The takeover of the British Asda supermarket chain by US giant Wal-Mart is likely to provoke a wave of supermarket mergers throughout Europe, resulting in a new generation of food supergroups, according to a new report.
The British-based industry consultant, Retail Intelligence, says the huge US retailer's entry into the market will force leading players such as Tesco - which bought the Quinnsworth/Crazy Prices chain in Ireland two years ago for £640 million (€813 million) - and Sainsbury to look for international mergers. It suggests that Tesco could get into bed with Promodes of France, Tenglemann of Germany and Dutch group Laurus. Such a combination would sell a tenth of Europe's groceries.
Partners for Sainsbury's which entered the Northern Ireland market about two yeas ago, could include Dutch group, Ahold which is the most global of the food retailers, Carrefour of France and German group Metro. Mr Richard Perks, the report's author, said: "The face of western European food retailing will be radically different in five years' time. Companies will make defensive moves purely out of fear of Wal-Mart." The US store operator is the world's largest retailer, and three times as big as its nearest rival. Until recently the company has concentrated on its home territory in the US and elsewhere in the Americas. It first moved to Europe with the acquisition of a German chain in 1997, and added a second business in Germany at the end of last year. Mr Perks says its recent move on Asda - pipping at the post British retail group Kingfisher - proved that it was serious about building a pan-European business. He predicts that it will make further acquisitions in the near future, with French group Leclerc probably already in its sights. "It is still remotely possible that WalMart will not win," Mr Perks says. "But whatever the outcome, European food retailing will never be the same again.' The drive for international mergers will also be prompted by the absence of domestic takeover opportunities for many of the leading players. Already the top three or four companies control a huge proportion of the grocery market in most European countries.
The British supermarket industry is less concentrated than most in the European Union - despite fears that Tesco and Sainsbury, together with Asda and Safeway, are already far too powerful. With the addition of Somerfield, the fifth-largest operator, these chains count for almost two-thirds of the market. France is slightly more fragmented but in Germany, the top five sell four-fifths of the country's groceries. Elsewhere, concentration is even more pronounced, with just four businesses sharing virtually all the market in Norway and accounting for more than 70 per cent of sales in Belgium. The emergence of the food supergroups will prompt fears of a new wave of hypermarket building, following the model set by Wal-Mart.
The US chain specialises in huge stores on the periphery of towns. Its highly successful Supercentre stores are typically twice as big as even the largest British superstore. Retail Intelligence says there is plenty of scope for more hypermarkets, and attacks pressure groups which have put a stop to their development. It says Britain and France are well behind in the hypermarket stakes compared to Germany and Austria, which have the greatest density of these huge stores. Mr Perks says they have been proved to be popular with shoppers, and inhibiting further development is limiting market competition. "If you prevent more stores being opened, you protect existing players," he said. Mr Perks argued that French and Belgian shoppers were already suffering from the resulting cartels - although he insisted that such accusations in Britain were misguided. "The competition commission investigation into pricing by UK food retailers is a sop to the media and we think it will have no impact,' he writes in the consultant's report. But he acknowledged that European governments were still unwilling to confront pressure groups and allow further hypermarket expansion.
