain key asset

Budget private label ranges are expected to gain in popularity as consumer spending is eroded by the recession in the US
and most of Western Europe in 2009. With discounters set to record faster growth than hypermarkets and supermarkets in
Western and Eastern Europe, major grocery retailers will focus on budget ranges to limit down-trading.
Carrefour expects its global sales of private label to grow faster than the group's overall sales in 2008 and 2009. The
group's strategy will be boosted by the rationalisation of its private label ranges, as well as by the launch of the Carrefour
Discount range in 2009, which is likely to help improve the group's price perception in France.
In Japan, over 60% of retailers plan to expand their private label offer, according to a survey conducted by Nikkei, in an
attempt to appeal to increasingly price-conscious shoppers. Retailers also state that they plan to contain rising prices of
processed food. Seven & I will develop its Seven Premium range from 300 items in early 2008 to around 1,200 in 2011.
Wal-Mart plans to generate 10% of retail sales at Seiyu stores through private label by 2011, compared to around 5% in
2008.
42

Key Conclusions
43
Innovations to Build Customer Loyalty

More services to build customer loyalty
Local advertising, supply and marketing
Retailers will seek to launch more non-retailing services to

increase customers' emotional bonds with their fascias.
These include banking and insurance services, credit
cards, travel agencies, mobile phone operators (MVNO),
etc. Wal-Mart opened a consumer bank in Mexico in
November 2007, and planned to have 80 branches by the
end of 2008.
Retailers' emphasis on local sourcing will continue, in

order to reduce transport costs, to ease environmental
concerns and better meet local demand. Wal-Mart
launched the "Purchased in Quebec" programme in
Canada, supported in 2008 by a TV ad campaign. At US
state level, the retailer is extending its locally grown
programme.
Grocery retailers will seek to cater increasingly to non-food

needs, for example with facilities such as in-store
pharmacies, and by offering a choice of gift vouchers.
In Germany, Rewe intends to increase the share of

regionally sourced products to 15% of its total range at its
supermarkets, by allowing regional subsidiaries to
purchase goods locally. This strategy should help Rewe to
differentiate its positioning from discounters and
hypermarkets.
Loyalty schemes: scale and innovation

US health and beauty retailer CVS states that it has over
50 million ExtraCare cardholders, who received moneysaving offers worth around US$1.5 billion in 2007.
Tesco was successful in setting up loyalty schemes with
more targeted offers to appeal to regular customers. The
UK's popular Clubcard scheme has been replicated
abroad.
Some grocery retailers, such as Kroger in the US, have
innovated with the launch of paperless digital coupons,
allowing shoppers to load the discounts to their loyalty
card online. This will encourage customers to make more
regular visit to the retailers' websites and build loyalty.
44
Retail as Lifestyle and Entertainment

Innovations to provide advice and information
Store magazines and websites giving product reviews and advice on
topics such as education, health and interior decoration will help retailers
build a brand image associated to particular lifestyles and to identify
consumer groups. Retail concepts favouring environmental awareness,
such as the toys and games retailer Nature & Dcouvertes in Belgium
and France, are expected to gain more popularity and trust.
Shopping as entertainment
Adding an entertainment dimension will become more necessary for most
retailers, especially non-grocery retailers vulnerable to competition from
internet retailers. In-store events, such as book signings and gigs, will be
increasingly used by booksellers, stationers and audio-visual stores, such
as at Barnes & Noble and HMV, in order to drive footfall and loyalty. This
will encourage retailers to create store concepts offering more areas to try
products, especially sports goods, electronic goods and computers. The
appeal of the Apple stores shows how product manufacturers can boost
their image by operating stores where consumers can test products.
The development of shopping centres, particularly prominent in most
markets in Eastern Europe, is fuelling the emergence of retail concepts
that combine leisure and shopping in one destination. Grocery retailers
should also attempt to be positioned as leisure destinations, such as the
US supermarket chains Trader Joe's and organic chain Whole Foods.
In-store cafs will be more used by retailers to encourage consumers to
spend more time in stores. Hence, retailers should seek to establish
partnerships with foodservice operators.
New retailer-consumer interactions

Through Web 2.0, retailers will increasingly
allow consumers to interact more closely
and directly with their brands, as pioneered
by Amazon's model, where users can
review products, and subsequently refined
by the retailers creating social networking
sites. Examples such as HMV's
getcloser.com, where users can
recommend products to friends and share
videos, show how operators can
encourage users to spend more time on
their site and increase the likelihood that
they will make purchases.
However, the closure of Wal-Mart's social
networking site "The Hub" in 2006, after
only 10 weeks of existence, illustrates that
not all retailers may be able to compete
directly against established social
networking sites, as they need to offer
some useful and relevant content.
45
CSR Profile Remains Important to Boost Retailers' Image

Greener, but also leaner
Greater awareness of climate change and environmental issues has led retailers to cut carbon footprints, and
governments in developed markets will impose stricter environment laws (eg EU targets on renewable
energy).
Hence, major retailers have developed or are planning to test greener technologies and practises. Marks &
Spencer's Plan A programme will make the group carbon neutral by 2012.
Investment in greener stores and environmentally-friendly processes can also help retailers cut costs by
reducing energy and transport bills. Wal-Mart estimates that it could save US$3.4 billion by reducing
packaging by 5% by 2013.
Some of the "green cost" can be passed on to suppliers. Wal-Mart is pushing its suppliers to cut packaging
and to use more renewable energy during production and transport.
More ethical product assortment to benefit image

Fair trade and organic products have reached critical mass in developed markets, and demand is set to
continue rising, albeit more modestly due to the economic crisis. A proportion of consumers could favour price
and pay less attention to ethical considerations, and growth rates could slow down.
Retailers still benefit from these high margin products, which also boost their image. In 2008, Wal-Mart
launched new ethical product ranges, such as the environmentally-friendly household care products called
GreenLine, certified by Environmental Choice, and the ethical jewellery line Love Earth.
46
Media and Consumer Scrutiny Forces Bolder CSR Strategies

Wal-Mart is taking a more pro-active approach to
defend its image and CSR record
As it is heavily scrutinised by the media and
pressure groups, Wal-Mart's image is vulnerable to
consumer backlash if its operations fail to meet
ethical standards. Hence, the group has set up
procedures to monitor more closely its suppliers,
especially in the wake of massive recalls of
hazardous Chinese-made toys.
Wal-Mart also attempted to raise its reputation and
ethical credentials through a high profile nationwide
advertising campaign dedicated to this main
purpose in the US in 2008.
Wal-Mart invested in solar and wind power at its

stores in order to reduce their carbon footprint, and
new stores using 25% less energy than existing
Supercenters were opened.
Ethical stances under greater scrutiny

Large retailers other than Wal-Mart are also likely
to be more scrutinised, including Carrefour and
Tesco. In Thailand, Tesco has faced resistance
by government authorities and local retailers to
the dominance of major foreign chains.
Discounters are particularly vulnerable to a poor
CSR image, with a reputation of giving suppliers
unfavourable terms. Lidl's sales in Germany
suffered in 2008 after it emerged that the chain
used video surveillance to spy on staff.
In the case of Wal-Mart, in addition to the bad
publicity generated by these stories, the retailer
faces costly lawsuits from ex-employees
regarding working conditions.
The group announced a long-term goal of using only

renewable energy and creating zero waste.
However, without any timeframe, this goal remains
hypothetical.
47
An Older and More Diverse Population
Asia-Pacific
China
Japan
North America
Western Europe
France
Germany
UK
% period growth 2008-2013

14.0
13.9
12.2
14.0
8.3
9.5
2.8
10.8
Grocery retailers targeting ethnic minorities

Retailers will adapt their strategies to the greater ethnic
diversity of the population in most developed markets.
Grocery retailers will need to move away from a one-sizefits-all approach and adapt the product assortments of some
individual stores to their catchment area's ethnic
composition. This will also lead to a rise in smaller chains
targeting ethnic consumers, such as Freshco in the US.
Wal-Mart targets Hispanic shoppers with specific ranges at
some stores located in areas with a large Hispanic
population, and offers over 500 items targeted at Middle
Eastern consumers at one US store Dearborn, Michigan.
As Tesco launched a successful Polish range in the UK, in
stores and through internet retailing, the group may be able
to develop synergies with its stores in Poland.
Canadian retailer Loblaw's new stores in Ontario, featuring
a wide assortment of Asian food, exceeded targets.
Meeting the demand of an older population

Health and beauty retailers will continue to benefit from an
ageing population, combined with rising health awareness
across all age groups. This will help offset the slowdown
due to the growing popularity of cheaper generic drugs.
An ageing population will trigger new concepts and the
adaptation of product assortments. In 2008, the DIY and
hardware chain B&Q launched a new range of 500
products in the UK called Can Do, targeted at consumers
aged over 50, while the UK chain Wyevale Garden
Centres will be redeveloped into green shopping malls for
people over 60.
DIY retailers will focus more on "do it for me" services.
% period growth
Forecast Population Aged 65+ at January 1st 20082013
Health and Beauty Retailers: Forecast

Retail Value RSP Excluding Sales Tax
2008-2013
30
20
10
0
48

Key Conclusions
49
Key Conclusions
Global Expansion and Pricing Strategies Are Key

Internationalisation on the agenda for major
retailers
Internationalisation remains a key long-term
strategic goal for retailers to offset market maturity
and stagnation in their domestic markets, which is
even more apparent in the current economic crisis.
Carrefour and Wal-Mart have been successful in
establishing a strong presence in several major
developed economies, as well as emerging markets.
Tesco's global network, though significantly smaller,
has a stronger bias towards fast-growing emerging
countries, which makes the group well-positioned to
take advantage from these markets growth
opportunities, so, although its international presence
is more limited, it has greater growth potential. WalMart has already counteracted this with recent
acquisitions such as D&S and, with its greater
resources, could expand further in the high potential
emerging markets.
In contrast to these three retailers, Seven & I still
relies essentially on Japan and North America, but
could accelerate its expansion across Asian
markets.
Price perception through discounting and private

label
As the global economic crisis increases price
consciousness among consumers, grocery retailers
will strengthen their focus on improving their price
perception through aggressive discounting. This
gives an advantage to Aldi, Schwarz and Wal-Mart
over retailers with an image less associated with
budget prices, especially Carrefour and Seven & I.
The latter two should attempt to match Tesco's
robust image that combines low price with an above
average quality assortment and shopping
environment.
A focus on budget private label is also likely to
become more prominent, as part of grocery retailers'
strategies to improve their price positioning.
Meanwhile, this enables them to gain a greater
control over their product strategy and to build
greater brand loyalty among customers. Several
retailers, including Carrefour, Royal Ahold and
Tesco, have successfully developed such a strategy,
whereas Seven & I and Wal-Mart will need to
increase the depth of their private label ranges.
50
Key Conclusions
Multi-channel and Brand Strategies

Brand strategies to build loyalty and trust
The largest retailers compete with various strategies
to develop their brand image and build stronger
brand loyalty and trust to ensure long-term growth,
most notably through loyalty schemes and CSR
strategies.
Tesco's brand loyalty is boosted by its popular and
effective Clubcard scheme, while the development
of its internet retailing arm helps it further
understand its customers. Meanwhile, Wal-Mart's
launch of a high profile advertising campaign to
highlight its CSR profile, and its programmes to
increase use of renewable energies show a more
proactive approach than its rivals to improve brand
image and reputation and to alleviate consumer
concerns about sustainability and ethical issues.
The impact of such schemes is difficult to measure,

but as consumers have become more ethically
minded, such long-term investments are an
important part of improving brand image. In the short
term, however, given the economic climate, pricing
and value for money have become more crucial, as
witnessed by Wal-Mart's strong performance at the
beginning of 2009.
Multi-channel strategies to create synergies and

boost diversification
Most major retailers attempt to offset the relative
saturation of large out-of-town store formats in
developed markets with the development of smaller
formats. The strategies adopted by Carrefour and
Tesco illustrate how grocery retailers can benefit
from a multi-format approach, while Seven & I has
the first-mover advantage in developing an
international convenience stores banner. Wal-Mart,
by comparison, has not yet reduced its reliance on
large store formats, despite testing the Marketside
concept in the US.
The rapid development of internet retailing also
encourages retailers to adopt various strategies to
include it as part of their multi-channel strategies,
especially for non-food products, in order to offset
the maturity of formats such as hypermarkets and
department stores. Tesco and Wal-Mart are major
players in this channel, in contrast to Carrefour and
Seven & I's cautious approach.
51
Key Conclusions
Growth Prospects for Leading Retailers

Wal-Mart
Its behemoth size and higher profits than rivals will help fuel Wal-Mart's ambitious global
expansion in emerging markets, while its low-price positioning should win over more
consumers during the economic downturn.
Schwarz
Discounters are set to win over other grocery retailing formats, and Schwarz is well
positioned to pursue its steady international expansion.
Tesco
Higher profits, thanks to strong operational efficiency in its domestic market, combined
with a strong multi-format brand, give Tesco an edge over Carrefour, at least in the short
term, despite a significantly inferior global reach.
Carrefour
A struggle to make enough profits in the French market is undermining its global
expansion. However, if it becomes more efficient in France, and successes with Dia in
Spain could show how to achieve this, Carrefour's multi-format strategy including
discounters, coupled with its wider international reach could make it a winner against
Tesco in the longer term.
Seven & I
The strength of the 7-Eleven brand and a flexible franchise model will help the group's
international expansion, but it will be constrained by market saturation in Japan.
International expansion will be stepped up, while the development of budget chains will be
an asset.
52
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