FMCG retailers return to small, cautious steps

After several years of doubling or tripling the size of their store networks across Romania, FMCG retailers have slowed down their expansion. The lack of money, paucity of real estate projects available and slump in spending are all dissuading retailers from announcing new stores. Only a few are still opening new units in 2010 and not at the same pace as two or three years ago.

Corina Saceanu

Modern retail covers 43 percent of the local consumption market, with hypermarket and discounter stores being the most dynamic formats. While in their glory days, two years ago, hypermarket operators were announcing plans to rapidly increase their network of stores in Romania, piggybacking on the boom in the real estate market, their strategies have changed. Openings are weighed up carefully. Money is no longer so readily available and comes with higher costs, while suitable real estate projects are thin on the ground. This adds to the less than rosy expectations over any consumption increase in Romania over the next two years. Apart from being reticent about new openings, fast moving consumer goods (FMCG) retailers are also cautious in announcing their expansion plans. French giant Carrefour is taking a silenzio stampa approach to its extension hopes, after focusing almost exclusively on its supermarket format last year.

Metro Cash & Carry, the biggest retailer in Romania turnover wise, is behaving similarly. It has only recently announced its plans to open a new cash & carry unit in Bucharest this year, without mentioning the exact location or project within which it could be included.

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French retailer Auchan is however more open to disclosing its expansion plans. “This year we will open a store in Constanta and in 2011 one in Brasov, as part of the Coresi Shopping City project,” Patrick Espasa, general manager of Auchan Romania, tells Business Review. These two are confirmed projects, but the retailer has some others close to being signed, among which is a “very important one” in Bucharest, Espasa reveals. In Constanta, Auchan will open a store in the Polus Center project.

The chain has two shops in Bucharest and seven across the country in total. Its plans are to double this network in the next three to five years. With an average investment per store of EUR 20 million, the seven new outlets should cost the retailer EUR 140 million by the end of the period.

“For the new units we are considering Bucharest, as for us it is important to cover all important cities in Romania and expand even more in the capital. Then comes the viability of the project itself, the client traffic it could generate and the importance of the shopping center,” says Espasa. In Bucharest there are currently 17 hypermarkets and 8 cash & carry store units. One change in the French retailer’s strategy is its plan to buy future stores, rather than just lease the retail space from real estate developers.

Auchan opens larger hypermarkets, as does Cora. Store sizes are around 15,000 sqm, while for example the Carrefour branch that opened last year in Era Shopping Park Oradea covered 9,000 sqm. Cora however has had the slowest expansion pace. It entered the local market in 2001, and after opening two branches in Bucharest, added a third in Cluj-Napoca in 2006, in which it invested EUR 20 million. This year it will open its third store in Bucharest, within the Sun Plaza shopping center. Cora has also signed a leasing contract for 8,000 sqm in Gold Plaza shopping center in Baia Mare, one of the few ongoing retail projects.

Retailer Real, with three stores in Bucharest out of a total of 24 in Romania, has not announced expansion plans for this year. The firm opened four stores last year, following on from another six in 2008.

Meanwhile, Kaufland’s smaller size and discount-oriented hypermarkets were more suited to expansion last year and, based on the progress of 2009, the firm could add some more units this year too. The German retailer has aggressively expanded since its 2005 market entry in Romania, having reached 45 hypermarkets across the country. In the first three months of this year, Kaufland will open five or six more stores. The retailer’s typical investment in a store is about EUR 9 million.

One of Kaufland’s advantages for expansion is the financing provided by the European Bank for Reconstruction and Development (EBRD). The retailer took out a EUR 150 million loan from the EBRD mid last year, which should fuel its expansion with 20 stores across Romania and 13 in Bulgaria. Despite being one of the most aggressive companies in terms of expansion, Kaufland has kept a low profile in announcing anything strategy related.

The lack of suitable real estate projects is one of the impediments to the expansion of those retailers whose strategy is to open units within larger projects. Had all the projects which were announced a couple of years ago been started, retailers would now have had a wider choice. Projects like Parklake Plaza, Mega Mall, Casa Radio and Promenada Mall in Bucharest have all been delayed. Meanwhile, some real estate developers are trying to shift to different formats, after the shopping mall and retail park options have already been tried out. Developer RED is planning a network of smaller shopping centers under the Cadran brand, across third tier towns in Romania. The developer has already secured financing for a first such project in Husi, which will be anchored by Penny Market. Such small projects have room either for a discounter or a supermarket, which could be using the opportunity to expand across the country.

This strategy follows an international pattern, as turbulent economic conditions have led to a re-evaluation of channel strategies by the world’s leading retailers, according to Planet Retail. Proximity retailing is poised for a boom, driven by the expansion of discounters and other small-box grocery outlets.

Looking specifically at the top 30 global grocery retailers, the economic downturn has led many to cut back on hypermarket openings due to a slump in consumer spending and the relative cost of operating big-box outlets, according to Planet Retail research.

“As capital expenditure budgets get squeezed, resulting in a slowdown across virtually all channels, it has become more important than ever for retailers and manufacturers to be sure they are investing in winning formats and in the winning regions,” said Natalie Berg, Planet Retail’s grocery research manager.

corina.saceanu@business-review.ro