IGD's Global Retailing 2006 report highlights ten retailers that it claims are the ones to watch this year. James Durston reports
We all know who the biggest grocery retailers in the world are, but what about tomorrow's heavyweights?
IGD has compiled a list of Ten to Watch in its Global Retailing 2006 report. Wal-Mart, Tesco and Carrefour don't get a mention in the list, which has been revealed exclusively to The Grocer. Just one European player is included and low prices are not the sole factor driving success in any of the ten cases.
Jonathan Gunz, IGD's senior business analyst and the report's author, says they picked retailers that were having an effect on global retail beyond their scale. "The subject of price is in some way a ticket to play the game, but there were two other things that have allowed these ten to succeed," he says.
"One is a strong expansion strategy, whether it's acquisition-led or just a stepping up of organic growth, and the other is to have some clear differentiating factor, such as a really strong fresh offer or a unique brand and corporate culture."
Some are particularly good at sniffing out emerging opportunities. Take AS Watson, the Hong Kong health and beauty business. Since 2000, its store portfolio has grown from 1,028 stores to 7,285, thanks to its relatively new focus on Europe, where 5,495 (75%) of its stores are now located. In the UK it owns Superdrug, Savers and The Perfume Shop.
AS Watson's acquisition of French perfumery Marionnaud last year gave it entry to 11 new countries and IGD predicts that another big European acquisition is likely in the next year or two. Although its food business is limited to Hong Kong (and includes the Great Food Hall, one of the World's Finest Specialist Retailers named by The Grocer last year), it is looking to expand outside Asia, according to IGD's report. Gunz says: "AS Watson's acquisition strategy makes it stand out. It's growing fast."
Similarly ambitious plans run through the other big 'expanders' in IGD's list. Central Retail Corporation, the Thai retailer, has the financial support of its parent, Central Group, which also operates in the hotel, restaurant and property sectors, and plans to spend $131m this year on expanding its store portfolio.
It has doubled the number of stores in its Tops Supermarket fascia to 100 in two years and plans to add to its existing 43,000 sq ft Central Food Hall, Thailand's premier food destination, with another 86,000 sq ft food hall. It also operates 70 Watsons stores (of AS Watson), 12 Marks & Spencer stores and 45 Big C hypermarkets under franchise agreements.
Such numbers pale into insignificance, however, compared with Canada's convenience king, Couche Tard. Gunz says: "Not much is known about Couche Tard, but with its franchising approach in a channel as dynamic as convenience and its very aggressive acquisition strategy, it is very much driving expansion."
After buying Circle K in 2003 it doubled its sales to become the third biggest c-store operator in the US with a turnover of $7.7bn and more than 9,000 stores, including affiliates.
And Perekriostok, the leading Russian food retailer, expanded gradually from its Moscow base until its recent merger with Pyaterochka, creating a $2.4bn company with 880 stores. Perekriostok is essentially a Russian Tesco, attempting to emulate its 'retailer for everyone' ethos. With all the interest in Russia as an emerging market, it hopes to maintain a significant share by opening stores in every Russian city with a population of 500,000 or more and by extending its 500 own label lines.
Wu Mart in China has a similar challenge to Perekriostok in that it is currently the leader in a market that could soon be swamped with foreign businesses. So far it has used its supermarket and hypermarket formats to push up turnover, which has grown from E1.1bn in 2002 to a forecast E6.5bn this year, but it also operates c-stores and drug stores.
Gunz says: "Wu Mart is about to acquire 75% of Mei Lian Mei, the fourth-biggest retailer in China, and the way in which this group has expanded through acquisitions means it is really fighting strongly in a market that will soon see a lot of international players."
The next five in the Ten to Watch list fall under the 'differentiator' umbrella. Two of them, Wegmans and Whole Foods Market, were named in our World's Finest Food Retailers feature last November, with Whole Foods Market in the top spot. Gunz says: "It's Whole Foods corporate culture and the strong belief in what they do, plus the fact that they'll soon be coming to the UK and possibly elsewhere in Europe, that has impressed us."
Whole Foods is already the world's biggest natural foods retailer, but its popularity with consumers and dedication to its mission - to sell the highest-quality natural and organic products available - means it will inevitably grow bigger still.
Wegmans has a very similar appeal to Whole Foods. "Its fresh food offer is really strong, but just as important is the way the company is run," says Gunz. "Its culture and ethos are impressive and its staff are always enthusiastic."
It runs in-store cookery classes, stocks 60,000 SKUs compared with the US average of 40,000, and is able to self-fund new stores, all of which make it one to keep an eye on.
The others, though, operate very distinct businesses. eBay is perhaps an odd inclusion in a list of retailers, but Gunz says the concept of an online community and developing this extra dimension to retail makes it an exciting prospect. In 2004, 24% of all e-commerce in the US took place on eBay.com. Its main strategy is to grow general merchandise volumes and 50% of this now takes place outside the US. The UK and Germany are leading growth in Europe. Asia is also a target, however, particularly South Korea and China. With its other core businesses, PayPal, the online payment system, and Skype, the internet communication system, its record in breaking down barriers in e-commerce is impressive.
Pantaloon, the Indian retailer, succeeds by keeping things quite basic. It is India's only pan-Indian retailer and focuses on customer service, introducing 'live kitchens' in its Food Bazaars, where consumers can have their purchases prepared or cooked, and 'live chakki', where wheat can be ground.
It also has expansion ambitions. By this June it will operate 3.25 million sq ft of retail space and it plans to double this by June 2007. Its place as India's most impressive retailer, according to Gunz, with effective back-office operations and a good range of private label lines, should make this possible.
Finally, there is Tchibo from Germany, the world's fifth-biggest coffee company. "Tchibo does two things well," says Gunz. "It has a brand presence in a lot of stores in Europe and also covers many different channels really well. It stocks a huge range of products, from coffee to clothing, and is also trying online and mail order channels."
Product innovation is key. Tchibo adds 1,800 products to its ranges annually and rotates non food items weekly. It has also diversified beyond traditional non food items, offering travel, mobile and insurance services in Germany with established partners.
Expansion will be focused on the UK and Eastern Europe. Its policy of having the same store layout throughout its different markets means that replication and expansion comes easily.
Although Tchibo is Europe's only representative in IGD's Ten to Watch list, Gunz says this is not a swipe at European innovation.
"There are some great retailers in Europe, and in the UK in particular, but unfortunately we could pick only ten," he says.
"We picked some of those who we thought gave good examples of best practice. We wanted to find retailers that were doing things differently, and very well, and to examine how and why they were succeeding."
So keep your eyes on these ten innovators. You will no doubt be seeing a lot more of them.
Ten to Watch: Tomorrow's heroes