Country Retail Scene Report

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SPAIN COUNTRY RETAIL SCENE REPORT

December 2012

KANTAR RETAIL

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INFORMATION / INSIGHT / STRATEGY / EXECUTION © Kantar Retail 2012 245 First Street 24 – 28 Bloomsbury Way T +44 (0) 207 0310272 Suite 1000 London, WC1A 2PX F +44 (0) 207 0310270 Cambridge, MA 02142 UK [email protected] USA www.kantarretail.com

Index

I. Key Themes ...... 2 II. Socio – Economic Background ...... 3 III. Key Players in the Grocery Retail Sector ...... 11 IV. Grocery Retail Channels ...... 19 V. Conclusion ...... 24

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I. Key Themes

National players are capturing growth and increasing concentration in Spain

Despite the economic turmoil in Spain, leading Spanish grocery retailers are expected to see their growth accelerate in the coming years, led by retailers such as Mercadona and Dia, both growing at over 5% per year. Mercadona is by far the largest Spanish grocery retailer in terms of sales and has successfully adapted its strategy to the economic crisis that Spain is facing. Its impressive business model has enabled it to retain shopper loyalty and support robust physical expansion and the retailer is looking to further strengthen its domination of the supermarket channel and the grocery market overall.

Due to the strong growth of two of the top five grocery retailers in Spain the dominance of a few major players will increase. In 2012 the five top retailers generated over 65% of the total grocery sales in the market. By 2017 this number is likely to reach 70% as several leading players adapt to meet changes in shopper behaviour.

Private label is growing

As a result of households’ economic concerns and retailers’ eagerness to enhance private label penetration, Spain is now the second-largest country in terms of private label penetration after the United Kingdom. According to Symphony IRI Group in 2012 41.5% of grocery sales in Spain were generated by private label, a number that increased by 1.3% compared to 2011.

Franchising remains the path to growth for many retailers

Franchising has been prioritized by retailers in the past year as an efficient and fast way to achieve growth, especially in light of the challenging economic environment. The model offers the advantage of minimizing risk and cost for retailers, but there can also be a downside in terms of in-store execution and compliance. Retailers such as Auchan (Simply Market), Eroski (Caprabo & Eroski City), Carrefour (Carrefour Express) and Dia are rapidly expanding through franchising.

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II. Socio – Economic Background

Spanish Population

As of 31st December 2011, Spain had a population of 47.2 million people. In 2011 50.7% of the Spanish population were women and 49.3% men, with 41.1% of the population between 16 and 44 years old, and 43.1% over 45 years old. In Spain 12.1% of the population is comprised of foreign citizens. The three regions with the highest proportions of foreign nationals are Baleares (21.6%), Valencia (17.2%), and Murcia (16.1%), all of which are coastal regions.

The number of households in Spain, as of the 2007 census, is 16.3 million. This translates to 2.74 people per household, more than the EU 27 average of 2.5 people per household but down 0.29 points from 2001. The most common household is now couples without children which represents 21.5%; households with at least one child represent 42.2%.

Spain’s population density is 91.8 inhabitants per square kilometre (sq km). By comparison, the average population density for the EU27 is 116.6 inhabitants per sq km.

Figure 1: Population Density in Spain

Source: Britanica.

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The most populated areas in Spain are the coastal regions and Madrid (Figure 1). The inland regions surrounding Madrid have a very low population density. Thus the most populated regions in Spain are Andalusia, Catalonia, Madrid and Valencia, which contain over 58% of the Spanish population (Figure 2).

Figure 2: Spanish population by region

Rank Region Population

1 Andalucía 8,424,102 2 Cataluña 7,539,618 3 Madrid (Comunidad de) 6,489,680 4 Comunitat Valenciana 5,117,190 5 Galicia 2,795,422 6 Castilla y León 2,558,463 7 País Vasco 2,184,606 8 Canarias 2,126,769 9 Castilla - La Mancha 2,115,334 10 Murcia (Región de) 1,470,069 11 Aragón 1,346,293 12 Balears (Illes) 1,113,114 13 Extremadura 1,109,367 14 Asturias (Principado de) 1,081,487 15 Navarra 642,051 16 Cantabria 593,121 17 Rioja (La) 322,955 18 Ceuta 82,376 19 Melilla 78,476 Spain 47,190,493 Source: National Institute of Statistics (INE).

Spain’s population is still growing every year partly due to a positive balance between birth rates and death rates. In 2011, birth rates decreased by 3.5% to 468,430 children born in Spain that year, making a natural growth of 81,083 persons. The average childbearing age is also increasing, with an average of 31.4 years in 2011, while the average number of children per mother has decreased from 1.39 in 2009 to 1.35 in 2011.

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Economic Indicators

i) GDP and Government debt

Spain’s real GDP growth shows that the country enjoyed a higher growth rate than the rest of Europe prior to the 2009 economic crisis (Figure 3). However, since then, Spain has seen a consistently lower real GDP growth rate than the European average.

Figure 3: Annual Real GDP Growth

Source: Data – Eurostat; Chart – Kantar Retail.

Spain has been seriously affected by the economic crisis, with a decrease from an already low GDP growth rate of 0.9% in 2008 to a severe contraction of 3.7% in 2009. Since then, Spain has been experiencing poor growth in relative terms. Real GDP growth remained negative until 2011 and is expected by Eurostat to remain negative (- 1.4%) until the end of 2013.

The crisis also had a strong impact on Spain’s debt levels (Figure 4).

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Figure 4: Government Deficit/Surplus as % of GDP

Source: Data – Eurostat; Chart – Kantar Retail.

Having experienced relatively benign debt levels, actually running a fiscal surplus until 2007, the government’s finances plunged into deficit in 2008. Since then, Spanish debt levels have been beyond the Maastricht criteria of -3% maximum, and even dived further to -11.2% in 2009 and -9.4% in 2011.

The bulk of GDP in Spain was generated by final household consumption in 2011 (Figure 5). Spanish imports have consistently been higher than the country’s exports, representing over 1% more of the GDP. Although remaining quite stable over the past 10 years, the composition of GDP has seen small noticeable changes since 2009. The share of final consumption in GDP grew from 45.3% in 2007 to 51.3% in 2009 as a result of the crisis, whilst the share from gross capital formation shrunk (from 18.5% in 2007 to 15.8% in 2009).

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Figure 5: GDP Components (2001 - 2011)

Source: Data – INE; Chart – Kantar Retail.

ii) Unemployment

Unemployment in Spain is far higher than the European average and has been accelerating over the ten months from January 2012.

In January 2012, the unemployment rate was 23.5%, 13.4 points higher than the EU (27 countries) average of 10.1%. Towards the end of the year, in October 2012, that rate reached 26.2%, being 15.5 points higher than the EU average, illustrating the tough economic environment that the Spanish people are facing.

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Figure 6: Unemployment by month (January – October 2012)

Source: Data – Eurostat; Chart – Kantar Retail.

Non-Spanish citizens are experiencing a more severe unemployment rate than Spanish citizens, by 11.5 points in Q3 2012, with the foreign unemployed segment dominated by Romanians and Moroccans, representing 30% of this group.

iii) Consumer confidence and household expenditures

The economic sentiment indicator, a mix of five confidence indicators (industrial, services, consumer, construction, and retail trade), has decreased sharply over the past few years in Spain, from 91.7 in November 2011 to 85.9 in June 2012 (Figure 8).

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Figure 8: Economic Sentiment Indicator

Source: Data – Eurostat; Chart – Kantar Retail.

Spaniards appeared to be less confident than the rest of the European Union in terms of economic prospects. Up until September 2012 the Spanish economic sentiment indicator was below the EU average. However, since September, and most likely linked to new Bank reforms and the bail-out cash handed to Spain by the Euro zone, confidence is rising.

iv) Prices

The Harmonised Indices of Consumer Prices (HICP) computed by Eurostat shows Spanish price levels slightly higher than the EU average. Other than a short period from January to March 2011 when prices decreased, prices have generally been growing. The index increased from 117.7 in December 2011 to 121.5 in October 2012, two points higher than the EU 27 average (Figure 9).

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Figure 9: Harmonised Indices of Consumer Prices

Source: Data – Eurostat; Chart – Kantar Retail.

For the period from January to September 2012, prices rose by about 2.1% overall, pushed by the cost of medicine, transport and accommodation. Food and non-alcoholic beverages prices rose by 1.7%. Alcoholic drinks and tobacco prices rose by 5.3%.

Spanish household incomes have shrunk since 2008, strongly impacting consumer behaviour. In 2008, the average household income was EUR 26,500; in 2011 it shrunk to EUR 24,609, a decrease of EUR 1,891 in three years.

Price rises, along with the decline in household income, is affecting consumption behaviour and Spanish households are now spending relatively more on medicine, food, and transport.

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III. Key Players in the Grocery Retail Sector

The Spanish grocery retail market represented 31.7% of total formal retail sales in 2011, whilst the ten top grocery retailers accounted for 26.2% of total retail sales.

Figure 10: TOP 10 Spanish Grocery Retailers Rank Sales (EUR, million) Sales CAGR Retailer 2007 2012e 2017e 2007-12Ee 2012e-17e Mercadona 12,957 17,759 23,378 6.5% 5.7% Carrefour 12,184 8,147 8,000 -7.7% -0.4% Eroski 6,801 6,453 6,629 -1.0% 0.5% Auchan 4,339 4,006 4,400 -1.6% 1.9% Dia - 3,939 5,072 - 5.2% El Corte Ingles 4,243 2,877 3,169 -7.5% 2.0% Schwarz Group 2,057 2,529 3,051 4.2% 3.8% Consum Cooperativa 1,201 1,857 2,403 9.1% 5.3% CEPSA 1,292 1,414 1,633 1.8% 2.9% AhorraMas 1,198 1,387 1,520 3.0% 1.8% Top 10 Total 46,174 50,257 59,107 1.7% 3.3% Source: Kantar Retail Database.

The Spanish grocery landscape is becoming more and more concentrated, with the top ten grocery retailers accounting for 83.1% of total grocery sales in 2012, compared to 76.8% in 2007. The growth of these largest players is driven by the top five grocery retailers, most notably Mercadona and Dia. The share of the top five grocery retailers is also growing from 60.4% of grocery sales in 2007 to 67% in 2012.

The landscape is dominated by a mix of international and national retailers. The majority of the top ten grocery retailers are Spanish, however three large retailers are international (Carrefour, Auchan and Lidl (Schwarz Group). Primarily linked to Dia’s divestment by Carrefour and the growth of Mercadona, international retailers’ market share is decreasing. Representing about 31% of the Spanish grocery market in 2007, Carrefour, Auchan and Lidl only accounted for 24% of Spanish grocery sales in 2012.

As the economic environment will not markedly improve in the short term, grocery retailers will have to continue to cope in a market where economic pressures are impacting shopping behaviour. The structure of the Spanish market is likely to continue

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shifting in 2013 onwards, with Mercadona looking to grab more share, while Carrefour looks set to see a continued erosion in market share.

Mercadona

Mercadona is the largest retailer in Spain in terms of sales. As of 2011, it operated a network of 1,356 stores, generating revenue of EUR16.5 billion, an increase of 8% from 2010. This growth rate is expected to continue in 2012.

The retailer operates primarily through supermarkets, solely operating under the Mercadona banner, but also operates an online grocery retail business. This complements its highly differentiated and distinctive discount-style supermarket chain.

In response to the crisis, Mercadona took some important strategic decisions in 2008 and 2009. Firstly, the retailer lowered prices and cut costs and, secondly, it reduced its assortment by 1,000 products (400 national brand, 400 private label, and 200 perishable products) down to 8,000 SKUs. Both decisions were designed to adapt the assortment to the tough economic environment that was being faced by shoppers.

Mercadona aims to provide quick, easy and cheap shopping trips to its shoppers which it calls the “bosses”. Its Every Day Low Price strategy is carried through its narrow assortment, its high share of private labels, and permanently low prices. The retailer does not offer many promotions, but rather communicates around new and recommended items in its assortment.

The strategy of the supermarket chain is mainly one of physical expansion and of constant reinvestment in its stores, supply chain and procurement. Over the past few years and despite a slight deceleration, the retailer has opened approximately 90 stores a year but down to 46 in 2011. It invested EUR 540 million in 2011, primarily in the construction of 60 stores and the refurbishment of 39 stores, but also in the development of two logistics facilities.

Mercadona’s private label offer is very strong. In terms of quality its private labels are positioned as equivalent or superior to national brands. Instead of having a single brand across different categories, the retailer undertook a tiered approach to private label development. Its main food and drink brand is Hacendado, and its well-known beauty line is Deliplus. Although Mercadona is not looking to launch a premium line or expand its assortment, it is constantly aiming to improve its products.

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Figure 11: Mercadona Sales by Channel 2007 – 2017e Sales (EUR, million) Sales CAGR Channel 2007 2012e 2017e 2007-12Ee 2012e-17e Online Grocery 81 161 387 14.8% 19.1% Supermarket 12,876 17,598 22,992 6.4% 5.5% Total 12,957 17,759 23,378 6.5% 5.7% Source: Kantar Retail Database.

Carrefour

Carrefour is the second largest retailer in Spain in terms of sales. In 2011, it operated a network of 343 stores, generating revenue of EUR 8.37 billion. This was a decrease of 2% from 2010. Carrefour lost its place as a leader in the Spanish market in 2006

The retailer operates primarily hypermarkets and supermarkets in Spain but is rapidly developing its convenience store network and online operations.

As is the case in France, hypermarkets are the retailer’s focus and largest revenue generator, attributable for over 80% of Carrefour’s sales in 2012, a number that increased due to the divestment of Dia. In September 2010 the new banner Carrefour Planet was launched in major Europeans markets in order to revitalize the division. It aimed at generating higher sales and offering entertaining and convenient shopping trips. However, the new concept has not manage to meet its targets and Carrefour’s new CEO, Georges Plassat, is looking to go back to basics. By the end of 2011, there were 39 Carrefour Planet stores in Spain, this number is expected to slowly go back to zero as stores are rebannered to Carrefour.

Carrefour has increased its strategic focus on proximity and the retailer is now expanding its supermarket (Carrefour Market) and convenience (Carrefour Express) banners in Spain. Carrefour Market is characterized by a selling area ranging from 700 to 2,000 square metres, and an assortment of over 7,000 SKUs of which 95% are food and around 25% are private labels. Carrefour Express is characterized by a selling area ranging from 100 to 700 square metres and an assortment of 4,000 SKUs, 30% of which are private labels. The number of Express stores doubled between 2010 and 2011 and is continuously expanding through franchises (which represented over 80% of the network in 2011).

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Online retailing is becoming more important for the retailer: the reach of its online grocery service now covers 90% of Spanish households.

Despite poor performances in the country, which are not expected to improve quickly over the next few years, as Spain remains a Carrefour’s second market in terms of sales, the retailer will continue to invest in the country. Its new CEO’s strategy is to focus on those key markets where Carrefour still has a leading market share.

Figure 12: Carrefour Sales by Channel 2007 – 2017e

Sales (EUR, million) Sales CAGR Channel 2007 2012e 2017e 2007-12Ee 2012e-17e Convenience 3 105 205 108.7% 14.2% Discounter 3,217 - - - - Hypermarket 8,309 7,251 6,530 -2.7% -2.1% Non Store Retail 35 76 262 16.8% 28.3% Supermarket 621 716 1,002 2.9% 7.0% Total 12,184 8,147 8,000 -7.7% -0.4% Source: Kantar Retail Database.

Eroski

Eroski is the third largest retailer in Spain in terms of sales. As of 2011, it operated a network of 2,207 stores, generating revenue of EUR 6.64 billion, a decrease of 3.2% from 2010. Eroski’s sales have been decreasing since 2009, falling by 6% in 2009 and 3% in 2010. In the first quarter of 2012 the retailer was still losing sales, but by slightly less than in the prior year, 3.8% compare to 5% in H1 2011.

Eroski operates supermarkets, hypermarkets, cash and carry, online grocery and chains of sporting goods and perfumeries. The majority of its sales come from its supermarkets, which was boosted by the acquisition of Caprabo supermarkets in 2007, integrated into the Eroski store network as of 2009. After selling stores in order to improve its debt situation, the retailer is investing in the development of its supermarket business through franchising. Eroski invested EUR 15 million to open 60 franchised supermarkets in 2012.

Hypermarkets, Eroski’s second-largest division in terms of stores and sales, have been negatively impacted by the economic crisis. In 2011 a new concept was launched, with an enhanced fresh assortment and improved provision of service counters. The refurbishment of a hypermarket, adopting the new concept, represents an investment of EUR 2 million per store. This investment would be extremely heavy if rolled-out across

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the network as the retailer’s financial situation is not strong, with the business forced into debt restructuring in 2012.

Eroski also operates online and is increasing its focus on multi-channel retailing. After expanding its offer by introducing appliances and technology items, the retailer is now looking to engage its shoppers. Promotions to push shoppers using their loyalty card online have been developed and the website itself has been improved. This service was extended to Barcelona in September 2011.

Figure 13: Eroski Sales by Channel 2007 – 2017e

Sales (EUR, million) Sales CAGR Channel 2007 2012e 2017e 2007-12Ee 2012e-17e Cash and Carry 393 287 245 -6.1% -3.1% Category Specialist 623 440 459 -6.7% 0.8% Hypermarket 2,471 1,402 1,169 -10.7% -3.6% Non Store Retail 8 64 108 50.8% 11.1% Supermarket 3,936 4,732 5,181 3.7% 1.8% Total 7,432 6,925 7,162 -1.4% 0.7% Source: Kantar Retail Database.

Auchan

Auchan is the fourth largest retailer in Spain in terms of sales. As of 2011, it operated a network of 305 stores, generating revenue of EUR 3.98 billion. Auchan primarily operates hypermarkets and supermarkets in Spain but also convenience stores and online. Its largest division in term of sales, Alcampo hypermarkets, has been experiencing tough times in the country. Despite this poor performance, Auchan is still opening hypermarkets. Auchan hypermarkets are usually opened within a shopping mall owned by Immochan, its real estate sister company.

Alcampo’s strategy focuses on low prices offered primarily through promotions and private labels. As in France, the retailer started rolling out its self-discount area that offers a selection of 600 products composed of unbranded items or secondary brands priced 5% cheaper than the value range. In Spain this section also includes a selection of fruits & vegetables. Alcampo has also extended its organic section which was introduced in 29 of its 53 stores in 2011.

The supermarket division is growing in strategic importance for the retailer. In 2009, the rebannering of its Sabeco stores to Simply Market was completed. The retailer is looking to expand its Simply network through franchising. Auchan’s fastest growing

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channel is its online operation. Launched in 2008, the online activities offer both home delivery and store pick-up and expanded its reach to Barcelona and Toledo in 2011. It is very likely that the service will be available throughout the Alcampo network shortly.

Figure 14: Auchan Sales by Channel 2007 – 2017e

Sales (EUR, million) Sales CAGR Channel 2007 2012e 2017e 2007-12Ee 2012e-17e Convenience 62 57 59 -1.6% 0.9% Hypermarket 3,537 3,130 3,121 -2.4% -0.1% Online Grocery - 3 14 - 33.6% Supermarket 740 816 1,206 2.0% 8.1% Total 4,339 4,006 4,400 -1.6% 1.9% Source: Kantar Retail Database.

Dia

Dia, the discount business divested by Carrefour in 2011, is the fifth largest retailer in Spain in terms of sales. As of 2011, it operated a network of 2,827 stores, generating revenue of EUR 4.14 billion.

Dia focuses on the discount channel, but recently acquired the drugstore network of Schlecker, which will continue to trade as drugstores. The traditional Dia store network is divided into three concepts depending on the size, assortment and location of the store: Maxi Dia, Dia Market and Dia Fresh.

Maxi Dia are the largest stores operating from a selling area of 700 to 1,000 square metres, offering an assortment of 3,500 SKUs, and are located in suburban areas. Dia Market are smaller, the stores operate a selling area of around 400 square metres, offer an assortment of 2,800 SKUs, and are located in urban areas. The most recent banner, Dia Fresh, introduced in 2012, is an even smaller store of around 150 square metres offering an assortment of 1,800 SKUs, focusing on fresh products.

Dia is growing fast in its home market. In the third quarter of 2012 the retailer reported an increase in sales of 5.7%. This rapid growth is driven by store expansion. In 2012, the retailer aimed at opening 100 stores in Spain, investing EUR 116 million in the country. The majority of this expansion has been achieved through franchising. By the end of 2013, Dia expects that 40% of its Spanish store network will be franchised.

Dia is not only opening new stores, it is also working on its brand image. In late 2011, it redesigned its own label range packaging and in early 2012 a new TV advertisement

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campaign was launched. More recently, Dia announced that it would enter the online grocery channel, another potential strong sales driver for the retailer.

Dia is expected to gain market share and become the fourth largest grocery retailer in the coming years.

Figure 15: Dia Sales by Channel 2007 – 2017e

Sales (EUR, million) Sales CAGR Channel 2007 2012e 2017e 2007-12Ee 2012e-17e Discounter - 3,939 5,072 - 5.2% Drug - 303 317 - 0.9% Total - 4,242 5,390 - 4.9% Source: Kantar Retail Database.

El Corte Ingles

El Corte Ingles is the sixth largest grocery retailer in Spain in terms of sales, only taking in account its grocery sales. As of 2011, it operated a network of 475 stores, generating revenue of EUR 15.7 billion overall, a decrease of 3.9% year-on-year. The specialist grocery business comprises 292 stores and generates EUR 2.87 billion in sales.

El Corte Ingles operates a wide portfolio of retail stores: department stores (El Corte Ingles), hypermarkets (Hipercor), supermarkets (Supercor), convenience stores (Opencor and Supercor Express), apparel stores (Sfera), DIY stores (Bricor), optical stores (Optica 2000), perfumeries and online operations. This large array of divisions allows the retailer to cover most types of shopping trips. El Corte Ingles also operates ancillary businesses such as telecoms, banking, and insurance both in-store and on the internet. The majority of sales come from department stores and hypermarkets, attributable for 58% and 13% of sales respectively.

Like these two larger divisions, supermarkets and convenience stores have experienced difficult trading conditions, but have generated slightly better performances and are continuing to expand. Unlike the core businesses, these concepts offer a quick and easy shopping trip. These two divisions merged under dedicated management in March 2012. The retailer also launched a new convenience banner, Supercor Express, which offer 5,000 SKUs and has longer opening hours.

To challenge its tricky financial situation, El Corte Ingles, is looking for ways to improve its operation. In 2012, it joined the AMS buying group and partnered with Trace One to

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increase productivity and private label management. It also revamped its website in July 2012, with the aim of improving product presentation. Most importantly, the retailer has been endeavouring to improve price perception. The retailer decided to lower the price of 4,500 frequently bought SKUs in all Hipercor and Supercor stores in June 2012.

Figure 16: El Corte Ingles Sales by Channel 2007 – 2017e

Sales (EUR, million) Sales CAGR Channel 2007 2012e 2017e 2007-12Ee 2012e-17e Department 9,817 8,946 9,292 -1.8% 0.8% Hypermarket 3,347 1,980 1,958 -10.0% -0.2% Supermarket 398 395 464 -0.2% 3.3% Convenience 400 346 435 -2.9% 4.7% Non Store Retail 98 156 312 9.7% 14.9% Total 14,060 11,823 12,461 -3.4% 1.1% Source: Kantar Retail Database.

*Department store sales represent the sales of the whole store and not only the grocery categories.

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IV. Grocery Retail Channels

The modern grocery trade in Spain is dominated by supermarkets and hypermarkets (Figure 17) which represent 53% and 24.3% of the market respectively in 2012.

Figure 17: Spanish’s Grocery Market Share by Channel, 2007-2017e

Source: Kantar Retail Database.

However, the shares of these channels have changed over the past five years, with supermarkets gaining market share. Between 2007 and 2012, supermarkets gained 5.2 points, while hypermarkets lost 6.6 points. The discount channel represents more than 10% of the grocery market and is continuously gaining market share. Over the past five years discounters gained a point of market share, accounting for 11.5% of the Spanish grocery market in 2012. The convenience channel also gained a point in market share over the past five years and is expected to hold this position. Online grocery, accounting for 0.4% of the market in 2012 managed to double its share in five years and looking to do the same over the medium term. This section will therefore cover the two major channels in term of size (hypermarkets and supermarkets), and the three fastest growing channels (discount, convenience, and online).

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Supermarkets

Supermarkets are the largest grocery channel in Spain, generating sales worth EUR 32.5 billion. Over the past few years the channel has been gaining market share. In 2007, supermarkets represented 47.8% of the grocery market in Spain; this share rose to 53% in 2012. Overall, supermarkets grew by 2.5% year-on-year, a growth that was driven by the eight biggest players. Over the next five years, these retailers will continue driving the growth, generating over 85% of the sales added in the channel.

Figure 18: Spanish Supermarket Sales 2007 – 2017e

Sales (EUR, million) Sales CAGR Retailer 2007 2012e 2017e 2007-12Ee 2012e-17e Mercadona 12,876 17,598 22,992 6.4% 5.5% Eroski 3,936 4,732 5,181 3.7% 1.8% AhorraMas 1,198 1,387 1,520 3.0% 1.8% Consum Cooperativa 851 1,361 1,811 9.8% 5.9% Spar Spain 1,196 1,130 1,207 -1.1% 1.3% Auchan 740 816 1,206 2.0% 8.1% El Arbol 690 766 774 2.1% 0.2% Carrefour 621 716 1,002 2.9% 7.0% Total 22,109 28,505 35,693 5.2% 4.6% Sales: Kantar Retail Database. The largest player by far is Mercadona, which represents over 60% of total supermarket sales in 2012. The retailer which was already very successful prior to the economic crisis has managed to adapt its model and thrive on the current economic situation and the change in shopper behaviours.

The other key players in the channel are Eroski, AhorraMas, Consum Cooperativa and Spar. Regional retailers such as AhorraMas and Consum Cooperativa, have been focusing on their regions, the centre of Spain and Valencia & Cataluña, respectively.

International players, Auchan and Carrefour, started investing more recently in the channel and both of them implemented new banners in the market, which they are currently rolling-out. The increased focus in the channel will help push the growth of the supermarkets sales over the next five years. Kantar Retail expects the channel to remain the fastest growing grocery channel in Spain, along with the online grocery business.

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Hypermarket

Hypermarkets are the second largest Spanish grocery channel in terms of sales, generating sales worth EUR 14.7 billion (Figure 19). However, the channel has lost momentum since 2007. From representing 30.9% in 2007 of the market it went down to 24.3% in 2012.

Figure 19: Spanish Hypermarket Sales 2007 – 2017e Sales (EUR, million) Sales CAGR Retailer 2007 2012e 2017e 2007-12Ee 2012e-17e Carrefour 8,309 7,117 6,408 -3.0% -2.1% Auchan 3,537 3,130 3,121 -2.4% -0.1% El Corte Ingles 3,347 1,980 1,958 -10.0% -0.2% Eroski 2,471 1,402 1,169 -10.7% -3.6% Total 17,664 13,629 12,655 -5.1% -1.5% Source: Kantar Retail Database.

The major players in this channel are Carrefour, Auchan, El Corte Ingles and Eroski. They have been facing tough times and, despite a slight improvement expected in coming years, all expect their hypermarkets activities to face ongoing structural and economic headwinds.

Despite new designs and store concepts, tried by both Carrefour and Eroski, the channel seems to lack appeal for shoppers. The decreasing size of households, along with the lack of proximity and the strong competition from other formats both in terms of shopping experience and price, explain part of the ongoing underperformance of the hypermarkets.

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Discount

The discount channel is the third largest channel in Spain and generated EUR 6.9 billion in sales in 2012, about half the hypermarkets sales (Figure 20). The channel has seen strong growth over the past few years and has gained market share. Discounters accounted for 10.5% of the grocery market in 2007 and this increased to 11.5% in 2012, a trend that is likely to continue over the next few years.

Figure 20: Spanish Discount Sales 2007 – 2017e Sales (EUR, million) Sales CAGR Retailer 2007 2012e 2017e 2007-12Ee 2012e-17e Dia 3,217* 3,939 5,072 4.1% 5.2% Schwarz Group 2,057 2,529 3,051 4.2% 3.8% Aldi Nord 386 581 754 8.5% 5.4% Total 5,659 7,048 8,877 4.5% 4.7% Source: Kantar Retail Database. *Sales of Carrefour Discount activities.

This channel is highly concentrated and dominated by three players: Dia (over 50% of channel sales), Schwarz Group (Lidl), and to a smaller extent Aldi, which represents less than 10% of the channel. Dia is experiencing strong sales in its home country primarily due to a fast pace of expansion and an improvement of its store operations. The retailer is looking to continue investing in its stores, developing and adapting its format to shoppers, with enhanced proximity and a better assortment. Lidl is also investing in its stores, improving the quality of the fresh assortment and introducing services such as bakery. Aldi has seen strong growth over the past five years thank to network expansion, which along with store improvement will continue driving the retailer’s growth. As part of the renovation of all its 5,000 stores in Europe, Aldi Nord will focus on rearranging its product categories, improving lighting and rolling out in-store bakeries in Spain.

The economic situation that the country is currently facing, means discounters are considered extremely attractive to shoppers. However, in Spain the channel is not experiencing such robust growth. This is primarily due to the strong competition provided by supermarkets such as Mercadona in terms of low prices and proximity.

However, discounters are adapting to changing shopper expectations and improving the overall shopping trip. Thus, along with a strong physical expansion, Kantar Retail expects the channel to be one of the fastest growing after online grocery.

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Convenience

The convenience channel is the fourth largest grocery channel in Spain, generating sales worth EUR 4.8 billion. The channel can be divided into petrol stations and neighbourhood convenience stores.

Convenience stores sales have experienced a strong year-on-year growth of 3.1% between 2007 and 2012. The growth primarily came from regional retailers such as Coviran and Consum Cooperativa, and more recently players such as Carrefour who made an aggressive push into the channel with its Carrefour Express banner launched in 2010.

Online Grocery

Online grocery is the fastest growing channel in Spain; representing 0.4% of the grocery market in 2012 but demonstrating strong year-on-year growth of 18.7% between 2007 and 2012.

Major players in this channel are Mercadona and Carrefour, who have long offered transactional online grocery websites. Other players such as Eroski and Auchan, or El Corte Ingles have started online grocery in Spain and are expanding their services across the country, contributing to the strong growth of the format.

With retailers expanding their online services across their networks, such as Carrefour did in 2011, whereby it is now able to deliver to 90% of Spanish households, Kantar Retail expects the channel to continue growing at a strong pace. Online grocery websites will be attracting shoppers through a convenient shopping trip enabling them to better control their spending and offering a convenient shopping alternative.

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V. Conclusion

Spain has been very strongly impacted by the economic crisis since 2008 and is expected to remain in recession for at least another year. Due to constraints on household income, growing unemployment and austerity measures, Spanish shoppers have changed their shopping behaviour. As the economic environment is expected to remain troublesome, the impact on shoppers will continue to frame the grocery market in the coming years.

The Spanish grocery market is dominated by national players, such as Mercadona, Eroski and Dia, but also some international retailers (Carrefour, Auchan, and Lidl). The ten top retailers represent almost 84% of the grocery market in 2012 and they are expected to increase their dominance, driven by national players such as Mercadona, but also smaller local businesses like Consum Cooperativa and AhorraMas.

The evolution of the grocery sales among the channels is expected to continue developing, although the ranking will remain the same. Supermarkets will continue to account for over half the market, driven by Mercadona’s growth and other retailers’ focus on the channel. On the other hand, hypermarkets, the second channel in terms of sales, will see their share decreasing. Retailers with a strong presence in the hypermarket channel, particularly Carrefour, are likely to experience lower growth rates in the future.

Looking at growth areas, Kantar Retail expects two channels, supermarkets and discounters, to represent over 90% of the sales added between 2012 and 2017.

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ABOUT KANTAR RETAIL Kantar Retail was formed in 2009 from four Insight and Consulting businesses. It serves leading Retailers and Manufacturers globally, delivering a competitive advantage and enhanced revenue and profitability. Leading suppliers, brand manufacturers, retailers, financial services and strategic marketing firms rely on Kantar Retail’s expertise to transform their businesses. Kantar Retail is headquartered in London and is part of the Kantar Group of WPP.

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