The second Internationalisation of Retail study, from The Consumer Goods Forum and Planet Retail, shows that major retailers are still becoming more international rather than less so – and at a surprisingly swift rate. In 2015 the world's largest 100 global grocery and health and beauty (H&B) retail chains increased the number of countries in which they operate more than at any time since 2011.
In 2015, the Top 100 added a net 27 new markets to their international operations compared to just 17 in the preceding two years combined. Ongoing consolidation helped increase the average number of markets operated by a Top 10 retailer to over 16 for the first time. But, even stripping out the effects of consolidation, there was still an increase in the average number of markets operated by the Top 100, driven by a spate of organic market entries by leading players.
Planet Retail and The Consumer Goods Forum analysed some of the key trends shaping international strategy today.
Middle East and Africa – one of the hotbeds of international growth
Compared to any other region, Africa & Middle East has accounted for the largest number of new market entries by the Top 100 retailers since 2010. It is now clearly a target for expansion by the largest players in grocery and H&B. The Top 10 global retailers are making a number of strategic plays in this region, alongside a raft of smaller players, such as SPAR International (Cameroon, Lebanon and Oman) and Circle K (Egypt).
In part, this is because Africa & Middle East offers a number of unique growth opportunities – thanks to its favourable socio-demographic outlook and relative lack of development to date.
Other regions that show an increasing presence of cross-border retailers are Latin America and Asia.
New routes to international markets
Retailers no longer need to invest in bricks and mortar to have an overseas presence. With the explosion of the internet and the emergence of Marketplace platforms, a whole host of big and small retailers are setting up shop internationally. This includes single market-only retailers who are testing the appeal of their private labels overseas without having to incur too much financial outlay or risk.
Cross-border partnerships are also paving the way for greater internationalism. The rising influence of buying groups and alliances in Europe over the past couple of years can be seen partly as a way for retailers to tap into some of the benefits of internationalisation while mitigating risk and investment. Such moves should allow members to benefit from greater combined buying power on a regional basis, while also facilitating private label development through shared best practice and sourcing. In early 2016, for example, Tesco and El Corte Inglés announced a partnership to share a selection of each other's private labels in their respective home markets.
Regional focus gaining prominence
Another trend is a tendency towards expansion within one or two geographic regions as opposed to global expansion. Tesco and Casino, for example, have both withdrawn from selected countries in Asia, but retain strong regional positions in central Europe and Latin America respectively, as well as in their home markets. Meanwhile, new regional players are emerging - often small and medium-sized retailers with a presence in the region, but looking to take their proposition into new markets.
Future expansion plans
Looking forward, the report judges it likely that the global presence of leading players will only further increase. Expected market entries include the delayed entry of Schwarz Group's Lidl into Serbia and Lithuania, as well as the US – its first stores outside Europe. Aldi, meanwhile, is expected to debut in Italy. After its entry was delayed due to red tape, Costco should also finally open its first store in France this year. These expansion plans will be balanced by a simultaneous move to retrench selected overseas networks in order to generate funds and improve focus on improving performance in core markets.
Peter Freedman, Managing Director of the Consumer Goods Forum, said: "This report underscores the importance of a regional rather than simply global approach to international growth. But forecasts of an end to international retail expansion itself are, so far, proving wide of the mark. The best retailers do seem able to capture synergies from a presence in multiple countries and the closer those countries are – in terms of customer needs, cultures, supply chains and so on – the stronger the rationale for expansion. Indeed, our own work on retailer-supplier collaboration to drive efficiency and build consumer trust also benefits from a regional focus. This is why the CGF established regional Boards of Directors last year: to tailor our global agenda to the local contexts and to help us better support our members' implementation work."
Robert Gregory, Global Research Director at Planet Retail, said: "The forces of globalisation are adapting to new economic and geopolitical realities. This is evident in the way leading retailers are becoming more selective about the markets they invest in. In some respects it's the reverse of what we saw a decade ago – when leading players could be accused of planting flags in a number of markets on the assumption that rewards would follow 'in the long term'. This is a welcome development and the beginning of a new era in globalisation – marked by a more heightened regional focus."
The research was conducted by analysing the performance of the Top 100 largest grocery and health & beauty retailers in 2015, as globally ranked by retail banner sales.