Retail market striving to keep up with major shifts in consumer behaviour & expectations

The growth of e-commerce will continue in 2022, following two years of boosted expansion, and customers will enjoy faster delivery and better services. At the same time, the Deposit Return System (DRS) is seen as Romania’s biggest and most important sustainability project of the past 30 years, and not just from an investment perspective. These were the key conclusions of Business Review’s re:Focus on E-commerce, Retail & Logistics event, which brought together leading retailers, omnichannel innovators, as well as major players in supply chains & logistics, to share valuable insights and best practices and discuss this year’s challenges and opportunities.

By Anda Sebesi & Aurel Constantin

Panel 1: Changes in consumer behaviour

“Market competition brings great benefits to customers. The intense competition between players on the courier market leads to services getting better and better.” Jarosław Sliwa, CEO at Cargus kicked off the panel.

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RetuRO supports retailers for the quick and efficient management of the manual collection of DRS packaging

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The pandemic-related restrictions on in-store shopping generated rather drastic changes in consumer behaviour. Buying clothes and shoes online was not something most shoppers were used to doing, but now they don’t think twice about it. Efforts made by retailers and delivery companies to ease the buying process have also helped a lot. And the results of these measures came in 2021, when companies like Answear doubled their sales compared to 2020, as we learned from Country Manager Raluca Radu during the event.

“We are expecting e-commerce to continue growing in 2022. Last year our sales doubled compared to 2020 and this trend will continue this year, too.” Says Raluca Radu, Country Manager at Answear Romania.

What is clear is that customers who buy online want faster delivery, easier ways to pay, and more ways to interact with shops. Their desire to improve their quality of life forces retailers to provide better and better services and expand the range of goods they offer. eMAG did this by increasing the number of shops on its Marketplace, a segment that has grown significantly in the last two years, now covering 60 percent of all eMAG sales. The benefits of the Marketplace go both ways: while customers have access to a wide range of products from various industries, sellers can easily open a sales channel and access a 4.5 million customer base.

Cristi Movila, Eastern Europe GM & EMEA SVP at VTEX: “The speed at which the market has grown has not been matched by the development of education in the industry. It is difficult to find specialists to cover open job vacancies.”

Stejara Pircan, Senior VP at eMAG, announced that the company was investing in the International Partnership Network, which will provide connections to foreign markets like France and Germany.

“Last year we celebrated the 10 year anniversary of our Marketplace platform. The business grew significantly in the last two years: it now accounts for 60 percent of all eMAG sales.” Explained Stejara Pircan, Senior VP at eMAG in her first online intervention.

One problem that everyone at the event mentioned was inflation, which is already having a big impact on costs. Before the pandemic started the market was in great shape, with low prices and high demand, but today, companies are being forced to increase prices for products and services. Even IKEA, who is famous for keeping its prices low and stable, announced that would have to increase them by 20 to 30 percent.

Viorel Vasile, Cards Unit Director at Alpha Bank: “In terms of payment behaviour, online has been the star in recent years. Starting with February 2020, we’ve seen a major shift from traditional to online transactions.”

For couriers, the impact of inflation can be counterbalanced by more sales. A higher number of orders means more deliveries, leading to better prices for those deliveries. At the same time, allowing customers to pick up packages from a delivery point is a great way to reduce delivery times and give customers more flexibility. But the industry still needs a lot of investment in order to cover the expansion of the customer base. Adrian Mihai, the CEO of Fan Courier, says that the investment in a new warehouse can go up to EUR 10 million and that it results in a 30-minute reduction of the delivery time in that region. While that may not seem like a significant improvement in delivery time, those minutes are very important for couriers. Fan Courier alone delivers around 24,000 packages every day, and a package normally goes through the hands of seven people before it reaches the customer.

Adrian Mihai, CEO at FAN Courier: “Couriers and customers have grown quite close, especially when we’re talking about customers who make frequent orders. Some couriers even know what kind of coffee customers like.”

As for payments, allowing the customer to pay by card on delivery has helped largely eliminate cash from transactions. Romanian customers may still be sceptical about online transactions, meaning that they don’t want to pay before they see the product, but thanks to solutions like SoftPOS, they no longer need cash in those situations. Since the pandemic broke out, the change in customer behaviour has meant withdrawing less cash from ATMs and more often using online payment solutions. That’s why ATMs today also have other functions, such as receiving cash from customers, paying credit installments or paying bills.

Lucian Baltaru, CEO at Sameday: “We are operating in Romania and Hungary. There are of course some challenges with cross-border deliveries, but we’ve learned to manage them quite well.”

“Customer centricity is the core driver of all retail companies’ strategies. Sustainability is ranking higher among consumer interests, which puts a lot more pressure on sellers.” Added Georgiana Iancu, Partner & Leader of the Indirect Tax Department at EY Romania, the panel’s moderator.

Panel 2: Retail parks and regional malls

There is still plenty of room for growth on the e-commerce market. While online shops are looking to expand their offering, introducing new products lines like Home & Deco and financial solutions like ”buy now, pay later,” supermarkets are receiving more orders for everyday products, which means they must ensure that they have the capacity to cover these new orders.

“Every retailer now has at least some online activity, but they still need a physical space to present their products. Retail parks have proven to be a safe bet for developers.” Geanina Ungureanu, Senior Asset & Leasing Retail Manager at IMMOFINANZ, started the discussion in the second panel.

But since the only constant on the market is change, companies must learn to be flexible, if they haven’t already. Omnichannel marketing means a close relationship between retail shops and logistics-delivery players. Today, online shopping is at 9 percent of total shopping, whereas it accounted for only 5-6 percent in 2019, but there’s still a lot of growth ahead, especially since Romania is now on the regional hub map alongside the Czech Republic, Hungary, and Poland.

“Romania’s presence is growing on the map of regional hubs. We are competing with markets like the Czech Republic, Hungary and Poland.” Says Tudor Iuga, Senior Consultant Industrial & Logistics Services at CBRE Romania.

Omnichannel means that retailers must be everywhere the customer is: online, in malls, in shopping centres, etc. And all these changes are forcing offline shops to become more modern and provide more ways of communication with their customers. For companies like Hervis Romania, it is important for communication channels to reach future customers, since young people are the store’s main target.

“We need to find the best communication channels to reach young customers, as they will be our target audience in the coming years.” Explains Catalin Pozdarie, CEO at Hervis, in one of his online interventions.

Industry trends point to two concepts being on the rise: retail parks and regional malls. These represent mixed-projects in the real estate industry, and they are designed to give customers everything they want. They are places where families can shop, but also enjoy some entertainment, and at the same time they need to be close to home or work. “Coffee shops are now turning into remote offices, while food courts are being used as libraries,” said Sebastian Mahu, Head of Asset Management at Iulius.

“Romania has relatively modern retail spaces, with most of its retail stock having been built after 2000, and the supermarket is no longer the main anchor.” Adds Mahu.

Focusing on the customer also means upgrading old industrial and shopping places to today’s standards. The pandemic has been good for those who decided to start renovation projects, so shopping areas are now even friendlier in terms of customer experience. It all gets combined with online shopping, but there’s still a need for a showroom, where customers can touch and feel the products they’re interested in. The logistics industry is not only modernising its spaces, using automated robots and machines, but also expanding, since every EUR 1 billion of new sales requires about 100,000 square metres of warehouses.

What’s more, a number of manufacturers are considering moving production facilities that are now in Asia back to Europe. The delays in shipments, rising costs, and various shortages (such as the semiconductor crisis) are forcing companies to look for closer-to-home spaces to produce their goods. This situation creates opportunities in the entire Central and Eastern Europe region, including in Romania.

Trade routes are important for big retailers in terms of commercial spaces. Auchan, for example, has plans to open 61 proximity shops in the next five years, most of them in towns located on the route between Constanta and Hungary, as this route will become more important for transportation in the coming years.

“Online shopping and real estate go hand in hand, and they will continue to do so in the future. It is important for us to have as many contact points as possible with the client.” Says Tiberiu Teleanu, Expansion & Asset Management Director at Auchan Retail Romania, also via an online intervention.

Asked about the workforce and the issues they face in hiring qualified employees, all speakers at the event said that it was important for education projects that were started before 2020 to continue. Even if a company has a solid team today, it will certainly need more specialists in the future, and with so many new jobs being created by digitalization, the education process must never stop.

“E-commerce has grown exponentially over the past two years, but we must also acknowledge the fact that it raises new challenges.” Concluded Cristiana Fernbach, Partner at KPMG Legal, the moderator of the second panel.

Panel 3: DRS: Romania’s most important sustainability project to date

Ionut Georgescu, Founder and CEO at FEPRA & moderator of the third panel: “Returnable and collectable packaging represents 30 percent of the total packaging on the market, which represents 10 percent of the total waste being collected.”

The Deposit Return System (DRS) is seen as Romania’s biggest and most important sustainability project of the past 30 years, and not just from an investment perspective. Educating the public and raising awareness of this issue will be paramount in the near future, in order to create a fair and functional system. “DRS could change Romania in terms of how we treat our packaging and the waste that results from it. This project has the potential to create a functional circular economy in our country,” said Ionut Georgescu, Founder & CEO at FEPRA, during the third panel of the re:Focus on E-commerce, Retail & Logistics conference.

However, from a logistics perspective, the DRS seems like a herculean task, considering how many stakeholders have to be involved to create a working system. According to Julia Leferman, General Manager at the Brewers of Romania Association, the DRS could be biggest environmental project in Romania, and making it functional will require lots of energy and resources. “By the end of 2025, many changes will have to occur across the entire chain, starting from producers, because it all starts with them.”

Julia Leferman, General Manager at the Brewers of Romania Association: “8 out of 10 Romanians say they are willing to return product packaging. There is a big difference between intention and action, but we can do things to incentivise that action.”

Producer responsibility is crucial in implementing a system that doesn’t just tick off some recycling quotas on paper, but actually creates new packaging out of collected waste and closes the circle for that material.

“The DRS has to do with the entire circuit of the used package. The producer is the starting point, but we also need functional collection facilities for retailers. It’s very important to create convenient mechanisms for consumers, to make the system as easy as possible. This means we need to create a nation-wide system that will enable consumers to recover the deposit wherever they can, and that will create an entire logistics network for the recovery of the used packaging consumers bring to collection centers, which will end up at recycling centres,” Leferman explained.

In Romania, beverage producers work with around 120 distributors to move their products across the supply chain and reach final consumers. Those distributors use around 3,500 vehicles, which often come back empty. Utilising those empty vehicles might be one solution to solve the DRS logistics riddle, Ionut Georgescu suggested.

The DRS will serve a very specific market, that of beverage producers, but it will not solve all of our problems; it will only streamline one of several collection pillars,” said Alice Nichita, President of the National Soft Drinks Association (ANBR).

Alice Nichita, President of the National Soft Drinks Association: “In order to be compliant with the state scheme for deposit and return system, we’ve had to set up two new associations, which should be operational by May or June.”

In Romania, around 7,000-10,000 retail units account for nearly 35 percent of national consumption. In this context, how do retailers view the Deposit Return System—as a burden or a relief? Emanuel Parvulescu, Head of Environment at Cora, tried to answer this question. “It’s definitely an advantage for us, it’s a facility offered to our end-consumer. The system will become the biggest private investment in waste management in Romania. To become operational, it needs to have the ability to efficiently collect large quantities of packaging waste from consumers, and this will benefit the entire chain: from citizens to manufacturers, from retailers to state authorities.”

Emanuel Parvulescu, Head of Environment at Cora: “We will soon propose a new model for DRS that will work for everyone involved and meet the standards imposed by legislation.”

Romanian authorities should clearly state the fundamental principles of the DRS, but those principles should be decided upon thourgh consultation with all stakeholders. “Apart from challenges related to investments and logistics, there are also legislative aspects to clarify. Each day we run into new obstacles that must be addressed,” said Cosmin Teodoru, a representative of the Romanian Environment, Waters, and Forests Ministry.

Cosmin Teodoru, General Director at the Environment, Water and Forests Ministry: “Some of the legal responsibility for DRS stays with the company’s shareholders, and it is separate from the responsibility of the producer.”

“As a producer, considering the specific context of our country, I believe it will be very difficult to achieve the planned 65 percent collection rate. We are trying to contribute through our waste collection reverse vending machines, which are fully automated and high performing. In Brasov, for example, we are collecting nearly 1 million packages now, and citizens are getting used to the system and understanding that it benefits everyone,” says Bogdan Purcherea, Managing Director at Envipco Holding.

Bogdan Purcherea, Managing Director at Envipco Holding: “When it comes to returning packaging, we should start with the things that are known to work, some of which are easy to implement: vouchers would be a good example.”