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Global Retail Trends August 2014 Mexico Calidad Suprema Summit August 14, 2014

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Global Retail Trends August 2014

Mexico Calidad Suprema Summit

August 14, 2014

Macro forces driving global retail trends:

Societal •  Increased global food demand •  Urbanization

Technological •  Adoption of mobile smart devices •  E-Commerce

Environmental •  Extreme weather

Economic •  High crop prices •  Rising demand for biofuels •  Consolidation

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Macro forces driving global retail trends: Societal Population growth in developing nations is key driver for consumer demand of fresh product. Growing urban areas in emerging markets will continue to reshape global markets •  100 new cities will be in China in 2025 •  80% of US population lives in urban areas •  73% of German population lives in urban areas •  80% of UK population lives in urban areas

Urbanization

Macro forces driving global retail trends: Societal One in eight people suffered from chronic undernourishment in 2010-2012. (United Nations; FAO)

•  decreased nearly 30 percent in Asia and the Pacific Obesity has emerged as the single greatest public health concern in the US and Europe in past decade.

 

Obesity

Macro forces driving global retail trends: Technological

•  Increases competition - Allows suppliers, manufacturers, buyers and wholesalers to sell direct to the consumer.

•  Puts power is in the hands of the consumer forcing retailers to deliver tailored

shopping. •  Consumers using smart phones for purchases

•  United States 60% •  Thailand 51% •  Russia 33% •  China 21% •  Australia 10%

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Mobile technology/Smart devices

Macro forces driving global retail trends: Environmental Driving up food prices beyond the current forecasts. Changing growing cycles and availability Droughts in: •  34 percent of the US •  Asia - Indian sub-continent, north-central Russia, in Japan, and in the Middle East.

o  About 1.05 million hectares China. •  Equatorial Africa, South Africa. •  South America - around equator and in areas of Brazil. •  In Australia - eased slightly in intensity but spread to cover more of the East.

(NIDIS)

Severe weather/Climate change

Macro forces driving global retail trends: Economic

Russia Retail = UP Strong oil prices result in growth a retail.

China Retail = UP Disposable incomes are increasing

Brazil Retail = UP Continued growth of consumer credit

India Retail = CLOUDY Fighting inflation.

US Retail = LUKEWARM Slightly accelerating consumer economy.

Japan Retail = FLAT TO SLIGHT DECLINE Rebuilding economic production from the earthquake.

European Union Retail = FLAT TO DECLINE Continued retail contraction, higher taxes, and slowed spending.

Booz & Co

South Africa Retail = LUKEWARM to FLAT Fighting inflation Australia

Retail = LUKEWARM to FLAT Continued price pressure at retail

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Flat Global Retail Economy 2014-2015

Macro forces driving global retail trends: Economic

•  Increase in crop prices •  Greater demand, •  Higher input costs •  Erratic weather.

•  Competition from demand for biofuels •  Creating food inflation in developed nations (World Bank) •  Nearly 60% of the growth in global demand for oilseed/cereal crops is due to

biofuels.

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Commodity Price Increases

Macro forces driving global retail trends: Economic

Hypermarkets - High level of concentration and competition •  Dominated by European companies and Wal-Mart

o  Slight decline in sales in 2012–2013 due to saturation in key markets o  Increased competition

Conventional Supermarkets – High concentration/competition •  Saturation in U.S., EU and Japan •  Intense competition from hypermarkets, variety stores and internet

Convenience Stores – global sales increase from 2008-2013 •  High prevalence in Asia Pacific •  Strong performance in Western Europe

Euromonitor International, 2014

Global Retail Landscape

The grocery channel is mature and saturated: Germany In terms of value sales, discounters remained the most successful format •  Attributed to introducing more brands, high- quality private label lines and fresh foods at

lower prices than other stores. UK Convenience stores, discounters and online grocery retailing are experiencing the strongest expansion

Retailing in Germany & UK

Alnatura, Berlin

Modern Retailing - Asia

China •  Hypermarkets sales growth slows due to saturation

o  Food, especially fresh produce and meat, is a traffic driver •  Supermarkets registered a 10% increase in sales in 2013 and account for a 47% share of grocery retail sales. •  Convenience stores growth gathers speed Asia Pacific •  Strong expansion of Hypermarkets accompanied by urbanization

o  Driven by local retailers, which have become more efficient (ex: China Resources) and focused on second-tier cities

o  Exception is China

US Small proportion of total grocery sales, but rapidly growing In June 2013, Amazon announced it is expanding its online grocery delivery service, AmazonFresh, to Los Angeles from its test base in Seattle.

Internet retailer Peapod has recently experimented with a system in which consumers place a grocery order online and pick it up at a retail location.

Modern Retailing - Online sales

Internet retailing of food and beverages in the US is expected to grow from 12% per year from 2013 to 2018.

Modern Retailing - Online sales

Imaginations everywhere have been stoked since Amazon CEO Jeff Bezos announced his company plans to start offering 30-minute deliveries via drone-like "octocopters."

E-commerce 2.3 Billion people purchasing food and alcohol online worldwide.

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Germany Still very small share of overall sales. •  Strong discount presence •  Reluctance to buy grocery products online. •  But internet presence is growing, consumers slowly becoming more open to

ordering their groceries online. UK Morrison’s, Tesco and Sainsbury’s are operating well established online grocery retailing and delivery services. Morrisons suffered from a very late entry into online grocery retailing. •  Online food retailing accounted for some 5% of overall revenues derived from

grocery retailing in the UK over the Christmas period, one of the highest in the world and higher than the US.

Modern Retailing - Online sales

Modern Retailing - Online sales China •  Internet retailing appeals to consumers because of:

o  convenience o  extensive product ranges o  perceived improved quality

•  31 leading grocery retailers launched internet retailing stores •  Yonghui Superstores entered the online channel (2013), aggressively

focusing on fresh food. Internet retailing of food and beverages in China is expected to grow from 7% of internet retail in 2013 (41 million) to 11% of internet retail in 2018 (205 million)

US •  Consumers demand they have a right to know.

•  Many labeling issues Germany & UK •  Corporate social responsibility and ethical sourcing of food •  “Green” Consumption: Consumers are using their financial muscle to ensure that more goods are eco-friendly and ethically sourced.

China Food safety scandals resulted in

•  Consumers not trusting China’s retail market •  Actively seeking information to protect themselves from harmful products •  Increasingly turning to organics, chemical free, and imports

•  Between 2007 and 2012, imported fruits sales increased from 15% to 45% of total fruits sales in China’s top ranking supermarket chain.

Modern Retailing - Authenticity, Transparency & Trust