Retail details make the difference

If the diversity of its retail industry is proof of a market’s maturity, then the local food retail industry makes for a rather dull, monotonous and clearly underdeveloped one. Less affected by the crisis than other retail segments, the food industry is preparing for a new development phase. Expansion plans are still in the cards, but different times call for different investment strategies and a more flexible and innovative approach to the market.

Simona Bazavan

A glance over the development of the food retail industry in Romania over the past few years shows the very dynamic growth of modern retail against traditional, from a market share of only 29 percent in 2005 to 45 percent last year, according to Raluca Raschip, consumer goods director at GfK Romania. The figure is expected to reach 54 percent by 2015. So far, predictions for 2011 strike a cautious tone. “Modern food retail will register a slight increase compared with 2010 and will continue to see its market share go up against traditional retail,” Sorin Spiridon, manager with Ensight Management Consulting, told Business Review. 2011 should be a year of stabilization but another two, three years will be necessary to return to a sustainable growing market environment, thinks Michael Weiss, partner at A.T. Kearney.

International retailers active in Romania have reached national coverage and further territorial expansion is showing signs of slowing down, as competition among them is increasing. But consumption will eventually pick up, bringing about a more educated and demanding consumer. Along with these trends, retailers’ market approaches are also undergoing changes. While a few years ago the priority of any retailer was to continue territorial expansion, chains must now concentrate on upgrading their networks. “There will be interest in improving existing locations by optimizing the product portfolio and overall better stock management and improving merchandising,” added Spiridon.

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While there is much talk about the advantages of introducing new retail formats, this shouldn’t be an option so long as existing ones aren’t optimized, experts argue. “Romania already enjoys a broad set of different retail formats. The current retail landscape is not suffering because of missing formats – but because established formats are not running optimally,” Weiss told Business Review.

In his opinion the borderlines between the different shop formats and their category management have become less and less clear in the past two years. Price became the ultimate determinant as shopping decisions were less driven by brand choice and even less by a certain shop format, thinks Weiss. “This trend was even accelerated by the retailers as several of them diluted their market profile by a very pragmatic category management based on the slogan ‘sell what you can sell’,” he said, adding that there will be a clear correction of this shift. Other trends anticipated by Weiss for the next couple of years are an increase in private label products, under the condition that the price quality ratio improves, and a further standardization of product portfolios.

Nevertheless, as modern food retail becomes more and more saturated, big players will have to turn their attention to traditional formats. “If food retailers in Romania do not find a way to manage this still sizeable market segment they will leave it to the direct suppliers and their distributors,” cautioned Weiss.

But as someone’s loss is often somebody else’s gain, this means that there is room for smaller scale investors. “The food retail is very country-specific and very locality-specific and this is an important advantage for local players,” Alexander Athanassoulas, CEO of Stirixis, told Business Review. While going head to head with big players is not an option, coming up with a very well targeted and strategically positioned concept can prove the winning solution in a market which will become more and more service demanding, Athanassoulas argued.

Expansion plans for 2011

According to GfK data, in 2010 the share of modern retail went up by 2 percentage points against the previous year. “Both hypermarkets and discount stores saw a one percent increase while supermarkets were on a downward trend, being the worst affected by the fall in frequency of shopping trips, with an 8 percent drop (in value),” said Raschip.

Discounters were by far the most active players. Rewe Group announced that its local Penny discount network registered a 4.3 percent turnover increase last year, recording “above-average development”, according to the company’s financial report. The performance reported in Romania is followed by the results in the Czech Republic (+3.8 percent). The retailer opened seven new Penny Market stores countrywide last year. In Romania Rewe Group operates the Billa, Penny Market and Penny Market XXL networks.

The trend will most likely continue. “Proximity stores, supermarkets and discount stores are the main players when it comes to the estimated number of new units to be opened over the next two, three years,” Luiza Moraru, head of retail department at CBRE Romania, told Business Review. These formats allow small scale investments and faster network development as the related bureaucracy of opening such units – construction permits, traffic conditions, sticking to certain urban development projects – is also smaller, Moraru explained.

“This year there will be more openings of discount stores and supermarkets and fewer of very large units,” Spiridon agrees. In his opinion Kaufland is a special case, as it seems to have found the winning solution in times of crisis: the optimum surface to cover the right product portfolio, smaller than a hypermarket but with prices similar to that of a discount store. The 62nd Kaufland hypermarket was opened earlier this year, the fourth unit that the German discounter had opened since the beginning of 2011. Kaufland’s local network expanded by thirteen hypermarkets last year.

“On the medium and long run, we will see an increase in the number of proximity stores with small to medium sales areas, with a reduced but very carefully selected product portfolio and a level of service which will be customer orientated and very much improved,” Spiridon concludes.

Nevertheless, big projects are still in the cards. Carrefour, the largest European retailer, has announced plans to open two new hypermarkets this year. Carrefour has announced that it will open this September its eighth hypermarket in Bucharest, located in the Colosseum retail park. The new unit will have a surface of approximately 8,000 sqm.

“For the Carrefour group in Romania this new hypermarket is proof that we will continue to expand on the large format,” said Patrice Lespagnol, executive director of Carrefour Romania. A second hypermarket will open in October in Botosani, bringing the French retailer’s local network to 25 hypermarkets.

Romania Hypermarche, the company operating the Cora hypermarket chain, announced that it would open two more Cora hypermarkets in Arad and Drobeta Turnu Severin in 2011. The latter was opened last week.  Earlier this year the company also announced a EUR 100 million investment in its first mall on the local market, in Constanta, under the name of Corall. Two similar commercial centers are planned in Brasov and Bacau over the next two years.

simona.bazavan@business-review.ro