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EDITIONS
Friday, 29 October, 1999, 16:00 GMT 17:00 UK
Supermarkets shake-up
Tesco
At the checkout: Tesco may do some shopping of its own soon
French supermarket groups Carrefour and Promodes are merging to create the world's second-largest retailing group.

And when the world's largest retailer, American giant Wal-Mart took over Asda, it sent out a warning to competitors.

The world's big retailers are in the grip of a takeover frenzy which knows no international boundaries.

Wal-Mart
Wal-Mart is the world's biggest retailer and sells most products imaginable
So what are the next potential targets for predators - and how easy is it for retail giants to set up shop abroad?

Even before targeting Asda, Wal-Mart had already snapped up two German retail chains, Wertkauf, which had 21 stores, and 74-store Interspar.

The food retailing industry is already highly concentrated in most parts of Europe. In Germany, the top five supermarkets sell four-fifths of the country's groceries. In Norway, just four businesses share virtually all the market and they account for more than 70% sales in Belgium.

As Wal-Mart moves in on Europe, there are fears of the emergence of food supergroups, dominating the markets.

A recent report by retail experts predicted the Wal-Mart phenomenon is likely to provoke a wave of supermarket mergers, leading to the creation of massive groups.

'Any merger is possible'

Retail Intelligence said even the UK's two biggest supermarkets, Tesco and Sainsbury, may want to look for international mergers.

It suggested Tesco could link up with Tenglemann of Germany, Dutch group Laurus and Promodes of France - although this possibility has now been eclipsed by the Carrefour deal.

Safeway
Safeway is seen as a prime takeover target
Retail Intelligence said Sainsbury could merge with German group Metro or Dutch group Ahold. It's not the first time such a tie-up has been considered.

Regulators may also agree to other mergers involving some of our best-known High Street names.

One expert said: "Other than a merger between Tesco and Sainsbury, I think they'll allow any permutation you can imagine."

Speculation of a takeover of Marks & Spencer, which reported feeble results this year, has persisted for some time.

Meanwhile, the UK's fourth-largest supermarket chain, Safeway, has been considered a top takeover candidate for months.

Report author Richard Perks 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."

He predicted that the US group will make further acquisitions in the near future and is possibly already eyeing up French group Leclerc.

Store executives are likely to seek mergers because they both fear hostile take-overs and will aim to expand their market share if competition forces down prices - and profits.

Food groups expand

But why do retailers want to expand abroad, when historically, some who have tried it have had their fingers burnt?

Certainly there's no shortage of those already trying it out. Tesco is opening hypermarkets across central Europe, from Poland to Hungary, and in the Far East from South Korea to Thailand. It is in nine countries already, including Ireland.

Sainsbury
Sainsbury has struggled to push its profits higher
J Sainsbury, the UK's number two, has the Shaw's chain in the US and is buying Star Markets.

Kingfisher, whose planned merger with Asda was broken up by Wal-Mart, has acquired a network across Europe, including brands such as the Darty electrical chain and Castorama in France, making it the largest DIY retailer in Europe. It has even taken the B&Q do-it-yourself brand to Taiwan.

Marks & Spencer, the UK's biggest clothing retailer, operates in 34 countries.

Moving into the UK are Swedish furniture group Ikea and US chain Toys 'R' Us, who have taken Britain's shoppers by storm.

But German food retailers Aldi and Lidl are meeting with limited success over here.

Dutch retailer Ahold, which has operations in 17 countries, is also looking to move into the British market, having already established a presence in the American shopping world.

Knowing the market

Any store chain opening new outlets abroad must usually adapt to local shopping habits and attitudes.

Wal-Mart did not succeed in Thailand or Indonesia, where customers preferred scruffy street-market-style stores, to which they were accustomed, rather than clean ones.

But Paris shoppers go crazy for Marks & Spencer, situated in the one of the most chic shopping areas of the capital.

In general, though, the British favourite has struggled to see the same success as its UK stores elsewhere in Europe and this month announced the closure of six of its 42 European stores. The company said it would concentrate on large city centre sites.

Which all suggests one conclusion: to be successful abroad, a store chain must examine its market in minute detail.

So in working class areas, for example, the store will need to fit in seamlessly with the local ambience and provide exactly what locals expect. In more up-market regions, it must appeal to a sense of snobbery, appearing to offer something new, exotic and exciting.

Wal-Mart, however, has its own, simple secret of success - driving down prices everywhere.

It's a tactic that rarely fails - and one which has led to this craze for mergers.

See also:

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