Over recent quarters there have been some signs of improvement within the Spanish grocery sector, with food retail sales growth back in positive territory. However, we continue to see limited scope for growth in private consumption. Ultimately, high unemployment, falling real wages, a large stock of private sector debt and fiscal austerity will keep consumers focused on deleveraging rather than spending for the foreseeable future, particularly as taxes on consumption have been pushed up to help bring down Spain's deficit. This means we see very little chance of another consumption-led boom over the next five years and see the environment continuing to favour price-focused retailers and cheaper food and drink options over most of this period.
Headline Industry Data
- 2011 per capita food consumption = -0.05%; forecast to 2015 = +11.9%
- 2011 alcoholic drink sales = +0.3%; forecast to 2015 = 2.1%
- 2011 soft drink sales = +2.3% ; forecast to 2015 = +16.6%
- 2011 mass grocery retail sales = +2.3%; forecast to 2015 = +16.5%
Key Company Trends & Developments
Ebro share price affirms strategy; SOS investors not yet convinced by restructuring - Spanish olive oil producer SOS Corporacion Alimentaria has recently registered a profit of EUR8.1mn for the first quarter of its 2011 financial year. This is the firm's first quarterly profit for three years, and has been described by the firm as a 'reversal and normalisation of operational activity'. The firm was hit badly by an accounting scandal that was compounded by the financial economic crisis. With the sale of its rice business to Ebro Puelva now completed, SOS is left in a stronger financial position, but almost completely focused on olive oil. SOS has said it will be changing its name to Deoleo following the divestiture, to reflect this new positioning.
Carrefour to spin off Dia discount business - In May 2011 Carrefour filed a plan with the Spanish regulator to spin off its European discount business Dia subsidiary in a stock market listing in Madrid that could value the unit at EUR4bn. Dia has said it plans to raise its store count to more than 8,000 by 2013, and forecasts that sales in emerging markets will grow to make up 30% of sales by that point, compared with 22% in 2010. The plan to list Dia in Spain highlights the success that Carrefour's discount operation has had in that market, with the firm overhauling its French portfolio to more closely mirror its operations in the Spanish market.
Key Risk to Outlook
Eurozone debt crisis - the risks to our outlook are currently weighted to the downside. An important risk to our forecasts is the prospect of further instability in the eurozone as a result of the unsustainable debt levels built up by some member countries - including Spain. In addition, a more aggressive response from the ECB to rising inflationary pressures across the eurozone could significantly crimp domestic demand. This is particularly the case for Spain given that most household mortgages track the threemonth, six-month or 12-month Euribor rates.