The ongoing economic crisis may have started in the American banking sector, but its effects have been quick to spread to Europe, with the resulting shortage in credit squeezing consumer spending across the continent.
Like many of their contemporaries in western Europe, supermarket operators in Spain and Portugal have been hit “quite badly” by the economic crisis, according to Carlos Hernández at grocery sector analyst Planet Retail.
Although the effects of decreased consumer spending were first felt among the countries’ non-food retailers, Mr Hernández said this trend had quickly progressed to supermarkets and grocery retailers, resulting in falling sales.
A further consequence of the downturn, he continued, had been the increase in private label sales, a factor that recently led major Spanish retailer El Corte Inglés to launch ‘Aliada’, its first-ever economy range.
However, the analyst believed the company’s decision was motivated as much by a need to stem falling sales, as by a desire to take a share of the growing private label market. “El Corte Inglés has been particularly badly hit by the crisis – when they published their last financial results for 2007, they already showed a loss in sales for their Hipercor hypermarket banner,” he explained. “This was the first time in Hipercor’s history that its sales had fallen.”
As a result of the economic slowdown, Planet Retail forecasts that overall Spanish retail sales will increase by only 4 per cent during 2008, as the gloomier financial outlook prompts consumers to moderate their spending.
The predicted slowdown comes after the sector experienced something of a booming market in recent years, with total grocery retail sales predicted to be worth over €109m this year compared with a total of €78m in 2006.
In Portugal, although grocery retail sales have also been growing – from €14.5m in 2006 to an anticipated €19m this year – the tightening financial sector is expected to affect further progress. Consumer spending, the analyst pointed out, has also been restricted by high levels of personal debt in the country and, with EU investment falling, this is a trend that is expected to continue.
Spain’s top five retailers – who together dominate 70 per cent of the grocery retail market – are headed by Mercadona, which operates a network of 1,000 supermarkets and commands over 20 per cent of the market. The company has trebled its sales over the past three years, opening an average of 100 new stores every year, thanks in part to its Everyday Low Price private label, which is typically priced at about 3 per cent below its competitors.
French retail group Carrefour – with 16 per cent of the market – occupies the second place in Spain’s retail rankings and operates three leading formats in the country – Carrefour hypermarkets, Carrefour Express supermarkets and the Dia discount chain.
Eroski, which operates in a number of different sectors, entered the mainstream of Spanish grocery retailing in June 2007 when it acquired a 75 per cent stake in the Caprabo supermarket chain. The firm is now Spain’s third largest retailer and operates an estimated 2,527 stores in the country.
The rankings are completed by El Corte Inglés, which runs the Hipercor and Supercor hypermarket and supermarket banners, and French retail group Auchan, which owns the Alcampo hypermarket chain.
Mr Hernández expected Spain’s grocery retailers to further develop their private label offerings during the course of the season, with more discounted promotions and Buy One Get One Free offers also likely. “All the retailers are going down this route and are also competing on price,” he said.
However, in such a difficult sales environment it is probably not surprising that discount retailers are gaining significant momentum. The rise of German discounters Lidl and Aldi, and especially the growth of the increasingly discount-focused Mercadona, is already having a marked effect on their hypermarket competitors. According to Mr Hernández, hypermarket operators Auchan and Alcampo have already opened dedicated discount sections within stores to compete with the lower-priced chains on price.
Although not specifically a discounter, a high percentage of Mercadona’s sales are now accounted for by its own private label products and the company is forecasting sales growth of 10 per cent for this year.
However, to put matters in perspective, Mr Hernández pointed out that although this figure may appear positive, it will in fact mark Mercadona’s lowest level of sales growth for the last 10 years.
“These companies are not benefiting from the economic situation, they are just suffering less than the others,” he explained.
A further consequence of the financial downturn, he said, is that greater consolidation could take place within the Spanish grocery retail sector. Although the sector is every bit as consolidated as other western European markets, some smaller chains are still present in the country and Mr Hernández believed that these could vanish as a consequence. “The smaller supermarket chains were going to get taken over at some stage, but the present circumstances will probably mean that they get taken over sooner,” he said.
In neighbouring Portugal, the grocery retail sector has been hit every bit as hard as its Spanish equivalent. However, the fact that much of the country’s struggling economy was just beginning to recover from several years of poor performance may leave some in the sector despairing.
“The Portuguese economy has been performing quite badly in recent years and this affected the grocery sector,” said Mr Hernández. “However, the market was starting to pick up at the end of last year, but due to the economic crisis, this improvement has stopped.”
Despite the difficulties, Portugal has a highly developed grocery retail sector dominated by two homegrown hypermarket operators – Jerónimo Martins with its Feira Nova banner and Modelo Continente with its Continente outlets. Together, the two companies account for an estimated 40 per cent of the current Portuguese grocery retail market.
One trend that can be clearly seen in both the Spanish and Portuguese markets is that of format diversification, with a number of leading retailers – including Sonae, Eroski and El Corte Inglés – all launching new banners during 2008.
“This launching of new formats, such as smaller convenience store banners – is an ongoing trend not just in Spain and Portugal, but in all developed grocery retail markets,” said Mr Hernández.
Sonae Distribuição, which operates across a number of different sectors from hypermarkets to travel agents, is the epitome of this trend while also running 821 retail outlets in the country, according to the analyst.
French supermarket groups Intermarché and Auchan also command a significant presence in Portugal through their supermarket and hypermarket formats respectively.
Also in common with Spain, the discount grocery sector is fast emerging as a force in the retail sector, although in Portugal’s case, it is a growth that is being tempered by government restrictions on retail expansion. But, according to Planet Retail, there are now 700 discount outlets in the country, two-thirds of which are accounted for by Carrefour’s Minipreço banner and the remainder by Germany’s Lidl chain
