Grocers undoubtedly felt the economic pressures in 2012 with discounters enjoying buoyant growth as a result of an increase in value-seeking consumers. Shoppers' focus on value led to rising online sales and further investment in the channel from the world's food retailers. However, the year was not just about expansion. Some of the world's largest grocers have scaled back overseas, with the trend towards internalisation slowing. Michelle Russell takes a look at the highs and lows for international retailers in 2012.
Retailers undoubtedly felt the pressure this year, some maybe more than others. But it was not all doom and gloom in 2012. While some retailers have been forced to back out of markets in order to concentrate on their domestic operations, others have prospered with acquisitions having still been possible for some. The growth of online has also become key for some retailers and emerging markets have continued to be a focus for expansion for some.
A key feature of the food retail sector in 2012 has been the continued growth of the discounters. With consumer confidence still low and household budgets under pressure, the discount channel has ultimately benefited from consumers seeking value.
In the US, Dollar General has emerged as a prospering discount retailer. It has seen sales and profits increase and has opened more stores. In Europe, Dia, the discounter spun off by Carrefour has seen profits jump. And in the UK, general discounters like Poundland continue to grow sales, while competitor B&M Retail was earlier this month snapped up by private-equity firm Clayton Dubilier & Rice - with former Tesco CEO Sir Terry Leahy as chairman.
German discount giants Aldi and Lidl continued to thrive. Data from Kantar Worldpanel for the UK market shows both retailers are seeing sales increase at a double-digit rate. In Ireland, Aldi and Lidi are growing while the country's grocery market declines. In Europe, Lidl is expanding in east of the continent, while, further afield, Aldi is building its business in the US to tap into demand that has boosted domestic discounters like Dollar General.
Aldi has not only achieved success in Europe though. The retailer has been growing in the US where it has had a presence since 2011. It has plans to open "more than" 80 stores in 2012.
The US, however, has not proven a fruitful market for all overseas retailers. Tesco provided one of the headlines of the year with its admission it will "likely" quit the US market after five years.
It was an announcement that bookmarked another challenging year for Tesco, which started 2012 with a profit warning on the back of falling sales in the UK, which, for all its international expansion in recent years, remains its largest market.
Tesco has spent the year trying to revitalise its UK operations, which account for around two-thirds of the retailer's profits. CEO Philip Clarke, which took charge of Tesco's UK operations in March, has insisted the company has seen signs its GBP1bn investment in its domestic business is paying off but its sales are still falling year-on-year.
One issue for some European retailers, however, has been the struggle to achieve success through its hypermarket formats. Tesco is one retailer that has been pulling away from the hypermarket format in amid competition from online and convenience stores.
However, Tesco is not alone. Carrefour has also stepped back from its hypermarket expansion, announcing a restructuring of its format in February following slumping sales and profits.
And, like Tesco, Carrefour has also been busy reviewing its international operations as it looks to focus attention on fewer markets and on revitalising its domestic business. The French retailer, which welcomed new CEO Georges Plassat in May, has sold businesses in Indonesia, Malaysia, Colombia and Greece this year. "What we have to do is adjust the various areas in which we want to stay strong because we can't spread ourselves too thin," Plassat said in August as he outlined his plans to improve Carrefour's performance.
Like Tesco and Carrefour, Metro Group, another of the world's largest retailers, has also had to reappraise its international businesses this year. It has sold its Makro cash-and-carry stores in the UK to local retailer Booker Group. The German retailer has also offloaded most of its Real hypermarkets in eastern Europe to French retailer Auchan.
"In each of these cases we have seen companies with aspirations to expand their capability and reach geographically and having to retrench because of their subscale in those market and them not seeing a capability to generate a satisfactory return in those markets in a reasonable time frame," Shore Capital analyst Clive Black said.
And Black says, in most cases, the disposals have been to local players, which demonstrates a slowing in the trend towards internationalisation in the retail sector.
"Carrefour's disposal of its Colombian business was to a Chilean business, its disposal in Indonesia was to to a local player and also Tesco in Japan was to Japanese player Aeon. So what we're seeing is internationalisation being scaled back and regionalisation and localisation gaining a new foothold."
However, not all retailers have sated their appetite for international expansion, as Auchan's acquisition of Metro's Real stores demonstrates. Even Carrefour looked to expand overseas, with deals in Belgium and as far afield as Argentina. And French retail rival Casino reinforced its leading position in neigbouring Brazil by taking sole control of leading Brazilian retailer CBD or Grupo Pao de Acucar. That said, Black is correct in there being a slowing of retailers' international ambitions.
India, however, is a market that remains on the radars of major international retailers. Until now, multinational retailers have only been able to invest in cash-and-carry or wholesale ventures with local players, a route the likes of Wal-Mart, Tesco and Carrefour have taken. However, foreign retailers have been prevented from owning multi-brand outlets. This looks set to change with the Indian government introducing rules that will allow international retailers to own 51% of multi-brand outlets. Do not expect a flood of investment in 2013 but there is likely to be some movement, particularly from those already in present in India. The news prompted Wal-Mart to begin talks with local partner Bharti Enterprises over the possible formation of another joint venture in the country where it currently operates a cash-and-carry network.
However, Wal-Mart's experience in India has thus far proven not be completely positive. Last month, Bharti Wal-Mart suspended a number of its employees, one of which is understood to be its CFO, while it investigates alleged violations of US anti-bribery laws.
Wal-Mart has also been at the centre of bribery allegations in Mexico where it has slowed expansion in the wake of the allegations. In August, Wal-Mart revised down its international expansion targets based mainly on changes in Brazil and China.
However,a s the year came to a close, the world's largest retailer was linked to a brand new market - Turkey.
This month, the group was reportedly in talks to buy Turkish retailer Migros Ticaret from UK private-equity firm BC Partners, although it has declined to comment on the reports. This may be one to watch in 2013.
Wisely, Wal-Mart has also said it will invest "more heavily" in e-commerce. It believes the UK, US, Brazil and China are the markets with the "greatest growth potential" for e-commerce sales.
While retailers are perhaps investing less frequently in the international sphere, there has been continued expansion online.
Notably, Dutch retailer Ahold bought online retailer bol.com in February, Spanish discount retailer Dia also confirmed plans to launch an online store and Wal-Mart increased its investment in Chinese online retailer Yihaodian. And Tesco has been quick to trumpet its investment online across a number of markets as it faces questions over its performance in the UK.
Daniel Lucht, analyst at Research Farm, believes it is "absolutely vital" retailers have an online presence. "This is basically one of the sectors where you still have a lot of growth and this is where you need to be," he says.
Tesco has this year continued to roll out an online service into international markets. CEO Clarke sees the investment as vital to the retailer's future. Successful retailers, he believes, will be those that create a "personalised" offer for consumers.
The arrival of digital shopping in the FMCG marketplace has taken 15-20 years but is now firmly here and encroaching on the household routine of food shopping in a very significant way.
Wtih consumer incomes under pressure and digital mobile shopping become more widespread, shoppers are increasingly turning to the online channel to do their shopping and with the economic outlook again looking uncertain in 2013, this trend will only intensify and increase in importance in the year ahead.