Norwegian Fjording
European Retailing in the Week Ahead – Week 24, 2015
This week we look at Norway, with a focus on how two entirely different retailers can both win share at the expense of a third. This is the last of our “small (ish) country tour” of European retailing until perhaps later this year. If you have thoughts or questions on what’s happening in retail in any of the places we covered please continue to share. In addition to Norway, we covered Greece, Sweden, Croatia, Portugal, and Bulgaria. Likewise if you have nominations for our next tour, please let us know. We value your inputs.
As always, the hope is that by focusing in on one or two topics, we can discover lessons that are relevant to our weekly efforts – no matter what country or retailer is important this week.
Fjords and Fjording
Norway’s fjords are famous for cruises and adventures. But what is a fjord? A fjord is a deep and narrow u-shaped water inlet (left during the end of the ice age when glaciers retreated). The word fjord is derived from Old Norse and loosely means the place where you have to cross. The English word “ferry” originates from the same root word. Put simply, a fjord is a place where the earth splits in two, leaving two sides that are very tall.
Norwegian retail in 2014/2015 has become much the same shape as a fjord. The modern grocery trade is made up of three large-scale players: NorgesGruppen, Coop Norge, and Reitangruppen. In the period of 2010-2015 NorgesGruppen and Reitan Narvesen Gruppen grew tremendously. If you took a chart and graphed “market share added” in this period you would have a classic fjord shape – on the left NorgesGruppen growing strongly, in the middle Coop Norge negative, and on the right Reitan growing strongly.
The story gets interesting; however, at the end of 2014, the fourth player in the Norwegian market, ICA Group from Sweden, decided to exit. Guess who decided to purchase ICA? There are only 3 choices available so you have a 33% chance of getting this one right. The correct answer: Coop Norge. You would also have been right if you said NorgesGruppen. However, NorgesGruppen was blocked by the competition authorities from the purchase agreement. Even still, Coop has had to divest 100 stores to competitors for competition reasons.
Figure 1. Market Share Shifts in Norway's Grocery Landscape Resemble a Fjord
What has this story taught us about retail and in particular how can we apply it to what may be happening in places like the UK, France, Spain and so on where we see four or five big players slowly consolidating to three or four?
- The importance of understanding organic growth. Organic growth is almost like a political poll. If you can identify it clearly (never easy), then you can see how shoppers are voting for the ways that they would like to shop. The lesson in Norway is that organic growth arrived from two places: Modern discount supermarkets (Kiwi, Rema 1000) and Modern convenience stores (7-Eleven, Narvesen, Spar, Joker). This indicates the shopper values simplified shopping and on-the-go solutions in a bigger way than they have in the past.
- The devastating effect mergers have on per store volumes. Once again, we can see that a merger such as Coop-ICA has had a positive effect on the two companies’ negotiating positions – they can buy at scale and negotiate aggressively with suppliers. However, from an operations perspective the merger has been devastating. In the year-to-date trading statements both companies have seen like-for-like declines in both traffic & basket. The distraction of a merger can often harm per store profitability. This trend is seen in any number of mergers across countries.
- Keeping focus on the long-term. The long-term shopper trends have not changed – Norwegians are increasingly purchasing health-beauty-pharmacy alongside food, shopping online, eating on the go, and visiting grocery as a chore rather than as a form of discovery or entertainment. The takeaway: Norwegian retailers pushing forward with solutions focused on these long-term shopper changes will win over the long-term.
Lessons: Surviving a Complicated 2015
Retail can be complicated. However, retailers can make it even more complicated at times. The lessons we can learn from the Norwegian market are important across all of Europe’s tightly contested markets.
- Share losses during merger integration. Our normal reaction when a merger takes place is to panic. Negotiations with the newly formed group can often be contentious and result in lost margins, lost marketing, lost shelf placements and lots of new work. As a result, we often take a ‘negative’ approach to the merger – reducing resources aligned to the customer, shifting investments to other chains. However, this simply makes the almost certain share losses even worsethat they would be while the retailers merge. The question that should be asked is whether you want more share to be taken by the other market players or if you would prefer the share to stay with this customer.
- Longer term investments. The merger can often take our best people’s time away from longer term projects, resulting in delays or cancelations in good initiatives. If we look at the case of Norway, the last thing suppliers can afford to do now is focus on the short-term and lose sight of new shopper needs: better digital information on products and promotions, on-the-go solutions for shopping, speedy shopping solutions, and personalized solutions.
Good luck crossing the fjord of retail customers in the week ahead,
Warm regards,
Ray Gaul ([email protected] and Twitter @RayGaul)
News from the week beginning 1st June:
Management Changes
ASDA’s VP Convenience and Emerging Markets Quits
Morrisons Appoints Category Director for Meat
Retailer Strategy
Leclerc Boosts Importing Capabilities
Intermarche Poland Initiates Management Trainee Program
Systeme U Proposes New Franchising Terms
Omni-channel
Leclerc to Pump EUR 1 bn in eCommerce Capabilities
Auchan to Rebrand Hypermarkets as Auchan.fr
Migros Trials “PickMup” Click & Collect Service
Amazon.fr Launches Electronic Coupons
Amazon Launches Free Shipping for Small Items
Expansion
Carrefour Opens a Hypermarket in Hohhot
X5 Partners Planeta Zdorovya for Shop-in-Shop Drugstores
Intermarche to Acquire Nine Alisuper Supermarkets
Market Share
UK Grocery Market: Morrisons Returns to Growth
France Market Share: Leclerc Leads Growth
Buying Group
Rewe Forms Strategic Alliance with Lerclerc
In Store Initiatives