2010 global retail_development_index

Expanding Opportunities
for Global Retailers
The 2010 A.T. Kearney Global Retail Development IndexTM

Figure 1
The 2010 Global Retail Development IndexTM

Change
Market Country Market Time in rank
2010 attractiveness risk saturation pressure GRDI compared
rank Country Region (25%) (25%) (25%) (25%) score to 2009

1 China Asia 50.6 85.8 32.9 86.6 64.0 +2

2 Kuwait MENA 75.4 94.3 56.2 24.5 62.6 N/A

3 India Asia 35.4 51.3 62.2 97.8 61.7 –2

4 Saudi Arabia MENA 65.3 86.5 50.7 31.0 58.4 +1

5 Brazil Latin America 73.5 74.3 46.6 36.9 57.8 +3

6 Chile Latin America 71.8 92.3 27.5 38.3 57.5 +1

7 United Arab Emirates MENA 79.1 100.0 18.8 32.0 57.5 –3

8 Uruguay Latin America 67.7 74.3 58.6 23.1 55.9 N/A

9 Peru Latin America 43.4 54.6 72.2 49.2 54.9 +9

10 Russia Eastern Europe 63.5 55.1 32.0 61.8 53.1 –8

11 Tunisia MENA 45.3 77.1 61.3 26.3 52.5 +3

12 Albania Eastern Europe 30.4 30.2 82.2 61.7 51.1 N/A

13 Egypt MENA 30.9 45.5 85.7 41.6 50.9 +2

14 Vietnam Asia 12.3 49.4 50.2 89.1 50.2 –8

15 Morocco MENA 31.8 60.6 56.0 46.9 48.8 +4

16 Indonesia Asia 40.9 46.6 59.9 47.5 48.7 +6

17 Malaysia Asia 54.9 67.5 15.6 48.9 46.7 –7

18 Turkey MENA 64.6 52.5 40.5 28.9 46.6 +2

19 Bulgaria Eastern Europe 49.7 60.8 18.8 56.7 46.5 +2

20 Macedonia Eastern Europe 41.7 28.0 60.8 52.2 45.6 N/A

21 Algeria MENA 26.1 21.3 96.0 38.2 45.4 –10

22 Philippines Asia 35.6 35.6 72.7 37.0 45.2 +3

23 Dominican Republic Latin America 41.2 27.4 69.8 35.4 43.5 N/A

24 South Africa Sub-Saharan Africa 52.4 73.0 25.2 16.0 41.7 N/A

25 Mexico Latin America 64.3 69.6 11.1 20.9 41.5 –13

26 Colombia Latin America 45.0 44.0 48.8 21.9 40.0 +2

27 El Salvador Latin America 43.8 43.1 55.3 15.9 39.5 +2

28 Romania Eastern Europe 46.0 61.8 0.0 49.4 39.3 –5

29 Bosnia and Herzegovina Eastern Europe 27.3 30.2 21.4 77.4 39.1 N/A

30 Guatemala Latin America 29.3 30.5 70.4 11.9 35.5 N/A

Notes: MENA =
0 = low attrac- 0 = high 0 = saturated 0 = no time Middle East and
On the radar Lower
Legend

tiveness risk pressure North Africa;
screen priority
Key

Scores are rounded
100 = high attrac- 100 = low 100 = not 100 = urgency
To consider tiveness risk saturated to enter

Sources: Euromoney; Population Reference Bureau; International Monetary Fund; World Bank; World Economic Forum; Economist Intelligence Unit; Planet Retail; A.T. Kearney analysis

A
s the dust settles from a turbulent 2009, retailers in developed
markets face a changed landscape that features fewer stores,
heavier discounting and more fickle shoppers. In contrast, retail
in most developing markets quickly got back on track after the recession.
Desirable real estate is still difficult to obtain, competition remains strong
both from domestic and foreign players, and the middle class continues
to grow. If global retailers ever questioned the wisdom of balancing their
domestic holdings with investments in developing markets, the recession
certainly reaffirmed its value.

Retailers in developed markets are cautiously pects. The oil-rich Middle East continues its
optimistic about 2010 after an extraordinary year explosive growth, thanks to largely urban popula-
marked by the collapse of major retailers (such as tions and relatively underpenetrated organized
Circuit City in the United States and Quelle in retail markets. Latin America, meanwhile, has
Germany) and financial lenders (such as CIT shown resiliency throughout the downturn. As
Group in the United States). Most retailers pruned one retail executive says, “Global expansion is not
their store footprints, cleaned up their invento- for the faint-hearted. If you get it right, you will
ries, reduced corporate overhead and revamped be able to balance your portfolio and compensate
management with a laser focus on profitable for the low growth rate in your home market.”
growth. Survivors emerged with improved pro- This changing competitive environment high-
ductivity and balance sheets. lights the need for companies to compare different
Retail executives have learned again that their markets for entry prospects—which A.T. Kearney’s
core markets are not the powerful engines of 2010 Global Retail Development Index™ (GRDI)
growth they would like—United States and can help them do. The annual study ranks the top
European GDP growth in 2010 is expected to 30 emerging countries for retail expansion, based
hover around 3 percent and 1 percent, respec- on 25 macroeconomic and retail-specific variables
tively. Today, reliance on developing countries for (see figure 1). This year we include for the first
future growth is no longer a “nice-to-have,” but time the findings of a survey of roughly 60 execu-
is a necessity. Although developing giants China tives from global retail companies, who were asked
(10 percent expected GDP growth) and India about their company’s international expansion
(8 percent) continue their rapid expansion, Asia- plans and their lessons learned (see sidebar: What
Pacific is not the only region with bright pros- Are Retailers Saying? on page 6).

A.T Kearney
. | EXPANDING OPPORTUNITIES FOR GLOBAL RETAILERS 1

Small Countries, Big Opportunities This trend is highlighted by our window-of-
The top of the rankings, where Kuwait sits in 2nd opportunity analysis, which compares this year’s
place, highlights one major trend in this year’s growth opportunities to those from the recent
GRDI: the success of smaller countries. The global past. A country’s window of opportunity opens
recession has truly changed the landscape and has when the government opens their doors to foreign
left some small but more “insulated” markets in a investment, real estate is still inexpensive, modern
relatively better position. The newcomers to the formats are evolving, consumers are beginning to
rankings this year include several smaller markets, spend disposable income on branded products,
including Albania, Macedonia, Dominican Repub- and there is little competition. The window closes
lic, and Bosnia and Herzegovina. The implications when competition is fierce, consumers desire
for retailers are clear: When expanding, a portfolio more specialized retail formats, and real estate
of countries both small and large may offer the best prices are high and still going up. A closed window
path to success for global retailers to “go global.” can still mean there is solid retail entry potential

Figure 2
The GRDI window-of-opportunity analysis

Opening Peaking Maturing Closing

High priorit
gh priority Poland (1995) Vietnam (2010)
China (2003) China (2006)
Russia (2003) India (2010)
India (2003) Vietnam Russia (2006) Russia (2010)
(2006) India (2006)
Colombia (2010) China (2010)
Kuwait (2010)
South Africa (2010)
Poland (2000)
GRDI China (1995)
priority Hungary (2005) Hungary (2010)
Russia (1995)
India (1995) Slovenia (2010)
Guatemala (2010)
Czech Republic (2010)

Poland (2005)
Poland (1990)
Low priority
w

Definition Middle class is growing; Consumers seek organized Consumer spending has Consumers are accustomed
consumers are willing to formats and greater exposure expanded significantly; to modern retail; discretion-
explore organized formats; to global brands; retail shopping desirable real estate is more ary spending is higher;
government is relaxing districts are being developed; difficult to secure; local competition is fierce both
restrictions real estate is affordable and competition has become from local and foreign retail-
available more sophisticated ers; real estate is expensive
and not readily available

Method Minority investment in local Organic, such as through directly Typically organic, but Acquisitions
of entry retailer operated stores focused on tier 2 and 3 cities

Labor Identify local skilled labor Hire and train local talent and Change balance from Use mostly local staff
strategy for management positions balance the expatriate mix expatriate to local staff

Source: A.T. Kearney analysis

2 EXPANDING OPPORTUNITIES FOR GLOBAL RETAILERS | A.T Kearney
.

in a country, but retailers need to be more thought- GDP growth of 8.7 percent, and forecasts call for
ful about their entry strategy and operations in GDP growth of more than 10 percent in 2010.1
order to turn a profit. As demonstrated in figure 2, Retail sales increased 8.2 percent in 2009 and
Vietnam’s position in this analysis is near its peak, should grow by more than 9 percent this year as
similar to India and Russia in 2006. consumer confidence recovers, urbanization con-
tinues and the middle class keeps expanding.
The 2010 GRDI Findings For the first time since 2002, China is first place
The following highlights the major findings of in the GRDI.
the 2010 GRDI, including the top opportuni- The retail market is highly fragmented, but
ties for global retailers to invest in developing consolidation through organic growth by foreign
markets (see sidebar: About the Global Retail players and mergers and acquisitions (M&A)
Development Index on page 16). remain major trends. The top 20 retailers’ mar-
ket share increased from 4.9 percent in 2004 to
Asia-Pacific 8.6 percent in 2009, leaving plenty of opportu-
China and India remain among the leaders in the nity for new entrants to capitalize on Chinese
GRDI. These large, growing markets still present consumerism. Demand for luxury products remains
major retail opportunities, and they will for strong, and analysts expect China to become the
decades to come. While opportunities remain in world’s largest luxury market by 2015. Global
both countries’ largest cities, retailers are also luxury brands continue investing; for example,
expanding to smaller but faster-growing cities. LVMH opened another flagship store in Shanghai
Retailers are strengthening supply chain operations in 2010.
to spur profitable growth while refining merchan- Chinese consumers are becoming more posi-
dising capabilities and internal organizations to tive about the economy and their personal
take advantage of their scale. finances. The Consumer Confidence Index rose
Throughout Asia-Pacific, the post-recession from 86 in March 2009 to 108 in May 2010.
outlook is bright, with domestic demand and Although 75 percent of consumers still seek
exports increasing, retail sales stabilizing and con- better value in their purchases, only 46 percent
sumer confidence improving. Aggressive expan- say that saving money on groceries is impor-
sionary fiscal and monetary policies further bolster tant. Such an attitude plays to the strengths of
retail. Grocery still accounts for almost two-thirds modern outlets such as hypermarkets. Private
of total organized retail sales, but the proportion labels are growing rapidly, albeit from a lower
of spending on food is declining annually as con- base and despite consumer skepticism about qual-
sumers increase discretionary spending on cloth- ity. Some major foreign retailers have expanded
ing, transportation, communications, appliances quality-focused private labels, such as Carrefour’s
and recreation. Hypermarkets and convenience Harmonie brand.
stores are the formats of choice, but local competi- Existing foreign and local leading retailers will
tion is fierce. maintain their aggressive store expansion plans.
China: full speed ahead, again. China’s $585 Wal-Mart opened 52 new stores in 2009 to sur-
billion government stimulus package spurred pass Carrefour (22 new stores in 2009). RT-Mart
1
All monetary amounts are in U.S. dollars unless otherwise noted.

A.T Kearney

opened 20 stores and large Chinese grocer Wumart Vietnam. Pressures regarding currency apprecia-
opened 323. Other large international retailers are tion continue to mount. Lastly, despite the invest-
pondering entry into China, including U.S.-based ment, infrastructure is still underdeveloped. For
Macy’s, which is contemplating opening its first example, only 15 percent of perishables are trans-
Chinese store, and Germany’s Metro Group, ported via refrigerated vehicles, leading to an
which announced plans to open a Media Markt annual loss of 30 percent of total output.
consumer electronics store in October 2010. India: immense potential. India, a GRDI
Retailers continued to enter tier 2, 3 and 4 leader last year and from 2005 to 2007, takes 3rd
cities in 2009. As China’s middle class expands place this year. Despite the slight dip, India
outside of tier 1 cities, this trend shows no sign of remains quite attractive for retail (see figure 3).
slowing. While foreign and domestic players have India’s GDP growth dipped to 6.7 percent in
crowded tier 1 cities, rent and labor costs remain 2008-2009, but is expected to reach 7.2 percent
more reasonable elsewhere. In China, “smaller” in 2009-2010 and between 8 and 8.5 percent
municipalities still represent millions of shoppers. beyond that. The retail market is worth about
Bulgari opened its first Chinese store in tier 2 $410 billion, but only 5 percent of sales are
Shenyang; luxury brands such as Armani, Gucci, through organized retail, meaning that the oppor-
Cartier, Dunhill and Burberry are also expanding tunity in India remains immense. Retail should
into smaller cities. continue to grow rapidly — up to $535 billion in
In terms of store format, hypermarkets have 2013, with 10 percent coming from organized
experienced the strongest growth, particularly for retail, reflecting a fast-growing middle class
packaged foods, snacks, drinks and ambient prod- demanding higher-quality shopping environ-
ucts, sectors where foreign players have the largest ments and stronger brands.
market share. Supermarkets, dominated by local Store growth and consumer insight have been
players, remain the biggest format but are losing the focus for the past few years. The market is
share to hypermarkets, especially in large cities. maturing, as most retailers are now focusing on
Convenience stores are also growing fast, par- profitable growth. Several domestic retailers filed
ticularly forecourt retailers. China Petroleum & for bankruptcy or exited the market during the
Chemical Corporation has expanded to 30,000 downturn, including Subhiksha and Magnet,
outlets and China National Petroleum Corporation while others optimized their operations, includ-
has 17,500. Department stores still face sluggish ing store labor, rent renegotiations and strategic
growth, which has leading players such as Parkson cost management. Expansion plans did not slow,
and Bailian Group offering frequent discounts however: Bharti Retail strengthened its position
and promotions. in northern India by opening 59 stores, Bharti
Despite the bright outlook, there are some Wal-Mart is expected to open 10 to 15 wholesale
cautions. The government stimulus focused on locations in the next three years, and Marks &
infrastructure rather than domestic consumption, Spencer is considering plans to open additional
crowded out small and medium enterprises, and outlets in the next few years.
heightened worries about inflation and real estate Established retailers are tapping into the
bubbles. Labor rates are rising, while exports face growing retail market by introducing innovative
competition from lower-cost regions such as store formats, such as community shopping, village

.

malls and destination shopping stores. For example, model in India to improve productivity and the
Future Group set up a first-of-its-kind community- quality of goods by launching a direct farm pro-
family shopping center in Bangalore. Another inno- duce sourcing system.
vative concept, “wedding malls,” devoted to nearly Foreign players continue to demonstrate
every aspect of weddings, are making a splash in strong interest in India — most major hyper-
the Indian market. market retailers either have a presence or are
While rising commodity prices hit Indian studying the market for entry. In apparel, Zara
consumers in all segments (including cereals, (owned by Spain’s Inditex Group) opened its
grains, fruits and vegetables), retailers launched first store in 2010, while Polo Ralph Lauren and
a wide range of private labels. More profitable for Diesel are expanding.
retailers, these brands are gaining customer accep- Desirable real estate is a lingering challenge
tance in categories beyond staples. Future Group for retailers. Mall rental rates are lower because of
plans to add 10 to 15 new private-label categories an oversupply of space, but there is still a lack of
every year; this year, it expanded its Tasty Treat quality street locations. Given these challenges,
label to the breakfast cereal, noodle and soup many retailers see tier 2 cities as the next frontier.
categories. Beyond private labels, Wal-Mart is Customers in these locations are proving simi-
working to change the agricultural supply chain lar to those in tier 1 cities, meaning that retail

Figure 3
2010 GRDI country attractiveness

UAE On the radar screen
Kuwait
95 Saudi To consider
Chile Arabia
Lower priority
Country risk (economic and political)

China
Tunisia Size of bubble indicates
South Africa net retail sales, 2009
(0 = high risk; 100 = low risk)

75 Uruguay Brazil
Malaysia
Mexico
Morocco
Bulgaria
Romania
55 Vietnam Russia Peru
Turkey India
Colombia
El Salvador Indonesia Egypt

35 Philippines
Guatemala
Bosnia and Macedonia Albania
Herzegovina Dominican
Republic Algeria

15
25 30 35 40 45 50 55 60 65 70 75
Market potential*
(0 = low potential; 100 = high potential)
* Based on weighted score of market attractiveness, market saturation and time pressure Source: A.T. Kearney analysis

A.T Kearney

What Are Retailers Saying?
As part of this year’s GRDI, we of these markets as part of their 30 percent selected a developed
surveyed 60 global retail executives, firms’ plans for short-term inter- country as one of their top three
representing all sectors, sizes and national growth. Executives hope countries to target for expansion
geographies (see figure A). The per- to take advantage of the tremen- (see figure C). While most of those
spectives and comments of these dous growth and strides made in focused on targeting other emerging
executives help confirm our rank- organized retail, while applying the markets were exploring regionally
ings, offer insight into what criteria lessons from other retailers that (53.6 percent), a large number
retailers use to select new countries, have already entered these markets. (46.4 percent) were also looking
examine past lessons, and identify Expansion is a two-way street. outside of their region.
emerging competitive trends. Expansion is no longer about retail- There are already a few examples
Five main themes emerged ers from developed markets moving of retailers from emerging markets
from the survey. into developing markets. Now, retail- going global. Malaysia’s Parkson
BRIC: still a center of growth. ers from developing markets are Corporation has expanded into
Our survey shows that Brazil, Russia, expanding regionally, thanks to their Vietnam, and Chile’s Falabella chain
India and China — known collec- unique insights into local business has entered Peru and Colombia.
tively as the BRIC nations—remain and culture. Ninety-two percent of Some respondents state that their
the highest priority markets for retail respondents from emerging markets next move will be into Europe or
expansion (see figure B). Nearly 80 say they plan to expand beyond their North America; China’s A.S. Watson
percent of respondents named one home markets, and of those, nearly already has more than 1,600 stores
in Europe, for example.
This trend, if continued, will shift
Figure A: The 2010 GRDI survey respondent profile the global competitive landscape.
Retailers in developed markets will
Geography Annual revenue have to pay attention to these shifts
3.6% 1.8%
Asia-Pacific < $1B
and ensure that they are prepared to
5.4%
7.1% Western Europe 8.9% $1B–$10B handle intensified competition in
North America $50B–$100B
Eastern Europe $10B–$50B
their home markets. As one German
32.1%
Central Asia 14.3% 41.1% > $100B grocery executive tells us, “Do not
25.0%
Middle East
underestimate the pace of develop-
30.4% 30.4% ment of developing market retailers.
They learn fast and move faster.”
Control is everything. The ability
Retail sector Percent of revenue from home market to maintain control over brands and
1.79%
1.79% Apparel 1.8%
1.8% 0%–10% decision making is a central factor as
1.79% 3.6%
Other retail 31%–40%
3.57% 3.6% retailers enter new markets. Nearly
3.57% Grocery 11%–20%
5.36% Luxury 61%–70% 65 percent of our respondents—par-
25.00% 10.7%
Discount 32.1% 41%–50% ticularly those from large retailers—
8.93% Convenience 91%–100%
Footwear 10.7% 21%–30% prefer expansion via organic growth
23.21% 25.00%
Books 51%–60% or acquisition so they can maintain
Department store 17.9% 17.9% 81%–90%
Home
complete authority, rather than
improvement/DIY Source:
A.T. Kearney analysis franchises or local joint ventures

.

Figure B: Respondents say China, India, Brazil and Russia of entering a new market, ambitious
remain top targets for expansion compared to a survey we conducted
in 2005, when executives said they
Percentage of respondents selecting as top three expansion target sought profits within five to seven
China 39.3 years. Of course, reality rarely
India 30.4 matches those high expectations—
Brazil 19.6 consumers are more difficult to sat-
Russia 17.9 isfy and competition is fiercer than
United States 12.5 anticipated, and executives say this
Indonesia 10.7 means flexibility and the ability to
United Arab Emirates 10.7
adjust are key. One South Korean
department store executive notes
Singapore 8.9
this when discussing his company’s
United Kingdom 8.9
expansion plans: “The cost of under-
Vietnam 8.9
standing local customers’ needs, the
Source: A.T. Kearney analysis
retail business environment, compe-
tition, and regulations was much
higher than initially planned.”
Figure C: Emerging market retailers are looking beyond
The business environment holds
their own borders
plenty of surprises. Our survey indi-
Do you plan to expand globally? If yes, where do you plan to expand? cates that the number one lesson
retailers have learned from expand-
Yes Emerging market
7.7% No Developed market ing globally is that the business envi-
ronment has a lot more “surprises”
28.2%
than they expected.
Our respondents offered up
71.8%
92.3% three main pieces of advice on how
to manage this risk:
Source:
A.T. Kearney analysis
• Test the market. Use less risky
channels, such as wholesale or
that do not involve majority own- owning single-brand retailers. e-commerce, to learn about the
ership. However, local regulation Web-based ventures are also gain- market and consumer acceptance
often dictates the terms by which ing prominence. American Eagle of your brand through less risky
a retailer can enter and do business Outfitters, House of Fraser and channels.
within the country. This may cause J.Crew have used the Internet to • Look beyond statistics when study-
some retailers to forgo an opportu- access and test new markets while ing a market. Spend time in the
nity rather than lose control over the minimizing investment and risks. market to fully understand con-
brand — Swedish furniture retailer Retailers expect fast success— sumers and competition.
IKEA canceled its plans for a store and unique challenges. Many • Use local partners where it makes
in India because of regulations pre- respondents expect their companies sense. Seek sources of high-quality
venting foreign companies from to be profitable within three years local talent

A.T Kearney

models translate well—even increasing profitabil- have the company’s highest growth. Domestic
ity because of lower operating costs. Spencer’s leaders offer tough competition, including super-
Retail, More (owned by Aditya Birla Group) and market chain Saigon Co.op, which plans to open
Shoppers Stop (owned by K Raheja Group) 100 new stores by 2015.
already plan to expand. Indonesia: a high-growth market. Indonesia
Regulations pose another challenge to retail moves up to 16th place in the GRDI this year, up
growth in India, particularly the foreign invest- from 22nd. Indonesia accounts for more than one-
ment restrictions for multi-brand retail, which will third of Southeast Asia’s total retail sales, and its
probably not change anytime soon. As a result, sales are expected to double by 2015 on the heels
cash-and-carry formats will thrive, as foreign com- of economic growth, an expanding population,
panies are allowed full ownership. Wal-Mart and rising incomes and more organized retail. Sales
Metro have already successfully entered through through organized retail outlets will grow 20 per-
this route, and Carrefour and Tesco plan to follow. cent in the next five years, due to a growing mid-
Vietnam: lower rank, but continued strength. dle-income population and food retail market in
Vietnam’s retail industry continues to grow, with large cities such as Jakarta, Surabaya and Bandung,
consumer spending expected to rise above the and the province of Bali. With more tourism and
current level of 70 percent of income. Retail sales an expatriate population, demand for imported
in Vietnam—14th in the GRDI this year, after Western foods is growing. Large retailers such as
finishing 6th in 2009 and 1st in 2008 — will Carrefour Indonesia, Matahari Putra Prima Tbk,
rise to $77.8 billion in 2010 and $85 billion by and Hero Supermarkets have increased sales by
2012. Vietnam’s relatively high GDP growth and selling private-label products, offering store pro-
younger population—57 percent are younger than motions and expanding to less-saturated regions.
30—are major factors behind the rebound and Malaysia: oversaturation and overexpansion.
success of the retail sector. Malaysian retail suffers from overexpansion, and
On January 1, Vietnam opened doors for the country drops from 10th to 17th place in the
further multinational retail investment. Foreign GRDI. Some of the shopping malls that satu-
companies may now open wholly owned busi- rated major cities now have occupancy problems,
nesses without a local partner, in line with com- and the downturn forced some retailers to curb
mitments to the World Trade Organization. While expansion plans. New malls will be smaller and
small, independent shops still dominate, several suburban, to serve the rising population of sec-
foreign firms including Germany’s Metro Cash ondary cities.
& Carry and Japan’s FamilyMart have entered Multinational retailers are growing through
Vietnam. South Korea’s leading department store convenience stores. Carrefour plans to open 100
operator, Lotte Shopping, has joined with a local such stores, focused on private-label sales; Tesco
retailer to spend $5 billion developing 30 depart- plans to augment its profitable hypermarkets.
ment stores and supermarkets over the next 10 The Philippines: signs of growth. A strong
years in Ho Chi Minh City and Hanoi, along retail outlook leads the Philippines to 22nd place.
with tier 2 cities Da Nang, Can Tho, Haiphong The growing outsourcing industry and remittances
and Hue. Malaysia’s leading retailer Parkson is from overseas workers have bolstered spending.
also expanding in Vietnam, where its operations The national election may lead to more govern-

.

ment spending and business investment, while the recent price fluctuations, but a 2009 government
Retail Trade Liberalization Act will increase retail plan aims to diversify the economy and attract
competition, both domestic and foreign. investors. As oil prices rise and the global econ-
An increasing number of dual-income, middle- omy recovers, Kuwait’s GDP per capita could
class families and young professionals are stimu- increase 49 percent by 2014.
lating urban retail sales—today, roughly half of Local entities continue to dominate grocery.
all retail sales are concentrated in Manila. Outside The government-funded Union of Consumer
major cities, the Philippine retail sector remains Cooperative Societies (UCCS) has exclusive access
dominated by small, independent shops and to residential zones. Non-organized retail still
grocers called sari-sari stores, which account for plays a role with small grocery and convenience
90 percent of the country’s outlets. stores. However, large international retailers have
made inroads around Kuwait City. Carrefour
Middle East and Africa entered in 2007, Groupe Casino joined UAE’s
The Middle East and North Africa (MENA) Retail Arabia and Kuwait’s Tamdeen in 2009 to
region exhibits the most exciting retail growth blend the international hypermarket experience
opportunities today — eight MENA countries with local knowledge under the Géant banner.
make it into the Index this year. Specialty retailers are also entering. Those
The impact of the downturn varied, as fiscal new to the region, such as Destination Maternity,
stimuli offset the damage. Overall, the region has have entered Kuwait as part of regional expansion,
proven resilient and appears poised to recover. while others with MENA footprints have focused
Retail sales are rising, driven by higher disposable on Kuwait. H&M opened seven stores in Kuwait
incomes, urban population growth, a strengthen- (its second MENA market) since signing a 2006
ing middle class and infrastructure investments. franchising agreement with M.H. Alshaya, while
New regional and international brands are Claire’s and The Body Shop have opened nearly
rushing in. Local retailers such as Saudi Arabia’s 30 stores each.
Panda and EMKE Group, from the United Arab Shopping centers host the spectrum of inter-
Emirates (UAE), have begun expanding. Inter- national retailers, and Colliers International pre-
national retailers have followed, mostly through dicts Kuwait will soon have the Gulf region’s
partnerships using a franchise model, due to gov- third-largest supply of retail space. The 2011
ernment regulations and a desire to gain local completion of The Avenues mall in the Al-Rai
knowledge. Some of these local partners, such as industrial area will open more space for inter-
the UAE’s Al-Futtaim Group and Chalhoub Group, national brands. Already housing Carrefour and
have created retail business models by franchising IKEA, The Avenues’ final phase will add a luxury
numerous international brands across the region. section, a European-themed mall and a traditional
Kuwait: an impressive debut. Kuwait makes Arabic market (souk).
an impressive GRDI debut by placing 2nd on the Saudi Arabia: boosting retail with a stable
Index. Kuwait is small compared to other GRDI economy. Saudi Arabia moves up one spot to 4th
leaders, but the country’s urbanized, wealthy con- place, as it remains relatively sheltered from the
sumer population has solid purchasing power. recession. With the Gulf region’s largest economy,
Kuwait’s reliance on oil has made it vulnerable to Saudi Arabia and its 28 million people present

A.T Kearney

growth opportunities for international retailers. market for international retailers, particularly in
The hypermarket and supermarket sectors health and beauty and consumer electronics.
have changed significantly over the past six years In particular, Dubai should maintain its place
as foreign players have entered and local players as a regional retail hub with its modern retail
have expanded. Groupe Casino and Carrefour infrastructure, greater ease of doing business rela-
entered in 2004, and EMKE Group introduced tive to other countries in the region, and attrac-
its Lulu hypermarket in 2009. Domestic competitive urban consumer base. Dubai is a symbol of
tion is strong, with local retailer Al-Azizia Panda luxury; many retailers open stores there not just
United Company expanding through two acquisi- to increase revenues, but also to build their
tions since 2008, including a takeover of Groupe brands. Bloomingdale’s opened its first store out-
Casino’s single Géant operation. As the market side of North America in Dubai in early 2010.
develops, consolidation opportunities for dis- Abu Dhabi, relatively underdeveloped in retail
counters and private-label expansion are likely with fewer international brands than Dubai,
in mass grocery. represents the next wave of retail development in
International apparel retailers have entered the UAE, particularly in luxury goods. It fared
Saudi Arabia through local partnerships over the better during the recession, has a fast-growing
past decade. The Inditex Group launched its first tourism sector and features local consumers with
Saudi stores in 1999 and now has more than 95. high spending power.
The Gap Inc. plans to open approximately 50 Tunisia: now is the time. Tunisia climbs three
stores by 2012. spots to 11th place. It has a diversified economy,
Government regulations still constrain inter- strong domestic demand, high per capita incomes
national retailers. Saudi Arabia’s foreign invest- and an economy growing 3 percent per year. In
ment rules require a minimum of 25 percent local 2009 the government passed new regulations to
capital. The government also regulates hours of spur the modern retail industry, allowing fran-
operations during religious periods, often requir- chises to operate for the first time under the same
ing stores to close or dim lights during prayer regulations as other businesses. International retail
times. Nevertheless, international retailers will be remains limited to a few major grocery players, so
pivotal toward shaping this vibrant market. this market has potential.
UAE: a few steps back. The UAE drops from Hypermarkets and supermarkets are trans-
4th to 7th place in the Index this year. Retail sales forming the landscape. In 2001, Carrefour part-
growth slowed in 2009, as the downturn led to nered with Ulysse Hyper Distribution for its first
a decline in tourism and decreased demand for North African store. Following the “Carrefour
luxury goods. The closing of BinHendi Avenue, Market” concept’s global success, the company
the luxury extension of Deira City Centre, high- converted its Champion brand stores to the
lighted department stores’ woes. As grocers re- Carrefour banner in 2009; the company now
focus on the local economy, it is an opportunity operates in Tunisia under a single-banner, multi-
for value brands and discounters. format strategy. IKEA and Landmark Group also
Still, with a mostly urban population of 5 mil- plan to enter Tunisia.
lion, a high rate of retail sales per capita and high Egypt: large and largely untapped. With
per capita wealth, the UAE remains a vital growth a population of nearly 80 million, 13th-place

.

Egypt is a regional powerhouse. Egypt struggled non-grocery European and U.S. franchises. For
through the downturn, its GDP falling as exports example, Fnac, owned by France’s PPR, signed
and tourism declined, but 6 percent growth is a franchise agreement with Aksal Group to open
expected in 2010. The small share of modern its first MENA store in Morocco in early 2011.
retailing, little consolidation and growing con- South Africa: coming onto the radar. By
sumer demand make Egypt attractive for large regional standards, South Africa — entering the
global retailers. GRDI in 24th place — has a developed economy
Modern grocery sales are on the rise as with strong financial and retail sectors. Globally,
hypermarkets and supermarkets have expanded. South Africa is an emerging market. Host to the
Spinneys entered in 2006, competing with 2010 FIFA World Cup, with a positive long-term
Carrefour and some local retailers, and it recently economic outlook, large population and an English
signed a 20-year lease agreement with Egyptian language base, South Africa is attractive for foreign
Centres, owned by Fawaz Alhokair Group, for retailers. The country’s retail sector is projected
its third store in Cairo and fourth in Egypt. Metro to grow 60 percent in five years, to more than
Group plans to open 10 to 20 Makro stores focused $100 billion.
on wholesale retail, which thus far has been limited A strengthening middle class is leading
to urban areas. Elsewhere, small neighborhood domestic players to target certain markets. Mixed
grocery stores remain the format of choice. retailers such as Woolworth’s are targeting the
Traditional outdoor markets are giving way high end, while ShopRite and Massmart domi-
to shopping centers, where many foreign non- nate hypermarkets and supermarkets. Last year,
grocery retailers are expanding. Inditex Group, U.S. retailer Safeway agreed to expand its private-
which entered Egypt in 2008 with Pull and Bear label “O Organics” and “Eating Right” brands to
and Bershka outlets in Cairo, plans to open a South Africa through ShopRite stores. Although
Zara store. Saudi retailer Al Sawani Group plans the country’s leading modern grocers have
to build 25 fashion stores in Cairo and Alexandria. expanded quickly, traditional trade channels still
Morocco: a MENA hub. Morocco moves up to account for 45 percent of sales, as most people
15th place from 19th in the Index and is expected live in townships and rural areas.
to achieve 5 percent annual growth over the next International brands have entered depart-
few years. Morocco, with a population of 30 ment stores and shopping malls in well-developed
million, offers a relatively strong mid- to long- areas. Shopping centers in Capetown and
term opportunity for developing or expanding Johannesburg feature footwear and apparel makers
a MENA footprint. It avoided the worst of the Timberland and Guess and luxury brands Gucci
downturn thanks to a diversified economy and its and Tag Heuer. The apparel, accessories and
retail sales are growing modestly. luxury goods sectors should continue to shine as
In 2009, Carrefour partnered with Label’Vie consumer spending stabilizes.
to open its first hypermarket in Morocco. These
modern outlets are transforming and shaping Latin America
local markets and the way consumers purchase Four Latin American countries rank in the top 10
groceries. They are concentrated near high-income of this year’s GRDI, as retailers embrace trends
populations, in small malls that also contain toward organized retail formats, higher personal

A.T Kearney

incomes and an improving business environment government, new president Sebastián Piñera has
that is drawing in foreign investors. Intra-region announced plans to improve the business envi-
expansion will remain popular as local leaders ronment, increase investment incentives and raise
enter other Latin American markets. annual growth to 6 percent.
Smaller Latin American countries enter the Chile has a modern and competitive retail
GRDI this year, including the Dominican sector. Local retailers such as Falabella and Cencosud
Republic and Guatemala. Most retailers see these S.A. already have a strong presence in other Latin
smaller markets as jumping-off points in a regional American countries such as Argentina, Colombia,
approach. Brazil and Peru, and both have plans to expand
Brazil: retail nears its peak. Brazil, in 5th further. The case for local partnerships and an
place, came out of the global recession with little understanding of local consumers is particularly
damage and GDP retraction of only 0.2 percent, strong in Chile. Wal-Mart has opened new stores
one of 2009’s top performances. For 2010, growth and increased sales since entering the country in
of 4.5 to 6 percent is expected. Inflation is under January 2009 by acquiring the local chain D&S.
control and GDP per capita and consumer spend- In addition, the retail sector has had a signifi-
ing is on the rise. cant impact on retail banking, as the top four
Despite recent consolidation, Brazil remains issuers of credit cards in 2009 were retailers,
attractive to large retail chains. Tier 2 cities in the controlling 77 percent of the market. These retail-
northeast and the center-west regions present the ers have maintained customer loyalty by devel-
biggest opportunities as competition there is not oping customer rewards programs that offer
as fierce. Apparel, home goods and furniture are significant discounts and promotions. Internet
wide-open segments for international players. retail in Chile is also on the rise and offers an
In late 2009, Grupo Pão de Açúcar acquired interesting potential entry approach; the country
Casas Bahia to form a new retail leader, trans- has the strongest infrastructure and Internet
forming the local landscape. In 2010 Ricardo penetration in Latin America.
Eletro and Insinuante merged to form the second- Uruguay: small but well-positioned. Uruguay,
largest chain. Carrefour and Wal-Mart follow as one of South America’s smallest countries, enters
third and fourth largest, respectively; a merger is the GRDI for the first time at an impressive 8th
common speculation among the media. Major place. Uruguay benefits from its location between
retailers plan almost $8.5 billion in investment Buenos Aires and Brazil’s southern region.
in the next three years, including over 300 new Additionally, 94 percent of its population is
stores in 2010. urban, making it accessible to retailers. Uruguay’s
Brazil is host to the 2014 World Cup and main southern region includes Montevideo, its
2016 Olympic Games. These events have led to largest city, and the states of Canelones and
infrastructure investments, including large com- Maldonado, representing more than 56 percent of
mercial centers and shopping malls, with 19 new the population.
shopping malls scheduled to open in 2010 alone. Uruguay’s small size, location and similarities
Chile: an emerging regional leader. Chile’s to neighboring countries could serve international
expanding economy highlights its 6th place rank- retailers as a test market. Groupe Casino entered
ing in the Index. After two decades of a center-left Uruguay (by acquiring supermarket chains Géant,

.

Disco and Devoto) and Argentina in early 1998 ing, since most retailers are not passing the increase
before moving into Brazil and Colombia in late on to their customers.
1999. The apparel sector has only seen limited Mexico’s retail opportunity is demonstrated
entry by international chains from Brazil, Argentina by leading local retailers that are expanding into
and Chile. new formats and cities. Small and discount stores
Peru: rising fast. Peru jumped nine places to represent 60 percent of Walmex’s expansion plans
land at 9th place in the Index. Peru managed (worth $1 billion), and 50 percent of Soriana’s
a positive GDP growth of 0.6 percent and has the store openings. Both companies are targeting
lowest inflation rate in the region. With only 10 densely populated urban areas with heavy foot
percent of retail sales from shopping malls, Peru is traffic. Retailers are also planning expansion into
frequently compared to Chile 10 years ago. The smaller cities, as tier 1 and tier 2 cities show some
dominant domestic players plan massive invest- signs of saturation. Retailers have significantly
ments over the next few years. increased their role in the financial services mar-
Peru has two different economic regions: kets in recent years, with leading retailers such as
large developed economic areas with a high con- Walmex, Elektra and FAMSA running significant
centration of products and services, and a less banking operations. This has increased access to
developed, agriculture-based interior region. Lima credit for traditionally underserved populations.
and its surroundings represent 30 percent of the Colombia: slow and steady. Colombia is
country’s population. Its retail sector is dominated slowly moving up in the GRDI rankings, moving
by shopping malls with local and international up two spots to 26th place. Consumption has
franchises. Banks and retailers are making initial steadily increased and the retail market has grown
efforts to increase consumer credit and private more dynamic as international retailers enter.
label sales. Outside of Lima, retail is dominated by Additionally, Colombia’s business environment
small grocery stores and local franchises, while has improved tremendously, rating first in Latin
large Peruvian and international chains have made America in 2010 for ease of doing business,
few in-roads. according to the World Bank.
Mexico: a complex environment. The second As in the rest of the region, the crisis slowed
largest market in Latin America falls 13 spots to down consumption, but not enough to discour-
25th place after its economy declined 7 percent in age investment from retailers such as Carrefour,
2009. However, analysts predict growth of 3 to 4 Falabella and Almacenes Éxito. However, the
percent for 2010. central bank changed interest rates of store credit
High unemployment, a reduction in remit- cards to control inflation, which might have an
tances from the United States, inflation and lower impact on consumption.
oil prices hampered consumer confidence and
consumption. Grocery retailers took a less severe Eastern and Central Europe
hit and will recover faster; the leaders (Walmex Russia drops from 2nd to 10th place in 2010, but
and Soriana) generated profits last year. Based on it remains at the forefront of Eastern Europe.
historic trends, the recent 1 percent increase in the Meanwhile, the Balkan countries of Albania,
value-added tax (from 15 percent to 16 percent) Bosnia and Herzegovina, Bulgaria and Macedonia
should have a limited impact on consumer spend- climb up in the rankings. While these smaller

A.T Kearney

countries remain well behind Western Europe in in key regions, such as Paterson earlier this year.
terms of GDP per capita, the EU enlargement The remaining attractive retail M&A targets are
rounds in 2004 and 2007 have accelerated their limited mainly to geographic niches.
economic development. A new retail anti-monopoly law caps regional
Plenty has already happened in 2010. Schwarz market share at 25 percent, restricts marketing
Group’s Lidl discount chain purchased the Plus activities from manufacturers, and encourages the
discount stores of Bulgaria and Romania, and sale of basic local products. Retailers will have to
Slovenian chain Mercator has expanded to Albania, align operations to the new policy, yet this will
Bulgaria and Montenegro. Growth opportunities have little long-term impact on the marketplace,
in Eastern Europe remain immense, but a one- as modern trade remains limited and the under-
size-fits-all approach won’t cut it. A customized lying economics positive.
approach is required, rather than the standard Albania: a small market with a positive out-
regional one, to enter the diverse Balkan retail look. Albania debuts in the GRDI in 12th place,
markets. While there may not be immediate driven mainly by its unsaturated market. Albania
urgency to enter the Balkans, global retailers is still relatively poor, with a per capita GDP of
should closely monitor this bloc of close to 40 about $3,370; by 2014, real GDP is expected to
million people. grow by 30 percent, which make it a country to
Russia: making a drop. While it dropped watch in the longer term.
eight spots in rankings this year, Russia (10th) So far, the fragmented food retail market is
remains Eastern Europe’s highest-ranked country. shaped by mostly small independent shops and
Slower GDP and retail growth rates and increas- open markets of self-grown products. The top
ing market saturation contributed to the decline, three grocery retailers together operate fewer than
yet the retail environment in Russia has not 30 stores.
changed dramatically. Russia remains Europe’s Bulgaria: retail investment continues.
largest consumer market, with rising disposable Bulgaria rises two spots to 19th place in the Index.
incomes and an expanding middle class, and it Bulgaria remains in the early investment phase,
offers massive growth opportunities for retailers with a limited number of domestic retailers. Since
with a long-term approach. joining the European Union (EU) in 2007, for-
Foreign retailers such as Metro Group and eign retailers have entered to secure a good market
Auchan are driving the development of big-box position. Carrefour chose Bulgaria as a key Eastern
stores, and some have established smaller stores in European market, opening its first hypermarket
cities to increase penetration. Organic expansion in 2009, and Slovenia-based Mercator soon fol-
in Russia, however, is difficult, costly and slow. lowed. Germany’s Metro, Schwarz and Rewe
Carrefour struggled with its entry and expansion, groups have shares of 5 to 10 percent each, and are
eventually selling the leasing rights of its two now the market leaders. Purchasing power differs
hypermarkets and withdrawing from the market. greatly between Sofia, the capital, and rural areas.
But, as Auchan has shown with its 40 Russian Urban retail growth will be driven by hyper-
hypermarkets, endurance can pay off. X5 Retail markets, cash and carry and discount, whereas in
Group and Magnit remain the local market lead- smaller cities and towns modern supermarkets
ers, with X5 growing by acquiring local players will succeed.

.

Macedonia: regional entry point. Macedonia market concentration remains low, limited mainly
debuts in 20th place, due to low market saturation to cities and big towns.
and strong possibilities. Macedonia has the Bosnia and Herzegovina: its time is coming.
Balkans’ smallest population, GDP and retail Bosnia and Herzegovina enters the Index for the
market, so it is attractive as a regional entry first time in 29th place. Leading Balkan retailers
market. Retail market volume reached $3.5 bil- Mercator, Agrokor and Delta Maxi have entered
lion in 2009, but annual real GDP growth rate in in recent years. After the 1990s ethnic war, the
the next five years is expected to be only 2 percent. country is still supervised by the international
The market is relatively underdeveloped, with community, and it remains split in two highly
only a few Balkan retail players that have minor autonomous zones. Leading retailers have estab-
operations. The local leader is Tinex with 37 lished separate legal entities while managing key
stores, followed by Veropoulos and TUS Trgovine, functions centrally.
each with eight stores.
Romania: a saturating market. Romania, the Riding the Retail Wave
region’s largest population and retail market, falls After a wave of bumpy economic conditions,
from 23rd to 28th place as its market becomes global retailers are ready to go back on offense.
saturated. Since reaching economic stability in While the world’s biggest developed economies
2000, real GDP growth has ranged from 5 to 8 slowly resume their growth trajectories, developing
percent per year, before falling during the recent economies in Asia, Latin America and the Middle
economic downturn. Its economy should resume East appear poised for remarkable growth. Global
its pre-downturn rates after 2010. Despite the retailers will have to prepare for more difficult eco-
presence of a significant number of international nomic conditions and increased competition—
retailers, such as Metro, Schwarz, Carrefour, while understanding that emerging markets are
Delhaize, Intermarché, SPAR and Auchan, food more vital than ever to their long-term success.

Authors
Hana Ben-Shabat is a partner in the firm’s consumer products and retail practice. Based in the New York office, she
can be reached at hana.ben-shabat@atkearney.com.
Mike Moriarty is a partner in the firm’s consumer products and retail practice. Based in the Chicago office, he can be
reached at mike.moriarty@atkearney.com.
Deepa Neary is a consultant in the firm’s consumer products and retail practice. Based in the New York office, she can
be reached at deepa.neary@atkearney.com.

The authors wish to acknowledge the contributions and insights of their A.T. Kearney colleagues around the world who helped write
this paper, especially Danilo Almeida, Guilherme Barreto, Michael Deng, Pramod Gupta, Ivan Kotov, Nithya Rajagopalan, Helen
Rhim, Fabiola Salman, Peter Schmidt and Smriti Tankha.

A.T Kearney

About the Global Retail Development Index
The annual A.T. Kearney Global market is already mature, indicating ers worldwide) and one point for
Retail Development Index ranks an opportunity. tier 3 retailers (all others). Countries
30 emerging countries on a 100- Population (20 percent): A zero with the maximum number of
point scale. The higher the rank- indicates the country is relatively retailers have the lowest score.
ing, the more urgency there is to small, representing limited opportu- Modern retail sales area per
enter a country. We selected coun- nities for growth. urban inhabitant (20 percent): A
tries from a list of 185, based on Urban population (20 percent): zero means the country ranks high
three criteria: Zero means the country is mostly in modern retail area per urban inhab-
• Country risk: 35 or higher in rural; 100 indicates the country is itant, close to the average Western
the Euromoney country-risk mostly urban. European level. Modern formats are
score Business efficiency (20 percent): stores predominantly selling food
• Population size: 2 million or Parameters include government (hypermarkets, supermarkets, dis-
more effectiveness, burden of law and count and convenience stores).
• Wealth: GDP per capita of more regulations, ease of doing business Market share of leading retailers
than $3,0002 and infrastructure quality. Zero (20 percent): A zero indicates that
GRDI scores are relative and means the country has poor busi- the market is highly concentrated
will change over time depending ness efficiency, while a score of 100 with the top five competitors (local
on the comparison set of countries. indicates high efficiency. and international) holding more
Scores are based on the following Market saturation (25 percent). than 55 percent of the retail food
four variables: Share of modern retailing (30 per- market. A 100 indicates the market
Country and business risk cent): A zero indicates a large share is still extremely fragmented.
(25 percent). Country risk (80 of retail sales made through a modern Time pressure (25 percent).
percent): political risk, economic distribution format within the aver- The time factor is measured by the
performance, debt indicators, debt age Western European level (200 CAGR (2004 to 2009) of modern
in default or rescheduled, credit rat- square meters per 1,000 inhabitants). retail sales weighted by the develop-
ings and access to bank financing. Modern formats include stores pre- ment of the economy in general
The higher the rating, the lower dominantly selling food (hyper- (CAGR of the GDP and consumer
the risk of failure. markets, supermarkets, discount spending from 2004 to 2009) and
Business risk (20 percent): busi- stores and convenience stores), and the CAGR from 2004 to 2009 of the
ness cost of terrorism, crime and those selling mixed merchandise retail sales area weighted by newly
violence, and corruption. The higher (department stores, variety stores, created modern retailing sales area.
the rating, the lower the risk of U.S.-style warehouse clubs and Data and analysis are based
doing business. supercenters). on the United Nations Population
Market attractiveness (25 per- Number of international retailers Division Database, the World Eco-
cent). Retail sales per capita (40 (30 percent): The total score is nomic Forum’s Global Competitive-
percent): A score of zero indicates weighted by the size of retailers in ness Report 2008-2009, national
that the retail sector (total annual the country: three points for tier statistics, Euromoney and World
sales of retail enterprises excluding 1 retailers (among the top 10 retail- Bank reports, and Euromonitor
taxes) is still underdeveloped. A ers worldwide), two points for tier and Planet Retail databases.
score of 100 indicates that the retail 2 retailers (within the top 20 retail-

2
The threshold for countries with populations of more than 35 million is more flexible due to the market opportunity.

.

2010 global retail_development_index

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