A slump in consumer confidence and a turbulent year at a corporate level for some major retailers were defined 2011. Dean Best looks back at a tumultuous year for the world's major food retailers.

As the spectre of economic downturn approached four years ago, the food sector was held up as "recession-resistant". As the downturn and then recession hit consumer spending, the industry was then labelled "recession-resilient". Okay, there has been some impact on us, the theory went, but we can ride out the storm.

However, this year, with food sales volumes actually falling in some markets, including the UK and Germany, the grocery sector has been rocked by recession. Manufacturers have found conditions extremely challenging, caught between the twin pressures of rising commodity costs and consumers desperately searching for value. Retailers have faced intense competition to attract cash-strapped shoppers and, often, only food inflation has kept like-for-like sales in positive territory.

In the UK, Tesco, with its domestic sales in the doldrums, overhauled its promotional strategy with the launch of the Big Price Drop. It claimed it would cut GBP500m from its prices to offer consumers more value. Nearest rival Asda dismissed the move and insisted its Price Guarantee meant it was the cheapest UK food retailer; Sainsbury's labelled Tesco's move as "smoke and mirrors" and launched its own price comparison scheme.

By December, nine weeks after the Big Price Drop, Tesco was able to share the early results of its campaign. UK like-for-like sales were still down but the retailer said it was pleased with its "early progress" and said changing consumer behaviour took time. Analysts are divided about Tesco's prospects but the UK's largest retailer needs to be given more time to see if its strategy pays off - although the prospect of continued weak consumer confidence and still-fierce competition means it only has so much time to work with. 

What's more, there is the belief that price alone is no longer enough to win over consumers, even when the cost of living is at a 20-year high. Sainsbury's commercial director Mike Coupe told just-food in October, just days after the retailer launched its Brand Match price comparison scheme, that price was "losing its competitive edge". The rise of the Internet means the prices that retailers charge are becoming increasingly transparent and Coupe argued that "price as a differentiator will be an increasingly difficult position to sustain". Service, quality, values and own label will become more important, he said.

Despite its challenges in the UK, Tesco's international operations broadly fared well in 2011, a year in which it saw change in chief executive when Philip Clarke replaced Sir Terry Leahy. Markets like China and Poland were bright spots for the retailer, while it increased sales and reduced losses at Fresh & Easy, its much talked about US venture. However, Clarke did decide that Tesco should quit Japan, a market where analysts had estimated the retailer made a loss in its most recent financial year. Analysts welcomed the move to leave Japan, which one described as being "a still very supplier-dominated market". The decision to quit Japan prompted some to wonder how long Clarke will give Fresh & Easy before concluding Tesco should exit that market, too.

All of the world's major food retailers had plenty to ponder in 2011. Wal-Mart Stores saw its underlying food sales in positive territory in the US and it enjoyed notable growth in markets like Mexico and China. However, Wal-Mart's Chinese operations have endured a turbulent year, with a number of senior executives leaving, culminating in the departure of the president and CEO of its local unit in October. Ed Chan quit for personal reasons but the announcement was made just as Wal-Mart was dealing with an inquiry into its pork prices that led to the company being fined and its stores in one major Chinese city being closed. And, two weeks ago, Wal-Mart announced it had started an investigation into allegations of bribery within its international operations. 

Metro Group, the German retail giant, ended 2011 with a profit warning. Earlier this month, Metro lowered its forecast for annual sales and profits, blaming the sovereign debt crisis for hitting consumer confidence and pointing to the impact currency fluctuation was having on its business. It also cited a "weak start" to Christmas trading.

The announcement rounded off three months in which Metro had often been in Europe's business headlines. In September, it emerged that Metro CEO Dr Eckhard Cordes had lost the support of one of the retailer's key shareholders. Within a week, the same investor had said it would back a move to extend Cordes's contract, a U-turn that followed reports that a second major Metro shareholder was in favour of the chief executive's strategy.

However, three weeks later, Cordes announced he would not look to seek an extension to his contract when it expired in October next year. He indicated that there were tensions at the top of Metro. just-food understands that Metro's supervisory board, which contains shareholder and employee representatives, met and voted on whether Cordes should ask for a contract extension. A majority said no. When informed of the vote, Cordes decided not to remain at Metro beyond next year.

Over the border in France and Carrefour CEO Lars Olofsson has endured similar speculation over his future, although, so far, he remains firmly at the top of the world's second-largest retailer. A series of profit warnings on the back of continued problems in its domestic market, a slump in its share price over the year and investor concerns over its Carrefour Planet initiative to revamp its hypermarkets led to questions over Olofsson's future at the retailer.

By November, there were reports that major Carrefour shareholders were mulling whether to replace Olofsson, although the retailer put out a statement to say that its board "formally denies" all press speculation. This week, it emerged that one critical investor, US investment fund Knight Vinke, was in talks with Carrefour to get a seat on the retailer's board. 2012 could prove another uncertain year for Olofsson and Carrefour.

The French retail giant was also involved in one of the global food retail sector's long-running M&A sagas this year. CBD, Brazil's largest retailer, which trades under the name Grupo Pao de Acucar, became the subject of a bitter battle for control between its two owners.

Brazilian tycoon Abilio Diniz, who co-owns CBD with French retailer Casino, sought to merge the Brazilian firm with Carrefour's operations in the country. Casino claimed a deal with Diniz in 2005 meant it was due to become the sole controlling shareholder in CBD next year and hit out at its partner's plan, lodging two requests for arbitration. The very public spat between Casino and Diniz, which lasted almost two months, led Brazil's National Development Bank, which had pledged to part fund the deal, to withdraw its offer of financial support and Diniz's plans were, at least for the time being, stymied.

The ambitions of a number of the major retailers in another emerging market were frustrated as 2011 drew to a close when India rowed back on plans to ease restrictions on foreign investment. In November, Indian Prime Minister Manmohan Singh announced reforms that would see, for example, overseas retailers able to own 51% in multi-brand outlets - in other words, supermarket chains. Many in business keen to see India open up more to foreign capital welcomed the decision. However, the plans were met with fierce opposition from local retailers and opposition politicians, grinding the country's legislative process to a halt. There was even opposition within Singh's coalition government and, two weeks after the reforms were announced, there were suspended in a bid to find consensus on any measures to relax the regulations.

Tesco called the U-turn "a missed opoortunity" for Indian consumers and for its agriculture and retail sector, which, amid persistent food inflation, is in need of modernisation. 

The uncertainty will damage India's reputation as a key destination for investment. Of course, India's burgeoning and increasingly wealthy middle class is an attractive prospect for multinational investors but a political climate marked by disputes and an inability to push through reform will deter some and divert capital to rival countries in the east.

And, tellingly in a country where food prices remain high, the government will miss out on a way to push inflation down over the longer term. Prime Minister Singh needs to find some kind of agreement with his political opponents not just for his own legacy but also for the sake of India's image as a key market for overseas investors.