Retailers look to new fields of growth

The long-running aftershocks of the global financial crisis for the economies of North America and Europe have created huge problems for big grocery retailers who have spread themselves over several continents. The giants of grocery – Walmart from the US, Tesco from the UK, and Carrefour from France – have each long been faced with the dilemma of countering the slow growth in home markets with picking the right winners in foreign territories.
They have each had mixed success with these international forays. The challenges of coming to terms with different retail cultures, different formats of stores that are needed to work in different countries, and new types of competitors has ensured that each major offshore investment is difficult to manage.
All three of these global groups are doing plenty of soul-searching about how to keep their growth engines working. Carrefour has gone to the extent of pulling out of certain regions and is re-inventing its store format in its homeland from a tired old model that isn’t working in a more frugal, discount conscious Europe. Tesco has made a meal of its entry into the US – the timing of the GFC didn’t help either.
After a chequered history in buying outside of the US, Walmart made a large splash last week with the announcement of a A$4.5bn bid for a large African retail group, Massmart. Success is not assured though just because of size. Walmart has been successful with plunges into the UK (through ASDA), Mexico, and China but has made a mess of entering mainland Europe, South Korea and Japan, where in each case it simply picked the wrong partner.
Going into Africa is a bold move. Massmart has nearly 300 stores, more than 80 per cent of which are in South Africa, with the remainder spread across 12 sub-Saharan countries. It trades through several types of formats including grocery business and DIY. These are tough markets to make money in selling food to start with, let alone the diabolical country risks that exist in this region through ongoing political instability.
Are there issues for us in this move? Africa is a massive food market which is probably has the least-advanced developing region. By adding to the sophistication and infrastructure to food retailing, large players like Walmart can change food markets, and increase the demand for processed foods. That doesn’t happen by itself – incomes of households need to rise at the same time if a stronger food market (giving better export prospects for producers) is to follow down the track. Walmart will have learnt much from retailing in China but this new land will be a very different experience – if it wins.
But while these groups are exploring the mix of retailing in the world, I wouldn’t expect them to turn up in this country seeking bargains. The asking prices for big grocery chains in this country would need to be fairly strong if they are to be bought from their current owners. Australia is regarded as a mature market by the global players as any growth in grocery sales in future expected to be eked out against pressure from small, nimble groups nipping at their heels, and the vigilance of the ACCC and the complaint of politicians.