Bakkavör Group operates in nine countries and supplies fresh prepared foods and produce to seven of the top 10 global grocery retailers. It is important for us to understand the retail environment in these geographical markets and our customers’ growth plans to help us to achieve our strategic goal. In this section we share some of the global retail market dynamics, followed by local retail trends, which are influencing the geographical markets in which we currently operate.

Overview

Bakkavör operates in grocery retail markets at very different stages of maturity. However, certain retail developments link all geographic areas irrespective of their progress.

True global grocery retailers that have been successful in bringing economies of scale to local markets as well as modern, Western-style store formats and logistics systems, are gradually gaining share over traditional independent stores. Furthermore, strong growth in private label is expected as it starts to be used more as a strategic tool to target consumers. These developments are very positive for Bakkavör Group and its retail customers. However, global expansion is complex and there is intense price pressure in certain regions as retail consolidation takes place. Nonetheless, Bakkavör Group is extremely well placed to work with its customers around the world and continue to grow with them as these global retail trends develop.

Global retail market size

IGD estimates the global grocery retail market in 2007 to be worth $5,088 billion with the largest markets by value in the US, China and Japan. Over the next five years it is predicted that India will overtake Japan to be in the top three markets.

Global grocery retailers

Over the past five years grocery retailers with operations in the large, mature Western markets have increased their focus on international expansion, accelerating considerably the pace of grocery retail globalisation. The consolidated turnover of the largest global retailers, Wal-Mart, Carrefour, Tesco and Metro, reached approximately ?480 billion in 2006 and is expected to grow on average by 8% each year until 2011. (Source: IGD)

Growth hot spots

The two key geographical areas with the most attractive growth opportunities for grocery retail have been identified as Central and Eastern Europe (CEE) and Asia. The perceived benefits of expansion into the CEE region include the proximity to many Western markets, the influence of the European Union (EU) and EU accession, the lack of barriers to foreign entry and the availability of an existing supply chain infrastructure. In Asia, countries such as China and India are experiencing strong economic

Global grocery retail challenges

Retail success is not equated just with the number of stores that are opened overseas but the ability to bring a unique competitive advantage to the local market whilst ensuring supply chain efficiency. Growth beyond national boundaries is considerably more complex and expensive than replicating store formats in the home territory.

In the last year grocery retailers have been affected by increased raw material costs as a result of changing weather conditions, increased demand from developing markets and the greater use of agricultural land for biofuels. It is likely that these global issues will continue to affect the price of food, creating further challenges to both retailers and suppliers. Nonetheless further global grocery retail expansion is expected.

Summary of global grocery retail trends

For the leading retailers there is evidence that the balance of realising global economies of scale whilst finding local differentiation can be achieved. Four grocery retail players continue to dominate global developments but there are several other international mid-sized retailers that have the ability to broaden their horizons. Further expansion by global and international operators is expected, particularly in the high growth areas of CEE and Asia.