Neighborhood retail strives to keep its territory

The inconvenience of convenience retail
Studies show that in Bucharest, as much as around the country, the proportions of different types of retailers, from hypermarkets to kiosks expanded at the same pace over the last 6 years.
Hypermarkets swallow from the market slices in such a visible way against all the other kinds of commerce so that the optimism of the smaller retailers must be founded on other economic grounds. One of them is the location and the luck in not having direct neighboring competition, as the market shows. Still, the location and the proximity type of the business of the supermarkets attract the “big fish.” Recently, Carrefour acquired the 21-supermarket network of Artima for EUR 55 million, and the group's representatives explained the transaction using the economic ground of expansion and entering markets where a big retailer is not able because of its dimensions, in sqm and prices. There are several areas and cities where the market entrance is much easier to be done with the supermarket format, according to Carrefour's representatives. According to Patrick Knight, the investment funds are always searching to acquire companies with very good growth potential and in Romania, the retail industry is expected to continue to grow for several years at very high rate. “La Fourmi was brought from its original owners two years ago by Global Finance, one of the largest equity fund companies in the Balkan region, in anticipation of the potential growth. Recently, we saw the sale of Artima supermarkets to Carrefour by another private equity fund. We can expect more activity from private equity funds in the retail sector for several years to come,” Knight said.
The need for expansion is mutual for retail chains, either supermarkets or hypermarkets, with the difference that some can sustain the costs of expansion and some need financing for maintaining the current activity. So that the supermarkets became the target of investments funds, as it happened with Albinuta supermarket chain acquired by Profi Rom Food owned by Belgian group Louis Delhaize. According to supermarket representatives, the pressure on a supermarket chain's manager is huge because of the competition, the high rents and the impossibility of negotiating with suppliers.
The financing solution is coming fluidly, the sale to an investment fund, the takeover by a bigger chain or listing on a stock exchange, according to the FMCG analysts. For example, Ethos supermarkets chain will sell a minority stake to an investment fund, and keep the majority in the company's shares stock, according to Ion Solomon, the chain manager. Ethos is managed by Ivet Comprod company owned by Solomon family and running 13 locations in Bucharest and one in CampuLung Muscel.

Swimming with the sharks
In the opinion of Knight, there is still a lot of room for everybody on the market. “There is in fact still a lot of room for growth and development of all types of organized chains before the market reaches any degree of congestion, which in turn will result in acute competitive conditions. In order to prepare for the future, when the competition will be much more intense, smaller chains must prepare themselves particularly improving in the areas of good, quality service, freshness and hygiene in food products,” he said on the topic. Knight envisions the economic ground of growing a supermarket chain: “One of the characteristics of the supermarket business is that even a marginally profitable enterprise can generate very strong cash-flows, which in turn, can be used to finance growth – which means opening new stores.”

A place for all- Hypermarkets, supermarkets, boutiques, kiosks
The decreasing perception in the retail dimensions can be felt not only in statistics and graphics, as such of GFK market research organization, but in reality, common language, and on paper. Representatives on the market say that soon-to-be-seen transactions of investment funds buying supermarkets, hypermarkets, and acquiring smaller retailers besides the economic “natural death” of any other type of commerce which will not prove its efficiency on the market stand for the dynamism of this segment, the retail market estimated to reach by yearend EUR 40 billion and to exceed EUR 100 billion until 2010. The convenience retail held 2.2 percent from the market in 2006 according to studies on the market and apparently, the decreasing path is certain. Still, the consumer behavior is not something to leave behind and the “all in one” big shops will stand for “weekly and monthly” big shopping sessions, while the modest corner street kiosk proudly advertise the handy “daily” offer.

Magda Purice

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