STORES Magazine - January 2010 - (Page 74)

POSTSCRIPT endc a p International Strategy Shifts for European Giants BY MATTHEW STYCH Matthew Stych is research development manager for Planet Retail. emerging markets, small shopkeepers and restaurants will comprise the customer base, along with ordinary family shoppers. On average, the group will invest $22 million to $29 million per store, and Metro should be able to establish a leading position relatively quickly in this fastgrowing market. In Egypt, Metro plans to have a network of 12 cash-andcarries by 2012 and more than 20 in the long term, with each store requiring an investment of around $29 million. Recent events have thrown the contrast in strategic priorities between the world’s second- and third-largest retail trade groups, Carrefour and Metro Group, into stark relief. On the one hand, we have seen Carrefour’s sudden withdrawal from Russia and news emerging of shareholder pressure to divest from China and Brazil, moves which underline the fact that driving profitability in its home market (France) remains top of the agenda. On the other hand, Germany-based Metro Group recently opened its first cash-and-carry in Kazakhstan, its first electronics store under the Saturn banner in Turkey and broke ground for its first store in Egypt, all in a matter of a few days. Carrefour looks homeward Carrefour’s exit from Russia comes as a big surprise, given that it opened its first store in the country just six months earlier. The decision has been attributed to influence from major shareholders Bernard Arnault and Colony Capital – the same investors pressuring Carrefour to sell its operations in Asia and Latin America. These businesses are estimated to be worth $17 billion to $20 billion, and their sale could bolster Carrefour’s underperforming share price. In France, Carrefour faces a highly competitive pricing environment, and hypermarket sales have been dwindling for some time due to the growing popularity of discount stores. During the third quarter, Carrefour’s hypermarket comparable sales (including petrol) declined 8 percent, with non-food comparables dropping 9.5 percent. Perhaps the only way to truly satisfy investors is for its French hypermarket division to perform better, as it accounts for approximately one-quarter of Carrefour’s worldwide sales. Metro forges into new frontiers Perhaps nothing demonstrates Metro Group’s internationalization strategy better than its opening of a store in the Kazakh capital of Astana. The choice of country typifies Metro Group’s market entry choices in recent years: frontier markets with growing consumption and very low levels of competition in terms of modern distribution networks. Modern grocery distribution in Kazakhstan is highly fragmented, shaped by a few outlets operated by Turkish Migros Ticaret and retailers from neighboring Russia. Migros Ticaret runs a few superstores and supermarkets, Russian leader X5 Retail Group operates some franchised Pyaterochka stores and Vester Group operates hypermarkets in Astana, Almaty and Karaganda: None of these players has announced plans for significant short-term expansion in the country. Metro Group entered Vietnam in 2002, followed by Pakistan a couple of years ago. Metro Group also targeted markets such as Moldova (2004) and Serbia (2005), and expects to enter Bosnia and Herzegovina in the next few years. Metro sees the potential for 10 to 15 cash-and-carries in Kazakhstan. Typical of 74 STORES / JANUARY 2010 International expansion risky There’s no doubt that Metro Group’s strategy of forging ahead with overseas investment in the midst of a recessionary global economy is risky. However, while Carrefour relies heavily on its domestic operation to generate profit, Metro Group is actually more profitable in its international operations, with Eastern Europe contributing $359 million to group EBIT of $423 million in the first half of 2009. Metro Group has a proven track record of setting up cash-and-carry operations relatively inexpensively and generating profit within a short timeframe. While France is the engine room of Carrefour’s overseas expansion, Metro’s internationalization program has become not only financially independent, but also crucial to the future success of the group. Compared with Metro Group, Carrefour’s international policy seems uncertain at the moment, and only time will tell if the pressure to sell its Asian and Latin American markets proves too much to resist. WWW.STORES.ORG http://WWW.STORES.ORG

Table of Contents for the Digital Edition of STORES Magazine - January 2010

STORES Magazine - January 2010
Editor's Page
President’s Page
Retail People
CEO Profile
20 Ideas Worth Stealing
Digital Coupons
Customer Loyalty
Labor Scheduling
Data Management
Human Resources
Retail Fraud
Loeb Retail Letter
ARTS Update
NRF News
Point of View
Retail Industry Calendar
End Cap
Global Powers of Retailing

STORES Magazine - January 2010