Each of the four major international retailers - US's Walmart, France's Carrefour, England's Tesco,
and Germany's Metro - is clearly dominant in its home country – so much so that none of the others will likely make significant headway in the others' home markets.
It's hard to evaluate Walmart internationally without also looking at Tesco. Tesco is of course Berkshire's ‘other’ large retail position, approximately equivalent to its Walmart holdings (and BYD, for that matter).
Comparing Tesco to Carrefour and Metro, Tesco at $100B has similar revenues but is easily the most profitable of the three – its $4B+ earnings putting it #2 globally behind Walmart’s $16B. Like Walmart, Tesco is well-managed (eg, 17% ROE), while Carrefour (4% ROE) particularly has been beset with financial control issues - inventory problems and such. At the time of his retirement last year, Tesco’s Leahy was included on Barron’s global list of ’30 Best CEO’s’ - along with Buffett.
Looking at how these four large retailers are positioned around the globe:
- Walmart is clearly dominant in Mexico ($27B revenue, 19% ROE). Wal-Mart de Mexico earned more than Metro or Carrefour -- or Costco.
- Carrefour has been in South America for decades, and was especially well-established Brazil prior to Walmart's more recent arrival. In 2004, Walmart had a 15% ‘hypermarket’ share in Brazil, vs. Carrefour's 34% market share. Walmart recently passed Carrefour there, and now Carrefour countered by entering talks with Brazil's largest domestic retailer partner about a possible joint venture. Carrefour has a relatively good presence in Argentina and Colombia, and outside South America, has been particularly strong in Southeast Asia and the Middle East.
- Tesco is relatively strong in Thailand, Japan, Korea, and Turkey, plus much of Eastern Europe.
- Metro is scattered around a few dozen countries, including Russia and China.
- Walmart and Carrefour were forced out of Russia by the #1 retailer there - a billionaire who happens to have connections to Putin. He clearly didn't want them getting a foot-hold there. Carrefour abandoned its pilot stores there just weeks after finally opening them. Tesco, which apparently has been successful in former Soviet block countries, has indicated that it may take another stab at Russia.
- Carrefour has some presence in Egypt, and Metro a bit in Morocco, but otherwise Africa was wide open until Walmart’s recent Massmart deal, which gets them into more than a dozen African countries. With the Massmart deal, Walmart had significant opposition – particularly South African unions, who suspiciously even wanted Walmart to agree to drop all opposition to proposed ‘card-check’ legislation in the US as a condition for entry to South Africa (Walmart obviously declined on that one). Walmart did have to agree to some ‘local content’ quota for awhile.
Each of the global-exansion retailers has had its problems and successes. Nobody has a clear advantage or global formula, though Walmart and Tesco seem to be the two to bet on, long term.
Where this gets interesting over the long run is up the supply chain – where the key for consumer goods companies will increasingly be aligning themselves with the global retailers. In terms of revenue, Walmart is not only Berkshire Hathaway’s largest customer, but also of course PG’s, PEP’s, and numerous other businesses, in many cases by a wide margin. Part of Walmart’s enviable ROE, for such a large growing company, is a result of Berkshire’s and others’ willingness to fund its substantial inventory investment --- like everyone these days, we gladly supply it with zero-cost float if they’ll allow us to do business with them.
The alternative for many consumer goods companies is almost unthinkable. When Walmart went on its ill-fated private label plunge (under the direction of a former target exec that they hired), companies such as Hanesbrands suffered. Walmart – after dumping the former target guy - is giving them back business, but at a price.
As Walmart and Tesco (and maybe one or two others) increasingly permeate the globe, their leverage over consumer goods companies will only increase. While anything is possible and industry leaders can certainly implode, we may only be seeing the beginning of what that expansion could mean to consumer goods companies.
and Germany's Metro - is clearly dominant in its home country – so much so that none of the others will likely make significant headway in the others' home markets.
It's hard to evaluate Walmart internationally without also looking at Tesco. Tesco is of course Berkshire's ‘other’ large retail position, approximately equivalent to its Walmart holdings (and BYD, for that matter).
Comparing Tesco to Carrefour and Metro, Tesco at $100B has similar revenues but is easily the most profitable of the three – its $4B+ earnings putting it #2 globally behind Walmart’s $16B. Like Walmart, Tesco is well-managed (eg, 17% ROE), while Carrefour (4% ROE) particularly has been beset with financial control issues - inventory problems and such. At the time of his retirement last year, Tesco’s Leahy was included on Barron’s global list of ’30 Best CEO’s’ - along with Buffett.
Looking at how these four large retailers are positioned around the globe:
- Walmart is clearly dominant in Mexico ($27B revenue, 19% ROE). Wal-Mart de Mexico earned more than Metro or Carrefour -- or Costco.
- Carrefour has been in South America for decades, and was especially well-established Brazil prior to Walmart's more recent arrival. In 2004, Walmart had a 15% ‘hypermarket’ share in Brazil, vs. Carrefour's 34% market share. Walmart recently passed Carrefour there, and now Carrefour countered by entering talks with Brazil's largest domestic retailer partner about a possible joint venture. Carrefour has a relatively good presence in Argentina and Colombia, and outside South America, has been particularly strong in Southeast Asia and the Middle East.
- Tesco is relatively strong in Thailand, Japan, Korea, and Turkey, plus much of Eastern Europe.
- Metro is scattered around a few dozen countries, including Russia and China.
- Walmart and Carrefour were forced out of Russia by the #1 retailer there - a billionaire who happens to have connections to Putin. He clearly didn't want them getting a foot-hold there. Carrefour abandoned its pilot stores there just weeks after finally opening them. Tesco, which apparently has been successful in former Soviet block countries, has indicated that it may take another stab at Russia.
- Carrefour has some presence in Egypt, and Metro a bit in Morocco, but otherwise Africa was wide open until Walmart’s recent Massmart deal, which gets them into more than a dozen African countries. With the Massmart deal, Walmart had significant opposition – particularly South African unions, who suspiciously even wanted Walmart to agree to drop all opposition to proposed ‘card-check’ legislation in the US as a condition for entry to South Africa (Walmart obviously declined on that one). Walmart did have to agree to some ‘local content’ quota for awhile.
Each of the global-exansion retailers has had its problems and successes. Nobody has a clear advantage or global formula, though Walmart and Tesco seem to be the two to bet on, long term.
Where this gets interesting over the long run is up the supply chain – where the key for consumer goods companies will increasingly be aligning themselves with the global retailers. In terms of revenue, Walmart is not only Berkshire Hathaway’s largest customer, but also of course PG’s, PEP’s, and numerous other businesses, in many cases by a wide margin. Part of Walmart’s enviable ROE, for such a large growing company, is a result of Berkshire’s and others’ willingness to fund its substantial inventory investment --- like everyone these days, we gladly supply it with zero-cost float if they’ll allow us to do business with them.
The alternative for many consumer goods companies is almost unthinkable. When Walmart went on its ill-fated private label plunge (under the direction of a former target exec that they hired), companies such as Hanesbrands suffered. Walmart – after dumping the former target guy - is giving them back business, but at a price.
As Walmart and Tesco (and maybe one or two others) increasingly permeate the globe, their leverage over consumer goods companies will only increase. While anything is possible and industry leaders can certainly implode, we may only be seeing the beginning of what that expansion could mean to consumer goods companies.
