Big Retailers Target Romania for High Growth – October 11, 2007

Romanian locations fuel Western European retailers’ businesses
Business Romania – October 8, 2007
by Corina Saceanu

Large retailers are leaving their nests in Western Europe, which provide satisfactory but not excellent results, and going to Eastern Europe and Asia. Romania is one of the top targets in Eastern Europe for retailers like Metro, Carrefour and Selgros, whose local large-format stores provide the biggest sales increases for their chains.

The country has a higher potential than Poland and the Czech Republic, where some retailers prefer to slow down expansion. Newly-entered players and expected names are putting more pressure on retailers’ expansion plans. Western European retailers operating hypermarkets dominate the Central and Eastern European markets. Romania is no exception, but what makes it different at this moment from countries like the Czech Republic, Poland or Hungary is the high potential it still has for retailers to boost their businesses here.

All sorts of retailers – from cash & carry to supermarkets and discounters – are striving to get more of the local retail pie. However, cash & carry and hypermarkets are the most popular types of modern shopping in Romania. Cash & carry stores represented 45.2 percent of local grocery shopping last year, followed by hypermarkets, with 23.5 percent of sales. Supermarkets account for only 18.1 percent, according to a study by Planet Retail.

The local market has for several years been dominated by Carrefour and Cora on the hypermarket segment, while Metro and Selgros have competed on the cash & carry market.

Carrefour has been more focused on organic growth, opening more stores than Cora, the latter having only three stores in Romania at the moment. Metro group managed to stay ahead of Rewe, which owns Selgros, among others, according to a sales ranking by Planet Retail, a retail intelligence company.

Retailers that entered the local market early had time to benefit from Romanian shoppers’ appetite for Western-like shopping, and although purchasing power has been low, even lower than in the other countries in which they operated, their sales have been high enough to justify continuous presence in the country. Meanwhile, they could focus on increasing their operations in neighboring countries, where they were facing competition. When new competitors came to Romania – and there have been a few in the last two years: Real Hypermarket, Kaufland, Auchan and Spar – their strategy shifted a little to face competition and ensure bigger and bigger profits from Romanian shoppers.

Last year proved to be the best for retailers in Romania, as all major players accounted for historical increases in sales. If forecasts for 2007 come to fruition, this year might bring even better performances.

Top retailers’ strategies are however going deeper than the changes made locally, like renovating stores, aggressive marketing campaigns and targeting cities with fewer inhabitants.

All these movements should be connected to what happens in Central and Eastern Europe retail.

Large retailers are concentrating activities in the CEE countries, exiting some and increasing their presence in others. “While the 1990s were an era of Western invasion in Central and Eastern European grocery retailing, the 2000s are proving to be an age of rationalization, with the large Western European groups exiting those CEE markets where they cannot achieve a dominant position, instead focusing on the markets that offer them the opportunity of a top three ranking,” found a report by Planet Retail.

As a result of this concentration of activities, the top retailers’ market shares in CEE countries are likely to decrease in the coming years, believe Planet Retail experts. “Modern grocery companies are now springing up all over the region’s most underdeveloped markets, like Russia, Ukraine, Romania and Bulgaria,” reads the report.

“The majority of CEE markets are already saturated,” agrees Andreea Mihai, marketing manager with Carrefour Romania. “In Romania there is an important weight of traditional trade, 67 percent of the sales in 2006. Many regions are not covered by any modern trade; all retailers are expanding very aggressively,” she explains.

This is why Carrefour is planning to open two more stores this year, to add to the existing eight. “Carrefour Romania is in an expansion period, with an unprecedented dynamic. In 2008 we plan to open at least six more stores in Braila, Suceava, Pitesti, Arad, Bucharest’s Vitan area and Oradea. The development will not stop here,” says Mihai.

The target for the French retailer is to cover the majority of Romania’s regions, “but one eye is always watching our competitors,” says the marketing manager.

Romania makes 2 percent of Carrefour’s CEE sales

Why is Romania so important to Carrefour as to make the company open in a little more than one year the same number of stores it opened in six years on the local market?

Carrefour, which is the third ranking retailer in Romania sales wise, after Metro and Rewe, is now competing with newcomers like Real, Auchan and Kaufland, which also have aggressive expansion policies. This competition is spiced up by land price rises even in secondary Romanian cities along with a labor force crisis, which all make it even tougher for retailers to open new stores. While Carrefour is taking up this rapid pace in new openings in Romania, the group has pulled out of the Czech Republic, by swapping stores with another giant retailer, Tesco, which is not yet in Romania. For its stores in the Czech Republic Carrefour received Tesco stores in Taiwan.

The French retailer’s sales in Romania reached EUR 608.9 million last year, around 2 percent of the group’s sales in Central and Eastern Europe, according to Mihai. It may achieve some EUR 850 million in turnover at the end of this year, according to previous media reports. So far, Carrefour Romania has managed to increase its January to June 2007 sales by 43 percent on the same period of last year, to some EUR 362 million, according to Jacobo Caller Celestino, the company’s general manager. The group’s sales in Europe, excluding France, Spain, Belgium and Italy, reached EUR 16.6 billion, which means Romania accounts for around 2.1 percent of the region’s sales.

“Greece, Poland and Romania continued to drive the growth of our other European countries, with sales growth on constant exchange rates of 7.9 percent, 23.7 percent and 27 percent respectively,” reads Carrefour’s latest financial report. Out of these three countries with excellent growth, Romania ranks first in terms of sales increases. For comparison, Spain, Italy and Belgium accounted for sales increases of 5.9, 2.6 and 1.4 percent respectively in the first half of this year. So Carrefour gets most of its sales increases from Central and Eastern Europe, Latin America and Asian countries.

Metro Group focuses on Real expansion

Metro Group, currently the top retailing group in Romania in terms of sales, according to the Planet Retail survey, is not expanding its network of stores, which is actually the widest in the country with 23 outlets. The German retailer is however renovating some of its existing stores. The group has brought in a sister company whose expansion it is currently taking care of. Hypermarket operator Real, which entered the Romanian market last year, is expanding in the country at a rapid pace. With nine units already opened, some six more planned for this year and another six for next year, Real is competing with Carrefour, Auchan and Cora. Its sales in Romania reached some EUR 82 million last year, its first year on the market.

“On a market like Holland’s, which is already mature, retailers are happy to achieve a 3 percent year-on-year increase in sales. When we talk about 30 percent increases in sales on the Romanian market, we talk about a totally different challenge,” says Tjeerd Jegen, managing director with Real Hypermarket Romania. He sees the retailers on the local market expanding aggressively and compares this period to what happened in Poland in 2002.

Metro Cash & Carry’s turnover last year in Romania stood at EUR 1.42 billion. Out of the EUR 12.6 billion turnover made by the group in Eastern Europe, Metro Cash & Carry Romania contributed 11 percent.

The first half of this year brought up Romania’s and Russia’s names among the countries which performed best in the Metro Group, according to the latest group financial report.

Sales in Eastern Europe showed above average growth rates for the group, with a 23.5 percent increase in the first half of this year. Western Europe’s sales increase was lower – 13.5 percent, which seems to confirm the idea that Eastern Europe is becoming more and more important to large retailers.

Metro Romania ranks 72nd in the top 500 Eastern European companies, recently published by Deloitte. Selgros was 255th on the list.

Romania gets biggest YoY sales increase in Rewe chain

Rewe Group is represented in Romania by the Billa, Penny Market and Selgros brands. The group accounted for EUR 1.05 billion in sales last year in the country.

Its results last year, with a total of EUR 11.8 billion in turnover outside Germany, grew by 12.2 percent. “This result could be traced above all to the development of Eastern Europe: Rewe group’s subsidiaries in Bulgaria, Romania, Czech Republic, Croatia, Slovakia, Poland, Russia, Ukraine and Hungary increased their turnover by 17.8 percent to EUR 3.8 billion,” according to the company.

This means Romania brought almost a third of the group’s turnover in the region. This is so far the biggest weight the country has in a Western European retailer’s network. Moreover, in terms of turnover, Romania is the fourth biggest country for Rewe, after its home country Austria, Italy and France. Last year, the group’s financial results in Romania increased by 34.7 percent, which is the largest increase accounted by any country in which Rewe is present – 13 in total.

While Western Europe makes up the bulk of Rewe’s shares, Eastern Europe comes with the biggest year-on-year increases. This shows the Western markets are stagnating, while there is room for much more in Eastern Europe.

Selgros Cash & Carry, operated by Rewe in Romania together with Fegro Markt, posted EUR 600 million in sales last year. Thus, the retailer covered more than half of the mother group’s sales in Romania. The company opened three new stores this year and upgraded existing stores. Selgros currently has 16 stores in Romania and plans to achieve 21 outlets in the country, thus getting closer to Metro Cash & Carry’s chain size, which will not be increased in the meantime.

Kaufland, part of Lidl & Schwarz Group, is the hypermarket operator with the highest number of stores opened shortly after market entry. Since 2005, it has opened 28 hypermarkets in Romania. The group is recognized for its fast and aggressive expansion policy once it has entered a new market. Kaufland types of stores are at the border between large supermarkets and hypermarkets.