Food Retailing - Spain - November 2010

The consensus economic forecast is for a further small decline in GDP in 2010 and only a marginal increase in 2011.

The retail trade will remain subdued in the short term because of high unemployment, high personal indebtedness and an oversupplied housing market.

However we estimate that all retail sales will rise marginally (+0.5%) in 2010. The weak comparative (-6.1% in 2009) coupled with the return of some consumer price inflation (c.1.5%) will have helped.

But food retailers’ sales are predicted to rise at the slower rate of +0.1%, reaching €88.2 billion excl. VAT for the year.

Two main factors lead us to anticipate this relative underperformance against all retail sales - food and drink deflation (c. 1.1%) and strong demand for durable goods in the first half as consumers brought forward purchases ahead of the VAT rise in July.

But the food sector is forecast to slowly gain retail market share through the rest of the forecast period to 2015 by which time it will account for over 45% of all retail sales.

An ageing population will impact in various ways on the food market. Although it points to lower average basket values it should benefit food specialists where usage levels are highest among older consumers.

Spending on food and drink fell by 3.2% in 2009 to €104.3 billion (incl. VAT).

Average annual deflation in the category has been running at just over 1.1% for the last two years with global price increases being offset by the heavy discounting activities of the leading food retailers.

Spaniards also cut back on eating out in 2009, with spending falling by almost 10%. To some extent this may have underpinned in-home sales of food and drink.

The severe recession in Spain saw every retail sector contracting in 2009. Food operators were less badly affected than most although sector sales did slide by 3.2% - the same amount as the food and drink market.

Outlet data is not available for the period of the recession, but anecdotal evidence suggests the number of smaller food shops may have declined at a lower rate than previously because more consumers have been choosing to shop locally.

Spain is the most fragmented food sector in Western Europe with the top five players capturing just 50% of food retailers’ sales in 2009.

The reason for this is that food specialists and neighbourhood stores remain popular with many consumers.

In 2009 the marketplace was characterised by less loyal and more cost conscious shoppers, heavy discounting and promotional activity by the market leaders, growth in own brand sales and closure of underperforming stores.

The market leader, supermarket operator Mercadona, widened its lead over multi-format group Carrefour in 2009 and gained the most market share last year.

Hypermarkets struggled for a second consecutive year as consumers remained reluctant to shop out-of-town for their groceries.

El Corte Inglés’ hypermarket format, Hipercor, was especially badly hit with its sales falling by over 16% which we put down to its more upmarket positioning.

Consumers migrated to more local stores including supermarkets like Mercadona and discount outlets - Dia, Lidl and Aldi all performed well.

At the back end of the year Catalan group Bon Preu announced the acquisition of the ITM stores and Galerías Primero was snapped up by El Arbol.

The consensus economic forecast is for a further small decline in GDP in 2010 and only a marginal increase in 2011.

The retail trade will remain subdued in the short term because of high unemployment, high personal indebtedness and an oversupplied housing market.

However we estimate that all retail sales will rise marginally (+0.5%) in 2010. The weak comparative (-6.1% in 2009) coupled with the return of some ...

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