November 12, 2020

Europe's top-dog retailers

Ranking podium (source: EFKS/shutterstock)
European champions: Schwarz Group gets gold, Amazon silver, and Rewe bronze
If you hang our latest Top 50 ranking table of European retailers on your office wall, it will doubtless impress all trade visitors. But what are sales and market share prognoses for 2020 without interpretation?

Even the most cursory glance at this fascinating snapshot, compiled by Edge Retail Insight, demands an answer to a number of questions.

Why, for instance, does the largest retailer on the continent still make hardly more than one per cent of its annual sales online when Amazon is already snapping at its heels? Or why are there still no retailers from Central & Eastern Europe in the Top 10 – thirty years after the collapse of the Soviet bloc?

Success machine Schwarz Group

A Lidl store in Dongen/NL (photo: Christian Lattmann)
Christian Lattmann
Phenomenal growth: Schwarz Group subsidiary Lidl will post an estimated 109 billion euros in sales this year
Let's look at these questions in more detail. Schwarz Group (Schwarz-Gruppe) – think 12,500 Lidl and Kaufland discount stores – will probably post a stomping €140bn in sales this year and completely dominates the show. The autocratically-run private company from sleepy Neckarsulm is already at least half as big again as Rewe, the next physical store retailer down the ranking list.

This is not only impressive in absolute terms. Estimated sales gains this year of 12.3 per cent compare favourably even with the high past growth rates for 2017 (6.3 per cent), 2018 (6.7 per cent) and 2019 (7 per cent) computed by other market researchers.

Schwarz Group's Achilles heel

A Kaufland hypermarket (photo: Kaufland)
Lidl's big brother: Compact hypermarkets under the Kaufland logo are set to make another 30 billion euros in sales for Schwarz Group
But, for all its current accolades, Schwarz Group might still prove to be a colossus with feet of clay. Edge Retail Insight estimates their e-commerce sales at only €420,000 this year. Even if one discounts this and ups the figure beyond the €1bn Schwarz Group last published in 2018/19, we are still talking hardly more than one per cent of annual turnover.

So omnipotent owner Dieter Schwarz and his demi-potent right-hand man Klaus Gehrig – two venerable gentlemen in their seventies viz. eighties – are clearly not that impressed by the cyber age.

Mind you, Schwarz Group still manages far more online sales than archrival Aldi Group (Aldi North and Aldi South), which are still miniscule.

Aldi and Lidl in online denial

Of course both discounters are renowned for their cost-efficiency and will have run a slide rule over the economics of home delivery and the dreaded 'last mile' to the consumers' doorstep. In retrospect, however, their numerous half-hearted and rapidly concluded tests in this direction often smack of potentates who never wanted to go online in the first place.

Amazon distribution centre in Winsen (photo: Carsten Milbret)
Carsten Milbret
Amazon: Have Germany's retailers seen the writing on the wall?
This reluctance to go digital could prove fatal when Amazon, whose 21-percent organic growth rate is likely to mean sales north of €100bn this year, has hardly started getting going in Europe. Or perhaps we should look at Alibaba's 24.5 per cent growth rate?

By contrast, many full-assortment supermarket operators swear that the future of retailing can only be 'multi-channel'. A lot of them have greatly profited from the same in this Covid year of lockdowns, home office and furlough.

Certainly, Tesco in the UK, Ahold Delhaize in the Netherlands, Rewe Group in Germany, and even heavily-indebted Casino in France look far more well-balanced in this respect than the two discounters.

Young man, don't go east

Turning eastwards, it is instructive that no retailer from Central & Eastern Europe has managed to reach the Top 10 yet.

A Pyaterochka convenience store in Russia (photo: X5)
Rapid growth: The expansion of Russian market leader X5 mostly comes from its Pyaterochka convenience stores
This is not intended to belittle the dynamic growth of Russian market leaders X5 and Magnit who rank at number 13 and 20, respectively. But those visionaries who were scorned for saying in 1989/90 that "it could take at least two generations for the former Soviet east to meet the capitalist west" were clearly on the right side of history. 

Might one also add, without mentioning any specific names, that commodity-rich oligarchs and money laundering machines are not so efficient providers of capital as good-old western stock exchanges and shareholders?

Ominous minus signs

On the negative growth side, a few tell-tale minus signs in front of the estimated sales figures for 2020 are as conspicuous as they are disconcerting.

These are principally found at leading German Cash & Carry wholesaler Metro (-22 per cent) and Spain's largest department store operator El Corte Inglés (-12,1 per cent) as well as French retailer Auchan (-9,2 per cent) and UK grocer Asda (-3.1 per cent) who both specialise in Big Box hypermarkets.

Surely these point to the structural decline of the Cash & Carry, department store, and large hypermarket concepts?

 Metro C&C entrance (photo: Santiago Engelhardt)
Santiago Engelhardt
Victim of circumstances: Metro's Cash & Carry business has been particularly hard hit during the Covid crisis by the lockdowns imposed on its food service clientele
Perhaps it is churlish to mention an estimated 22-percent fall in the European sales of Metro. After all, the wholesaler has recently divested itself of ailing hypermarket division 'real,-' and has also suffered disproportionately from the shutdowns imposed on its Food Service clientele.

Doubtless CEO Olaf Koch will again invoke the mantra for investors that Metro has been trimmed down under his aegis to a mean and lean Cash & Carry operation. The successive closure of operations in dynamic country markets overseas and the increasing saturation on mature markets in Europe do not bode well, however, for a concept that is so well advanced along its store life cycle.

The fact that Czech investor Daniel Kretinsky now has a minority stake in Metro and would like to gain a larger one is not necessarily a comfort. After all, the man's past investment strategy could be interpreted as one that engages in dying sectors which most punters shun and which are therefore undervalued. In other words, the beast is dying, but its death agonies will last longer than many had thought.

No surprise, then, that the vultures of private equity and billionaire oligarchs from Central & Eastern Europe are circling over western Europe's bricks & mortar retailers. The Issa brothers have just made a successful bid for Asda; Kretinsky has also invested in troubled French retailer Casino, and Mikhail Fridman already has his hands on Dia in Spain.

It is surely more than significant that none of these investors seem happy to provide much detail as to how they intend to turnaround the businesses they have acquired. Long live the asset stripper!

Regardless of whether you agree or not with the above interpretations, posters of the Top 50 retailers in Europe will soon be on sale. You can then make your own conclusions...

Podcast microphone (photo: Gerhard Seybert-Fotolia)
Gerhard Seybert-Fotolia

Podcast. Click arrow to listen to an audio version of the text:

Lebensmittel Zeitung with digital sister (photo: LZ)
Our German retail B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German
: 'Europas Handel vor der Online-Probe' by international editor Mike Dawson on pages 38 & 39 of Lebensmittel Zeitung, no. 46, on 13.11.2020. The text is also available on our website (paywall)

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