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According to our recently published retailing research, the parent company of the 7-Eleven chain, Seven & I, is set to become the world’s second largest retailer in terms of retail
banner sales behind Walmart in 2012. The group is on course to overtake Carrefour and widen the gap with fourth-placed Tesco, which both saw disappointing performances in their domestic markets, France and the UK. Seven & I continues to see resilient sales in Japan, while expanding its convenience store chain 7-Eleven rapidly across Asia and the US.
As we highlighted in our global company profile on Seven & I, based on provisional shares for 2011, Seven & I had already benefited from strong expansion in Asia and favourable exchange rates between 2009 and 2011, to threaten Carrefour and Tesco’s positions as the number two and number three global retailers respectively. The appreciation of the yen in 2012 further exacerbated the trend and precipitated this shake-up among the world’s four largest retailers.
In its result presentation for the financial year ending February 2012, Seven & I stated a target of a 6% rise in group sales to ¥8,550 billion (US$108 billion) for the year to February 2013, including petrol sales in North America but excluding sales of some franchised stores, mostly in Asia.
Euromonitor International’s retail sales data, which is measured by excluding petrol sales and adding the banner sales of all franchised stores globally, estimates Seven & I’s group sales at world level to increase by over 4% in 2012 and exceed ¥8,600 billion (US$109 billion), while Carrefour’s sales are set to continue declining in constant terms.
Due to modest organic expansion opportunities in Japan, Seven & I increasingly targets large cities with an affluent young population in emerging markets. Out of the 11,500 additional convenience stores opened in Asia Pacific between 2007 and 2012, as many as 9,000 were outside Japan, with strong inroads achieved in South Korea and Thailand, but also in China, albeit to a lesser extent.
This was facilitated by the strength of the yen making overseas investments more attractive and by a greater focus on franchised stores. Franchise partners in emerging markets are attracted to join the 7-Eleven chain in order to benefit from efficient information systems, helping store owners to reduce inventory and adapt their offer to meet local demand more accurately, which local rivals cannot match.
Although 7-Eleven has not expanded as rapidly in China as its arch-rival Family Mart between 2007 and 2012, with the number of outlets doubling to reach 1,000, it could see a strong boost if CP All, Seven & I’s partner in Thailand, succeeds in obtaining a licence to open stores in Southern China.
Carrefour’s sales expressed in US$, at year-on-year exchange rates, have declined every year between 2009 and 2012, due to a combination of several market exits, the divestment of the Dia discounter division in 2011 and declining hypermarket sales in its domestic market.
Carrefour’s sales in 2013 will be further eroded by the disposal of activities in Colombia, Indonesia and Malaysia, and could be further hit by additional market exits, possibly in Poland or Turkey. As sales growth in its four core mature markets, Belgium, France, Italy and Spain, will be considerably more modest than in the emerging markets which it has exited, Carrefour’s sales could lag below its peers for years to come.
Hence, Tesco might be able to overtake Carrefour as the third largest retailer within two to three years if Carrefour opts to sell other large operations. Smaller rivals such as Auchan and Casino are also likely to outperform Carrefour’s growth thanks to their sustained expansion in large emerging markets; China and Russia for Auchan and Brazil for Casino.
Size is crucial for major global grocery retailers to increase their bargaining power towards suppliers and achieve economies of scale, notably for their private label assortment. While Carrefour’s divestments will make it a more profitable retailer initially, it will ultimately jeopardise its former size advantage against other global rivals.
Seven & I’s performance illustrates how franchised operations give convenience store operators in emerging markets considerable scope for growth, as they gain ground over traditional grocery retailing formats. The contrast between Seven & I’s ambitious growth targets in emerging markets and Carrefour’s gradual retrenchment from emerging markets indicates that the gap between the two retailers should continue to widen, even if the value of the Japanese currency weakens.