Emerging Market Priorities

For Global Retailers

The 2005 Global Retail Development IndexTM
T
he global retail game is changing. While players surged into new
markets in 2004, this year they are more focused on rebalancing
their positions. In the past year, for example, at least 15 retailers
moved into new geographic markets, while more than 10 retailers
exited countries during the same period. Carrefour is withdrawing from
several markets, while Tesco holds the record for being the fastest
growing retailer outside its home market. Ahold is almost out of the
global game, while Wal-Mart has been busily opening new stores
outside its home country every few days.

For the past four years, A.T. Kearney has pub-
lished the Global Retail Development Index
(GRDI), a survey to help retailers prioritize
their global development strategies (see appendix:
The GRDI Methodology). The index ranks 30
emerging countries based on more than 25 macro-
economic and retail-specific variables (see figure 1
on page 2).
Every year, the retail landscape looks
a little different. In 2005, consumer electronics,
apparel and home-improvement companies are
awakening to the global growth imperative. DIY
retailer Kingfisher just opened in Russia, and The
Home Depot set up shop in China. Next year,
what format will appeal to what market?
The index not only provides an annual
snapshot of how the opportunities in emerging
markets stack up, but also offers insights into
changing trends. A slight change in position from
one year to the next may not seem significant, but
over the course of a few years, we see just how
important these subtle indicators can be.
So when we report that India has overtaken
Russia to take the lead spot this year, and that
six of the top 10 most promising regions are in
Eastern Europe, what does it mean? If Russia is
the clear choice at number two this year, where
was it five years ago? How important are coun-
try advances and declines on the index? Ukraine
moved from number 11 to the number three spot
in just one year. Surely there’s more than one
reason for such a jump.
Thus, to gain a better understanding
of what the research means, we looked back
at the GRDI findings from 1995 to 2000 (see
sidebar: The Timing Message Holds on pages
4 and 5). We found that top-tier countries
outperformed the other two tiers on several
dimensions. For example, the top tier experi-
enced a retail sales compound annual growth rate
(CAGR) of 5.8 percent, while the bottom tier
grew by just 1.5 percent. From 1995 to 2004, top-
tier countries posted an 8.9 percent CAGR, while
the bottom tier grew at just 4.5 percent. Retailers

A.T. Kearney | EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 1

 Figure 1
A.T. Kearney’s 2005 Global Retail Development Index (top 30 emerging markets)

Country Market Market Time

Region risk attractiveness saturation pressure
2005
Rank Country Weight 25% 25% 30% 20% Score
1 India Asia 62 34 91 80 100
2 Russia Eastern Europe 52 58 71 92 99
3 Ukraine Eastern Europe 46 34 82 90 87
4 China Asia 68 40 53 90 83
5 Slovenia Eastern Europe 83 52 43 68 82
6 Latvia Eastern Europe 67 49 51 79 81
7 Croatia Eastern Europe 63 48 49 88 80
8 Vietnam Asia 54 24 88 68 79
9 Turkey Mediterranean 51 56 66 65 78
10 Slovakia Eastern Europe 73 52 33 90 77
11 Chile Latin America 73 56 60 44 76
12 Thailand Asia 64 41 59 71 75
13 Bulgaria Eastern Europe 48 39 73 68 73
14 South Korea Asia 74 71 34 52 72
15 Tunisia Mediterranean 66 38 84 28 71
16 Macedonia Eastern Europe 31 31 86 75 70
17 Lithuania Eastern Europe 67 50 51 55 68
18 Malaysia Asia 70 49 58 40 67
19 Hungary Eastern Europe 72 48 30 78 66
20 Bosnia-Herzegovina Eastern Europe 36 18 79 85 64
21 Saudi Arabia Asia 59 48 72 26 64
22 Romania Eastern Europe 57 37 46 81 63
23 Morocco Mediterranean 56 34 82 30 62
24 Mexico Americas 61 65 49 35 61
25 Egypt Mediterranean 51 35 85 30 60
26 Taiwan Asia 84 71 41 10 59
27 Philippines Asia 43 37 71 50 57
28 Indonesia Asia 43 44 82 17 53
29 Brazil Latin America 52 56 57 20 49
30 Pakistan Asia 44 27 91 14 48

0 = high 0 = low attrac- 0 = saturated 0 = no time

On the radar screen Lower
Legend

risk tiveness pressure

Key

priority
To consider 100 = low 100 = high attrac- 100 = not 100 = urgency
risk tiveness saturated to enter

Sources: Euromoney database, World Bank reports and A.T. Kearney analysis

2 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS | A.T. Kearney

 that entered these markets at just the right time to reach third place; Macedonia and Bosnia-
are now reaping the rewards. What can this past Herzegovina enters the ranking for the first time.
teach us about the future? Russia, however, loses one place as retailers begin
to aggressively enter the market, thereby increas-
The Findings ing the level of competition.
Each year, the world map of opportunities In Asia, the market mix is changing to
changes for retailers. This year, a quick overview include more countries from the south. In addi-
of the GRDI reveals that in Europe, the hottest tion to first-ranked India, Pakistan makes its way
spots are moving ever further east (see figure 2). onto the index. Others, such as Saudi Arabia,
In fact, more than half the markets that fall into are stabilizing. Kazakhstan and the United Arab
the index’s attractive categories —“on the radar Emirates are also moving closer to entering the
screen” and “to be considered”— are from Eastern top 30 ranking.
Europe (see figure 3 on page 6). The Ukraine has Several Mediterranean countries, however,
climbed dramatically over the past few years have dropped out of the top two tiers of this year’s

Figure 2
GRDI 2005 country attractiveness

On the radar screen Size of the bubble

Taiwan indicates retail sales
Slovenia To consider of food, drink and
tobacco in US$ billions,
80 Lower priority excluding taxes, in 2004
South
Korea Slovakia
Chile
Hungary China
Economic and political stability
(0 = low stability; 100 = high stability)

70 Lithuania
Malaysia

Tunisia Croatia
India
60 Mexico Thailand
Latvia
Saudi Arabia
Bulgaria
Romania
Morocco
Brazil Russia
Egypt Turkey
50

Vietnam
Pakistan Ukraine

40 Indonesia Philippines

Bosnia-Herzegovina

Macedonia
30
30 40 50
Market potential*
(0 = low potential; 100 = high potential)

* Based on weighted score of market attractiveness, market saturation and time pressure scores. Source: A.T. Kearney

A.T. Kearney | EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 3

 The Timing Message Holds
Success in global expansion for a
retailer requires a combination of
factors — choosing the right mar-
kets, timing the move appropriately,
determining the best means of entry,
and focusing relentlessly on execu-
tion. The GRDI focuses on the first
two elements—where and when. In
understanding how useful the index
is as a tool for retailers in creating
expansion strategies, we looked back
to 1995 and applied the methodology
to the world’s developing markets at
that time. We then asked, if a retailer
had entered the top tier markets in
1995, how would it have fared (see
figure A)?
Not surprisingly, GRDI has
changed significantly in the past
decade: Not one of the top 10 mar-
kets in 1995 is in the top 10 markets
for 2005. In 1995, the top three
markets for retailer entry were South
Korea, Poland and Brazil; in 2005,
the top three markets are India,
Russia and China. Poland and Brazil
are now oversaturated, and South
Korea has fallen to 14.
The most significant shift,
however, is at the regional level.
In 1995, one out of every four
countries on the GRDI was located
in the Americas. Today, that figure
is one out of 10. Instead, Eastern
Europe has become the focus of the
list, capturing 40 percent of the top
30 spots.
Using modern retail sales
growth as an indicator of market
performance, the top-tier countries
outperformed the other two tiers on
numerous dimensions. Between 1995
and 2000, the top tier had a CAGR
of 5.8 percent, while the bottom tier
grew by just 1.5 percent. Looking

Figure A
Modern retail
The 1995 GRDI predicts future performance in retail development sales have grown
at a faster pace
for the top 10
Country Market Market Time markets than
Region risk attractiveness saturation pressure the bottom
1995
Rank Country Weight 25% 25% 30% 20% Score 10 markets
1 South Korea Asia 82 77 60 69 100
2 Poland Eastern Europe 58 61 72 90 99
3 Brazil Americas 55 78 78 61 93 The top 10
4 Chile Americas 76 68 65 65 93 markets had
5 Taiwan Asia 93 72 62 40 91 a compound
6 Indonesia Asia 59 36 94 73 88 annual growth
rate (CAGR)
7 Malaysia Asia 67 48 75 75 87
of 6% between
8 Argentina Americas 56 78 69 59 86 1995 and 2000,
9 Thailand Asia 77 39 79 64 84 and 9% between
10 Czech Republic Eastern Europe 74 56 65 66 84 1995 and 2004
11 Turkey Mediterranean 55 60 87 49 83
12 Vietnam Asia 47 18 100 83 79
13 Philippines Asia 53 39 90 64 79
14 China Asia 33 32 97 85 77
15 Saudi Arabia Asia 60 75 80 21 77
16 India Asia 58 26 99 57 77
17 Mexico Americas 59 65 60 64 76
18 Uruguay Americas 52 71 76 37 75
19 Russia Eastern Europe 28 58 92 58 74
20 Romania Eastern Europe 49 29 92 69 74
21 Colombia Americas 61 48 74 52 72
22 Israel Mediteranean 78 72 36 55 70
The bottom 10
23 Slovakia Eastern Europe 58 40 71 64 69
markets had a
24 Egypt Mediteranean 47 32 91 56 69 CAGR of 1%
25 South Africa Africa 63 55 66 42 66 between 1995
26 Hong Kong Asia 66 70 44 52 66 and 2000, and
27 Slovenia Eastern Europe 61 58 71 28 64 4% between
28 Venezuela Americas 49 61 78 20 60 1995 and 2004
29 Bulgaria Eastern Europe 41 34 87 45 57
30 Hungary Eastern Europe 60 43 59 38 51

0 = high 0 = low attrac- 0 = saturated 0 = no time

Legend

On the radar To consider risk tiveness pressure

Key

screen 100 = low 100 = high attrac- 100 = not

Lower priority 100 = urgency
risk tiveness saturated to enter Source: A.T. Kearney

4 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS | A.T. Kearney

over an even longer time horizon, Figure B
1995 to 2004, the top tier posted Windows of opportunity
nearly 9 percent CAGR, while the
bottom tier grew at 4.5 percent. GRDI 1995 2002 2003 2004 2005
ranking 0
Also, many of the top-tier
5
countries experienced significant
opportunity
10
macrolevel pressures, such as Asian
Peaking
15
and Latin American currency crises India
20
and natural disasters. Despite these Ukraine

challenges, top-tier countries signifi- 25

cantly outperformed the other two 30

GRDI 1995 2002 2003 2004 2005
tiers over a period of time. Their ranking 0

success underscores the opportunities 5

for retailers that take a longer-term 10

to decline
Beginnng

view to entering developing markets, 15

China
recognizing that return on invest- 20
Russia
ment won’t happen quickly and that 25

economic or political instability 30

GRDI 1995 2002 2003 2004 2005
could be among the costs of first- ranking 0
mover advantage. 5
Just how important is timing?
Diminishing
opportunity

10
Figure B illustrates the shift in 15
opportunity over time based on a 20 Egypt
country’s GRDI ranking. Today, 25 Hungary
India and Ukraine are at the peak of Slovakia
30
their attractiveness, while Russia and
Source: A.T. Kearney
China are beginning to level off.
Overall, poor timing is often
the source of many retailers’ deci-
sions to leave emerging markets. Figure C
Over the past five years, the number Food retailers: market entries and exits, 2002–2005*
of companies exiting markets has
risen steadily (see figure C). For Number of retailers exiting and entering Number of retailers exiting
example, Tesco entered the Slova- (by region) (by year)
Expected
kian market at the end of the 1990s, 40 15
Exits
35 14
an optimal time for market entry. Entries 13
30
Today it holds a 13 percent share of Ratio of 12
exits/entries
25 11
the market. Other retailers, such as
20 10
Ahold, Carrefour and Tengelmann, 9
15 0.7 0.3 0.2 0.5
entered in late 2001, but have been 10
8
7
unable to cross the 5 percent market- 5 6
share mark. Edeka entered the Czech 0 5
Asia Easter Mediter- Africa 2002 2003 2004 2005
Republic too late in 2000 and exited Europe ranean
in early 2004. PriceSmart entered
* Years are from July through June following the GRDI index timing, rather than calendar years; 2005 is up to February
Mexico in 2002 and exited in 2005. Sources: Planet Retail, Euromonitor and A.T. Kearney

A.T. Kearney | EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 5

 index. As retailers such as Carrefour and Casino
have entered or expanded in this region over the
past two years, they have saturated many of the
markets.
South America is gradually coming back to
the global game board after several years of eco-
nomic crisis. Brazil, for example, re-enters the
index after four years; Mexico moves up on the
rankings due to the exit of Carrefour.
Africa remains out of the index since South
Africa has reached the same stage as developed
retail markets.
1. Eastern Europe: Even More Eastern
Eastern Europe features three distinct areas of
opportunity: Russia; the “old” or traditional
Eastern Europe, which includes EU member
countries; and the “new East,” which is made up
of former Eastern Bloc countries, some of which
are now EU members (see figure 4).
Russia falls to number two. Russia remains
attractive, but the steady stream of foreign
players caused its market saturation score to
dip from 77 in 2004 to 71 this year, with a lower
score indicating greater saturation. Despite this
drop, the top five grocery retailers still hold less
than 9 percent of the market. This fragmenta-
tion is good for new entrants, especially discount
retailers. Spar, which was among the first inter-
national grocers to enter Russia, plans to almost
double its number of supermarkets to 16 in
Moscow in 2005 and build a network of up to
60 stores in central Russia by the end of 2007.
Metro expects to double its sales in Russia in the
next three years.
The Russian market continues to perform

Figure 3
Most attractive developing regions for retail

Percent of countries “on the radar screen” and “to consider” by region

55%

2002

45% 2003

40% 2004

35% 2005

30% 30% 30% 30%

20% 20% 20%

15%

10%

5% 5% 5% 5%

0% 0% 0%
Eastern Europe Asia Mediterranean Americas Africa

Source: A.T. Kearney

6 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS | A.T. Kearney

 well and has an impressive gross domestic product The traditional East slides down the
(GDP) growth rate of 7 percent. Many of its large rankings. With new players entering this region
cities remain untapped, and consumer demand and existing players expanding, market saturation
is shifting from food to other retail categories, is tugging many traditional Eastern European
including apparel, home improvement and con- countries down the index. The Czech Republic,
sumer electronics. Dixons, the U.K.-based con- for example, dropped and Poland fell out of the
sumer electronics retailer, recently tapped into top 30 altogether.
Russia by agreeing to buy Eldorado, which holds Slovenia falls one place from 2004 to occupy
22 percent of the Russian market. the number five spot on this year’s index. Still, the
However, as with most emerging markets, country remains an enticing destination. It has a
Russia requires a longer outlook in terms of prof- per capita GDP of US$36,405, and its entry into
itability. Relatively thin gross margins, combined the European Union in 2004 buttressed growth
with exceptionally high property prices, make it and stability. But as Slovenia’s market becomes
tough to turn a profit. Auchan, for example, may increasingly saturated, competition is about to
not generate profits for seven or eight years. heat up. Italian grocer EuroSpin recently entered

Figure 4
Changes in ranking for Eastern European countries, 2005 versus 2004

8
8

4
Changes in ranking, 2004–2005

2
2

New New
0 0 0 entrant entrant
0

–1 –1 –1
–2
–2 –2
–3
–4
–4

–6

–8
*

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tia

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in
pu ec

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* Fell off top-30 list

Source: A.T. Kearney

A.T. Kearney | EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 7

 the market, and domestic retailer Mercator, which
has more than 1,100 stores, is expanding aggres-
sively. German hard discounters Lidl and Aldi are
also interested in operating in Slovenia.
Croatia drops two places to seventh. The coun-
try’s strengths include GDP growth of close to 4
percent, GDP per capita of US$38,653, a largely
urban population, and total retail sales growth of
close to 40 percent over the past two years. But
retailers are moving in here as well: Both Spar and
Lidl plan to open shop this year, with Lidl looking
to build 100 outlets over time. Croatian retailers
have responded to the increase in foreign compe-
tition by founding the NTL Organization, which
India has steadily risen on the
GRDI and now claims the top
position. The country’s under-
served US$330 billion retail
market has grown by 10 percent
on average per year over the past
five years.
combines the activities of four regional players to
increase buying power.
The Eastern European downslide on the
index continues with Slovakia. Just two years ago,
Slovakia came in at number two, but today it sits
at number 10. Driving the decline is its market
8 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS
saturation score, which dropped two points in the
past year to just 33. On the positive side, GDP is
pegged at a stable 4.3 percent and consumption is
growing rapidly. Foreign entrants have responded
to this opportunity by developing expansion and
consolidation plans. Ahold’s Albert supermarkets,
for example, is expanding with three new stores,
and Rewe has taken over Delhaize’s 11 stores.
However, companies are beginning to find that
the limited number of available retail sites will
complicate growth.
At number 13, Bulgaria offers a GDP growth
rate just over 5 percent, and has significantly
reduced the red tape involved in foreign invest-
ment. The top five grocery retail-
ers account for only 24 percent
of the food market, and food dis-
counters are nearly nonexistent.
As a result, numerous retailers,
such as Schwarz Group’s Kaufland
(which plans to establish 40
superstores in Bulgaria this year),
along with Spar and Lidl are
moving in quickly. Local retail-
ers are also strengthening their
presence: Hungarian food retailer
CBA Kereskedelmi recently joined
with 24 local food producers and
retailers under the name CBA
Bulgaria, operating 90 stores.
Overall, the country will continue
to be a promising market as it con-
tinues on its growth trajectory.
Hungary continues its pre-
dicted descent on the GRDI as the market fills up
and consolidates. The top five grocery retailers are
foreign and control more than 60 percent of the
market. Lidl, Tesco and the Schwarz Group joined
the crowded marketplace in 2004, and Wal-Mart
plans to follow. In fact, only one foreign retailer,
| A.T. Kearney
Reitan, left the country in 2004. Prime retail loca-
tions are also increasingly hard to come by, under-
scoring that the time to enter is limited.
The new East is moving up. One of the fastest
rising stars on the index is Ukraine, which leaped
eight spots to capture third place. All the retail
success ingredients have converged in this market,
and conditions continue to improve. The country
has 50 million people—making it the second larg-
est population in Central and Eastern Europe—
and most live in urban areas. It also posted 6
percent GDP growth, and a 40 percent increase
in total retail sales over the past two years. Finally,
it has a fragmented retail market, with the five
largest grocers holding more than 20 percent of
the total. And although food sales account for
two-thirds of total retail sales, as the population
becomes wealthier, the balance is tipping toward
non-food.
Retailers have noticed Ukraine’s promise:
Rewe’s Billa is already in the market. Russian
Perekriostok has recently entered by acquiring
Ukrainian Spar. Metro plans to expand to new
cities, including Odessa, Donetsk and Khariv,
while retailers such as German Lidl, Portuguese
Jerónimo Martins and Turkish Migros Türk also
have plans to enter by the end of next year. But
challenges remain: Ukraine’s infrastructure is
underdeveloped, and spending power remains
limited. However, for longer-term returns, index
scores indicate the time to enter is now.
The Baltic states of Latvia and Lithuania
continue to thrive and present solid opportu-
nities, but time pressure scores are dropping,
which means retailers must act quickly. Latvia
is holding steady at sixth place. The country has
a large urban population, increasing consumer
spending and strong GDP growth of 6 per-
cent. However, its time pressure score dropped
A.T. Kearney
10 points to 79, reflecting continued entry by
foreign retailers.
Lithuania comes in at number 17, with a
GDP per capita of US$25,492 and GDP growth
totaling 7 percent. But Lithuania’s markets are also
highly consolidated: The top five grocery retailers
capture 65 percent of the market, and its domes-
tic star, VP Market, grabs half of that.
A number of companies are looking to enter
both markets. Casino plans to bring its Leader
Price banner to Latvia through a joint venture
with IKI and intends to open between 10 and
15 stores between Latvia and Lithuania. Lidl also
plans to enter Estonia and Latvia, with future
plans to enter Lithuania, eventually opening 50
outlets in the region.
Romania rounds out the players in this
region, coming in at number 22 this year.
Its market attractiveness score increased, thanks
to a steady GDP growth rate of 5 percent, a 60
percent increase in retail sales over the past two
years, and signs of greater political and economic
reform in anticipation of possible EU member-
ship in 2007. However, new players will con-
tinue to saturate the market. Kaufland plans to
build 10 to 20 hypermarkets in the near future,
and as many as 50 by 2010. German discounter
Tengelmann’s Plus and VP Market say they will
enter in 2005, and rumors suggest that Tesco
may be on its way. Existing foreign retailers also
plan to expand: Louis Delhaize says it will add
about 15 of its Cora hypermarkets by the end
of the decade.
Macedonia and Bosnia-Herzegovina join
the ranking. Macedonia debuts on the GRDI at
the number 16 spot. Much like other countries
in the region, it has a highly fragmented retail
environment, with the top five retailers capturing
less than 15 percent of the market. Also, about
30 percent of its two million people live in the
| EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 9
 capital city of Skopje, and it has a healthy GDP capture 20 percent of the market, and still only
growth rate of 4.5 percent. Since Macedonia include 18 stores. However, political and eco-
set its sights on EU membership, a stable eco- nomic stability aren’t yet assured, and foreign
nomic environment is likely. Drawbacks include investment is impeded by complicated adminis-
a relatively difficult business environment, with trative processes. Metro AG has expressed inter-
corruption and bureaucracy the norm. So far, est in entering the market, providing political and
Veropoulos, a Greek grocer, has been the only economic stability continue. Croatian retailer
foreign retailer to capture 10 percent of the food Konzum joined the market in 2004 with one
retail market. However, Migros Türk, Mercator store, further indicating the cautious nature of
and Intermarché all plan to test the waters. foreign retailers in the short term.
Bosnia-Herzegovina, also new to the GRDI,
ranks 20th thanks to favorable market satura- 2. Asia: Moving South First to India
tion and time pressure scores. Thousands of small The focus in Asia is shifting from the east to
independent stores dominate the country’s retail the south, with both India and Pakistan moving
markets: In fact, the top five grocery retailers up in the rankings (see figure 5). From a retail

Figure 5
Changes in ranking for Asian countries, 2005 versus 2004

4
Changes in ranking, 2004–2005

2
1 1
New
0 0 0 entrant
0

–1 –1 –1
–2
–2

–4
–4 –4

–6
–6

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* Fell off top-30 list Source: A.T. Kearney

10 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS | A.T. Kearney

perspective, the continent has two areas of oppor-
tunity: the south, which is becoming increas-
ingly attractive, and southeast, which is gradually
losing its allure.
India claims top spot. India has steadily risen
on the GRDI and now claims the top position.
The country’s underserved US$330 billion retail
market has grown by 10 percent on average per
year over the past five years. This market is among
the most fragmented in the world; the combined
market share of the top five retailers totals less
than 2 percent.
India is also a powerhouse in terms of people.
In fact, forecasts indicate that the country’s pop-
ulation of more than one billion could overtake
China’s by 2050. Although more than 30 percent
of the population falls below the poverty line,
Figure 6
The correlation between retail development and
investor confidence in India, 2002-2004
1
2
3 India by 2008. At the same time, leading domes-
5 tic retailers, such as Pantaloon, Westside and Big
6 Bazaar, are ramping up their business by increas-
Index ranking
GRDI
FDICI
15
2002 2003 2004
* Rankings for the Global Retail Development Index compare retail development
in 30 countries (results published in 2003-2005); rankings for the Foreign Direct
Investment Confidence Index (FDICI) compare investor perceptions of more than
60 countries that receive more than 90% of global FDI flows (results published
in 2002-2004)
Source: A.T. Kearney
A.T. Kearney
increasing mobility among the middle and upper
classes, coupled with greater urbanization, results
in growing demand for retail goods. Combined,
these factors provide a favorable backdrop for a
retail market poised for growth. (See A.T. Kearney
GRDI Country Brief: Destination India).
Although these favorable conditions have
been in place for some time, a recent change in the
regulatory landscape makes India that much more
attractive (see figure 6). Previous foreign direct
investment rules prohibited direct ownership by
foreign retailers, forcing them to enter India via
franchises. Recent legislation relaxes these rules;
proposals under consideration call for ceilings of
either 26 percent or 49 percent ownership.
International retailers eagerly pacing the
sidelines will likely be quick to take advantage
of these more favorable FDI rules. Wal-Mart,
Carrefour, Tesco and Casino are among those
actively seeking local partners. Foreign retail-
ers currently operating through franchises, such
as Marks & Spencer and the Benetton Group,
will most likely switch to a hybrid model. Levi
is already taking advantage of shifting demo-
graphics and growing interest in branded prod-
ucts, and has laid out plans to build 300 stores in
ing their scale and enhancing their logistics and
technology processes.
Still, there are many obstacles to conduct-
ing business in India. Inadequate infrastructure,
for example, means that 40 percent of perishable
food produced in the country rots during trans-
portation due to a lack of refrigerated distribu-
tion networks. India is also not a homogeneous
market. With 28 different states, and a plethora
of languages, customs and traditions, develop-
ing local market knowledge and choosing the
| EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 11
 best store locations will be critical. Indeed, India’s
retailing landscape has more than 12 million
mom-and-pop stores that are not likely to idly
watch their businesses erode as foreign companies
encroach on their territory. But gaining early-
mover advantage could make tackling all of these
issues worthwhile.
Pakistan enters the ranking. Kazakhstan
may be next. Pakistan makes its first appearance
on the GRDI and rounds out this year’s index
in the number 30 spot. Pakistan’s high market
saturation score reflects one of the least concen-
trated retail sectors in the world. In fact, the only
identifiable chain is state-owned Utility Stores
China’s Ministry of Commerce
announced that the country will
work to boost the competitive-
ness of 15 to 20 selected large
domestic retailers to fend off
global competition.
Corporation, which holds just 0.3 percent of
the market. With strong GDP growth averaging
just over 6 percent for the past three years, and
a government determined to attract foreign
investment, up-and-coming Pakistan is begin-
ning to capture retailers’ attention. SHV Makro
plans to open 30 stores, and Spinney expects to
open six to eight. In addition, Metro will open
12 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS
its first Cash & Carry outlet by the end of this
year, with plans to build 20 more outlets in the
longer term. While Pakistan holds significant
promise, questions about political stability and
geopolitical tensions will likely make foreign
entrants cautious.
Kazakhstan did not fall in the top 30 on
this year’s index, but with only two international
retailers — Migros Türk and Pyaterochka — the
playing field is open and it might enter the index
next year.
Fierce competition causes China to slip.
China loses another place on the GRDI and falls
to number four. Its attractions are well known:
9 percent CAGR over the
past five years, a US$628 billion
retail market that’s growing at
more than 9 percent each year,
and the largest population in
the world.
But competition is fierce, as
reflected in China’s sliding market
saturation score. In fact, 17 global
food retailers are operating there.
Mergers and acquisitions will
increase as retail consolidation
becomes a priority. For example,
home-improvement chain B&Q
China recently accelerated its
expansion plans by acquiring
OBI Asia Holding Ltd. (from
Tengelmann), which is the second
largest western home improvement retailer. The
company hopes to expand to 50 stores within
one year.
Another trend is that retailers are moving
further into China’s mainland. Carrefour, for
example, recently announced plans to build 10
to 15 new stores each year, one-third of which
will be in the central and western areas. Spar has
| A.T. Kearney
also recently entered China, with plans to build
15 hypermarkets in the next three years.
Domestic retailers are continuing to consol-
idate, creating strong competition for foreign
players. In preparation for WTO entry, the
Ministry of Commerce announced in 2004 that
the country will work to boost the competitive-
ness of 15 to 20 selected large domestic retail-
ers over the next five to eight years to fend off
global competition. Several Chinese retailers
are also expanding outside their home markets:
Hong Kong-based A.S. Watson is among them.
The perfumes and cosmetics manufacturer
is buying Marionnaud Parfumeries as well as
U.K.-based Merchant Retail to expand its
European footprint.
The disparity between China’s wealthy and
poverty-stricken regions is growing, which could
contribute to political unrest. China also faces
significant pressure from abroad to allow its cur-
rency to appreciate, which would make its export
market less enticing and possibly place greater
pressure on its domestic market.
Other Asian countries. Vietnam ranks in
eighth place on the index. It boasts 7 percent
GDP growth in 2005, and has a large and grow-
ing urban population. Additionally, the country’s
commitment to liberalization through regional
trading blocks and the WTO and its fragmented
retail market further point to significant oppor-
tunities for entrants. Among those taking notice
are Malaysia’s Parkson, a new entrant that hopes
to build 10 outlets within five years, and Hong
Kong’s Dairy Farm, which is also expected to join
the market this year.
Thailand drops two spots to number 12. The
economic effects of last year’s tsunami have been
less dire than originally feared. Thailand’s GDP
remains high, topping 6 percent, and retail sales
are strong. However, the top five players control 50
A.T. Kearney
percent of the market. As the government clamps
down on the growth of large format stores, some
operators will enter, such as the Berjaya Group
Berhad and the Central Group, while others exit,
including Delhaize and Ahold.
At number 14, South Korea has one of the
richest and most urban Asian economies. And,
in the past five years, retail sales have grown by
more than 50 percent. However, in the wake of
the recent economic crisis, South Korean con-
sumers are more price conscious and value ori-
ented, encouraging the rise of discount retailers
and warehouse clubs. In fact, the number of
hypermarkets may hit 500 in the next few years,
close to saturation. While A.S. Watson plans to
enter South Korea in 2005, most other foreign
retailers that have already entered are fighting
to expand as quickly as possible. As this market
saturation intensifies, local retailers are also look-
ing beyond their home markets. For example
Lotte has expanded into China, and is consider-
ing a move into Eastern Europe and Southeast
Asia. Similarly, Shinsegae has aggressive expan-
sion plans in China, opening up to 40 stores
by 2010.
Malaysia’s GDP growth has recovered from
the 2001 economic slowdown and stands at 6
percent. Its retail market remains fragmented,
which helped boost it up one notch to the 18th
position. Retail sales have grown 6 to 8 percent
over the past two years and are expected to main-
tain the same rate. Although Malaysian consum-
ers have embraced hypermarkets and department
stores, discount retailers and convenience stores
will likely become new vehicles for growth.
International retailers already in Malaysia
have committed to aggressive expansion plans:
7-Eleven aims to triple its number of stores by
2005, Carrefour plans to open one new store
annually, and Tesco says it will open as many as 20
| EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 13
 Running the Retail Gamut
Grocery retailers have already
begun down the path of global
expansion, but retail groups are
not following in lockstep (see
figure D). Rather, each segment is
moving across national bound-
aries at various speeds. The fol-
lowing is a brief rundown of
how key segments are approach-
ing the global game.
Apparel retailers. This group
is more international than many
other retail segments. Several
major players have expanded in
Europe and Asia; companies such
as Spain-based fashion retailer
Mango have opened shops in key
Asian markets. The Gap moved
into the Japanese market this year
and now has more than 261 stores
that bring in more than US$1.7
billion revenue. Many other large
apparel manufacturers, notably
Ann Taylor, Chico’s, J. Crew and
Abercrombie & Fitch, operate
primarily within the U.S. market.
Hard discounters. The dis-
count model has proven success-
ful across Asia, Latin America
and Europe. Wal-Mart, with
more than 1,500 stores globally
and a joint venture in Japan,
recently set the goal of establish-
ing stores in every European
country. Other discounters are
pursuing international opportuni-
ties as well. Target, for example, is
planning to expand into Canada
and Mexico. Local competition
among discounters in the destina-
tion countries is as intense as it is
in the retail grocery market.
Consumer electronics
retailers. Given rapid commod-
itization and cutthroat competi-
14 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS
tion, consumer electronics retail
lags other sectors in international
retail expansion. Most consumer
electronics retail companies are
national or regional and have
not focused on global expansion.
Also, internet retailers such as
Amazon, Dell and eBay already
have a significant presence in a
number of key foreign markets.
But the pressure on margins
and heightened local competi-
tion means consumer electron-
ics retailers need to gain scale
through international expansion
and consolidation. In the United
States, Best Buy is leading the
way, with recent entries into the
Canadian and Chinese retail mar-
kets. In response, Circuit City has
acquired InterTRAN Inc., which
operates more than 1,000 stores
in Canada under the Radio Shack
banner. As the consumer electron-
ics retail market further matures,
it will drive more global retailers
to enter emerging markets.
Home improvement stores.
Home-improvement retailers lag
other retail groups in global retail
Figure D
Sales outside home market for top 3 players
per retail segment in 2004
International
12%
8% 8%
Department Home Consumer
store improvement electronics
| A.T. Kearney
expansion. The major players in
the United States, such as Home
Depot, Lowes and Menards,
have focused more on expanding
within their home markets. The
Kingfisher group, which operates
in more than 10 countries, is an
exception. Home Depot is testing
the international waters, illus-
trated by its purchase of Mexico’s
Home Mart. Home Depot is also
tapping into the US$50 billion
Chinese home-improvement
market by leveraging its strength
in contractor services. Lowes
recently sought bids from adver-
tisers with experience introducing
brands overseas, suggesting it may
be looking to step outside of the
United States. IKEA, the home
furnishings retailer, is a leader
in international expansion, with
operations in 30-plus countries
and plans for further expansion.
Department stores. These
seem to be lagging other retail
segments with few international
players. Many opportunities exist,
however, for recognized brand
names such as Harrods and Macy’s.
58%
22%
19%
Hard Apparel Grocery
discounter
Source: Annual reports and A.T. Kearney
hypermarkets over the long term. Foreign retail-
ers should keep an eye on the country’s chang-
ing regulatory environment, which is already
very protective of its local industry. Foreign own-
ership, for example, is restricted to 30 percent
and hypermarket growth is subject to geographic
limitations.
Taiwan and the Philippines continue their
slide while Indonesia stabilizes. A fiercely
competitive market, Taiwan drops four places
to number 26 in this year’s GRDI. In terms
of formats, a dense population has led to
maturation of the convenience store; hyper-
markets will continue to be the major growth
vehicle, and discount stores will follow.
The Philippines continues to fall on the
GRDI, mainly due to its lower country risk
and time pressure scores. However, it has a large
and rapidly growing population, retail spend-
ing per capita has risen 18 percent in the past
two years, and the top five grocers own just
30 percent of the market. Combined, these
factors continue to attract numerous retailers,
such as Wal-Mart, Casino, Carrefour and Tesco.
Indonesia holds steady at number 28. Despite
last year’s tsunami and the Bali terrorist attack
in 2002, its GDP has held strong at 5 percent.
Retailers have good reason to consider the coun-
try; its population of 233 million is the fourth
largest in the world, and more than 40 percent
live in urban areas. Some companies, such as
Wal-Mart, have struggled for profitability here;
others, such as Dairy Farm, have fared better. Dairy
Farm entered the hypermarket space in 2002 and
plans five new stores a year. Tesco is also consider-
ing Indonesia as a possible destination.
Saudi Arabia holds steady, Iran exits. Saudi
Arabia debuted on the GRDI in 2004 at the
twenty-first spot and remains there. It has a large
population, and retail spending has increased by
A.T. Kearney
more than 10 percent over the past two years. Also,
the top five retailers capture just 11 percent of the
market. However, expansion plans by Carrefour,
Panda and Casino prompted the time pressure
score to drop from 30 in 2004 to 26 today.
Iran’s total retail sales grew by more than 150
percent over the past five years, but rising political
instability pushed the country off the rankings.
Retailers will likely follow recent developments,
such as talks on how Iran can enter the WTO.
3. In the Mediterranean, Uncertainty
Is Not a Deterrent
Turkey maintains its position in the top tier by
coming in at number nine. The country aspires
to EU membership, and is committed to eco-
nomic stability. Turkish consumers are becoming
more price sensitive, thus boosting the popular-
ity of discount stores. Local retailers BIM and Şok
have been quick to capitalize on this trend by
branching out into this format. Other major
grocery retailers have followed. For example,
Carrefour introduced Dia, which is now the third-
largest discount store chain, and recently acquired
Gima and Endi. As a result, Carrefour is now the
largest player in Turkey’s retail market. A.S. Watson
plans to add Turkey to its location list in 2005.
Tunisia holds steady at number 15. Its stable
economic and political climate, its strong GDP
growth of 5 to 6 percent, and the current lack
of foreign or domestic retail presence make it a
market to be considered. Casino and Carrefour
are recent entrants but so far have only captured a
small share of the market and operate a few store
formats. The government’s plans to drive privati-
zation should attract more foreign investment.
Morocco continues to slide down the rank-
ings, dropping from the “to consider” category
to “lower priority,” as a result of a lower time
pressure score.
| EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 15
 As expected, Egypt continues to drop on the
GRDI to number 25, down from number 20 in
2004. The market remains attractive, but there
is no urgency to enter. Indeed, the top five gro-
cery retailers hold less than 1 percent of the retail
market. The leading foreign retailer, Carrefour, is
slowly expanding its hypermarket format, open-
ing another store this year near Cairo.
4. Latin America Is Back in the Game
After economic crises and recessions, Latin
America is starting to get back on track. But
lessons from retailers show the importance of
not only making good entry decisions,
but of strong execution.
Mexico reverses its slide down the
GRDI with a modest increase of two
positions to number 24. Five interna-
tional retailers, including PriceSmart
and Carrefour, exited the country,
pushing its market saturation score up
eight points this year. Mexico’s large
population of 106 million, relatively
high GDP per capita of US$6,571,
and proximity to the United States
have made it an attractive market for
foreign entry since the 1970s.
Mexico’s rise in the GRDI score
will probably be short lived: The
top five grocery retailers own 30
percent of the market, and that
figure should rise. Wal-Mart, for
instance, is expected to continue
its relentless expansion under its
Walmex banner. And domestic play-
ers Gigante, Soriana and Comercial Mexicana
are growing as well.
Chile climbs one spot this year to number
11—the top of the “to be considered” category.
The country’s GDP has risen steadily in the past
16 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS
three years, and it boasts a large, urban popula-
tion. Local players dominate the market, with the
top five grocery retailers capturing 60 percent.
International entrants have had little impact —
both Ahold and Carrefour exited in 2003.
Improving economic and political condi-
tions bumped Brazil back onto the GRDI after
a four-year hiatus. With the fifth-largest popula-
tion in the world, the largest economy in South
America, and a highly fragmented retail industry,
Brazil has beckoned retailers since the 1980s. But
this comeback could fizzle; further consolidation
and expansion are expected in the retail sector.
After economic crises and
recessions, Latin America is
starting to get back on track.
But lessons from retailers
show the importance of
not only making good entry
decisions, but of strong
execution.
Casino, Carrefour and Wal-Mart account for 17
percent of the retail market.
Uruguay and Argentina are two additional
markets to watch. Although they fell below the
top 30 on this year’s GRDI, their size and growing
| A.T. Kearney
GDP mean they could become more attractive
candidates if their business risk scores improve.
International Expansion: An Imperative
Should retailers care about international expan-
sion? The simple answer is that although differ-
ent segments are moving at different paces,
companies can’t afford not to care (see sidebar:
Running the Retail Gamut). Take a look at the
world’s top retailers in terms of sales: Fifteen of
the top 20 operate globally. Among the top 10
players, 27 percent of sales come from inter-
national markets, however this number falls to
just 15 percent for the next 10 retailers. Next,
consider just the top five retailers: A full 33 per-
cent of their sales come from outside their home
markets. Looking ahead, the percentage of sales
from international operations is predicted to
A.T. Kearney
increase in the coming years. U.S. retailers are the
furthest behind the globalization curve. Just 44
percent of the top U.S. companies step beyond
their national boundaries.
Early global movers are able to reap the
rewards in their home markets. For example,
Wal-Mart has already succeeded in building an
information feedback loop across its global opera-
tions and is implementing best practices within
the U.S. market. For example, it has shelves that
facilitate replenishment from Brazil, shoe and bike
merchandising techniques from Canada, wine
and food displays from Mexico, and approaches
to apparel selling from the United Kingdom.
As store saturation becomes a reality and
early movers produce tangible results, retailers
that are not global need to address this sizable
opportunity — quickly.
| EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 17
 Appendix
The GRDI Methodology
The annual A.T. Kearney Global Retail Development Index ranks 30 emerging coun-
tries on a 100-point scale—the higher the ranking, the more urgency to enter a country.
Countries were selected from a list of 185 based on three criteria:
• Country risk: a score of more than 35 in Euromoney country risk
• Population size: more than two million
• Wealth: GDP per capita more than US$2,000 (GDP per capita for countries with
populations of more than 35 million is more flexible due to the market opportunity)

GRDI scores are based on the following four variables:

1. Business Country Risk (25 percent)

• Country risk (20 percent): political risk (25 percent), economic performance (25
percent), debt indicators (10 percent), debt in default or rescheduled (10 percent),
credit ratings (10 percent), access to bank finance (5 percent), access to short-term
finance (5 percent), access to capital markets (5 percent), and discount on forfeiting
(5 percent).
• Business risk (5 percent): terrorism, crime and violence, irregular payments,
corruption.

The higher the rating, the lower the risk of failure. This year, the calculation includes
the business cost of terrorism threats.

18 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS | A.T. Kearney

2. Market Attractiveness (25 percent)
• Retail sales per capita (10 percent): A score of zero indicates that the retail sector
(total annual sales of retail enterprises excluding taxes) is still underdeveloped. A
score of 100 indicates that the retail market is already mature.
• Population (5 percent): A zero indicates the country is relatively small represent-
ing limited opportunities for growth. A country with a population greater than 100
million automatically scores 100.
• Urban population (5 percent): Zero means the country is mostly rural; 100 indi-
cates the country is mostly urban.
• Business efficiency (2.5 percent): Zero means the country has poor infrastructure
quality and poor supplier quality; 100 indicates high infrastructure quality and high
supplier quality.
• Law and regulation (2.5 percent): Zero means that regulatory restraints are dis-
torting business decisions. Variables used are burden of regulation (50 percent),
contracts and law (20 percent), efficiency of tax system (10 percent), government
intervention on competition (10 percent) and government intervention on corpo-
rate investment (10 percent).

3. Market Saturation (30 percent)

• Share of modern retailing (10 percent): A zero weight means share of retail sales
made through a modern distribution format is high, and within the average Western
European level (200 square meters per 1,000 inhabitants). Modern formats include
stores predominantly selling food (hypermarkets, supermarkets, discount stores
and convenience stores), and mixed-merchandise stores (department stores, variety
stores, U.S.-style warehouse clubs and supercenters).

A.T. Kearney | EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS 19

 • Number of international retailers (10 percent): This year the total score was
weighted by the size of retailers in the country: Three points for tier-one retailers
(among the top-10 retailers worldwide), two points for tier-two retailers (within
the top 20 retailers worldwide) and one point for tier-three retailers (all others).
Countries with the maximum number of retailers have the lowest score.
• Modern retail sales area per inhabitant (5 percent): A zero weight means the
country ranks high in total retail area per inhabitant, close to the average Western
European level. Modern formats only include stores predominantly selling food
(hypermarkets, supermarkets, discount stores, convenience stores).
• Market share of leading retailers (5 percent): A zero indicates that the market is
highly concentrated with the top-five players (local and international) holding more
than 55 percent of the retail food market. A 100 weight indicates the market is still
extremely fragmented.

4. Time Pressure (20 percent)

The time factor is measured by the sum of the CAGR (2000 to 2004) of retail sales and
the retail sales area weighted by the development of the economy in general (CAGR of
GDP from 2000 to 2004). Results are from zero to 100, with 100 indicating that the
retail sector is advancing quickly, thus representing a short-term opportunity.

Data and analysis are based on the United Nations Population Division Database,
the World Economic Forum’s Global Competitiveness Report 2003-2004, national
statistics, Euromoney and World Bank reports, and Euromonitor and Planet Retail
databases.

20 EMERGING MARKET PRIORITIES FOR GLOBAL RETAILERS | A.T. Kearney

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