STORES Magazine - May 2011 - (Page 106)

POSTSCRIPT endcap Mercadona’s Strategy Pays Off BY CARLOS HERNANDEZ Carlos Hernandez is a retail analyst for Planet Retail. Despite the financial crisis, Spanish retailer Mercadona has taken the market by surprise, posting sales growth twice as large as originally expected, while net profit increased nearly 50 percent. Mercadona reported 2010 gross sales of $21.9 billion, up 6.3 percent from 2009; net income increased 47 percent to $527 million. In terms of investments, the company spent $762 million, roughly the same as in previous years. Those funds were employed in the opening of 60 new stores (a net of 46 following the closure of 14 outlets), which brings the total number of units to 1,310; the refurbishment of 32 stores; and the construction of four new logistics centers. Mercadona reduced prices by an average of 4 percent across its product offering last year, which, together with the 10 percent reduction made in 2009, has reportedly achieved savings of $2.9 billion for its customers since 2008. to continue lowering prices, a decision that will surely put more pressure on its rivals. While Mercadona has posted quite remarkable results given the current economic climate, most rivals are having a tough time, including those in the top five in Spain. Of these, Carrefour has already reported same-store sales declines of 1.7 percent, with its supermarket division suffering most. Carrefour’s Dia discount operation did post sales growth of 0.34 percent. Alcampo hadn’t released figures by press time, but parent company Auchan reported sales rose 1.1 percent at its operations in Spain, Italy, Portugal and Luxembourg. Meanwhile, Eroski’s sale of assets to reduce debt is bound to see the retailer lose sales and market share, and market leader El Corte Inglés is expected to report a marginal increase in sales for FY2010. Challenges ahead Despite its leading position in Spain’s grocery sector, Mercadona faces a number of challenges. The retailer will have to monitor whether customers are moving away in search of branded products that are no longer available in its store. The grocer has not reported the latest private-label sales figures, but has unofficially stated that they still account for about 38 percent of total sales. An extreme focus on private labels could position Mercadona too close to the hard discounters, which are at the same time moving away from dependence on private labels and towards a more mixed product range that includes more branded items. Furthermore, Mercadona’s planned expansion abroad, delayed as a consequence of the economic crisis, will test its ability to replicate its business model elsewhere. And Mercadona’s hesitancy to expand to Spain’s Basque and Navarre regions is hard to explain in light of its success. Still, Mercadona is one of the 10 largest supermarket operators in the world and, if it continues to perform well, could surpass El Corte Inglés within the next five years to become the largest retailer in Spain. WWW.STORES.ORG Winning formula Already Spain’s favorite supermarket before the crisis, thanks largely to its EDLP strategy and strong private label offerings, Mercadona responded quickly to the challenging economic environment. It adopted measures like simplifying the presentation of fruit and vegetables (now offered loose) and changing the packaging of many items to reduce costs. The retailer is always keen to react and adapt to customers’ needs; in late 2009, for example, Mercadona decided to reintroduce meat counters in some of its supermarkets, moving away slightly from its self-service model. More importantly, the retailer led the price reduction strategy in the retail sector and has already announced its intention 106 STORES / MAY 2011 http://WWW.STORES.ORG

Table of Contents for the Digital Edition of STORES Magazine - May 2011

STORES Magazine - May 2011
Editor’s Page
President’s Page
Retail People
Supply Chain
Getting Closer to Customers
Workforce Management
Customer Satisfaction
Customer Rewards
Human Resources
2011 Software Sourcebook Guide
Website Security
Divisional Update
NRF News
Point of View
Retail Industry Calendar
End Cap

STORES Magazine - May 2011