Oxstones Investment Club™The grocery market in five Central European countries, the Czech Republic, Hungary, Poland, Romania and Slovakia, was worth app.EUR100bn in 2009, according to the latest report from PMR, a research and consulting company, entitled “Grocery retail in Central Europe 2010. Market analysis and development forecasts for 2010-2012”.
Last year, the worsened economic conditions negatively affected the grocery market in the region, with Poland being the only country reporting an increase of grocery retail sales. However, in the current year the economic situation has improved in Central Europe, and the grocery market in the region as a whole is forecast to grow this year, to achieve EUR 102.8bn in total.
Grocery suffered in an economic slowdown to a lesser extent than the total economy
The negative impact of the global financial crisis was seen in all Central European economies, which shrank in 2009 or, as in the case of Poland, showed a positive growth of 1.7%, but lower than that of the previous GDP. The grocery markets followed this tendency and recorded sales declines or lower growth (Poland), measured in local currencies. Nevertheless, the grocery segment remained relatively resilient to the significant worsening of the economic conditions in the region and decline rates were not as deep as the reported decreases in the GDP and retail segments overall. Expressed in euros, the CE grocery market decreased by nearly 13%, to EUR 100.4bn, the decline being more pronounced than in local currencies, and being additionally affected by the depreciation of local currencies, mostly in Hungary, Poland and Romania.
Poland remains the largest grocery market in the region, and comprises more than half of the CE market. In terms of sales, the grocery markets of Romania, Hungary and the Czech Republic are comparable, whereas the Slovak market is less than half compared to the three mentioned above.
Retailers challenged by falling like-for-like sales
In all the countries, the sector of small retailers was hit the hardest by the unfavourable economic climate and reduced consumer spending accompanying the higher unemployment, says Dominika Kubacka, the PMR retail analyst and report’s co-author. For example, in Romania and Hungary, the total value of sales in small groceries dropped by around 10% y-o-y. As a result, only the convenience stores and these of the chains, cooperating in the networks outlets, managed to demonstrate the positive development. In addition, the hypermarket segment also faced poorer results than in 2008, as customers often turned their attention to discount stores, which offered cheaper products.
The other symptoms of a challenging market included worsened like-for-like results and fewer stores opened than a year ago. In Romania, insolvency problems and the closure of stores amongst the top players changed the picture of the retail, mainly in the supermarket segment, and the observed processes were the widest among the CE countries in question.
Many of the recent transformations within the CE markets were impacted by the consequences of the takeover of the Plus Discount chain, starting from Poland in 2008 and ending in Romania, where the transaction concluded in February 2010 still awaits the final decision from the Competition Council.
Since 2008, the new players appeared mainly in two distribution channels, namely discount and convenience stores, which enjoyed high sales dynamics and thus attracted the next retailers. Among the most expected launches, Aldi entered Poland and Hungary in 2008, and Lidl targeted Romania in 2010. But at the same time, many retailers tried to start new store formats (e.g., CBA Hungary -Cent discounts), also by rebrandings (e.g., Delhaize Group, Romania -Red Market discounts).
The destabilised economic environment and challenging fiscal conditions caused several governments to look for additional revenues to safeguard the country’s budgets. In three countries, VAT rates had already been risen starting from mid-2009 -namely in Hungary, the Czech Republic and Romania -while in Poland the VAT is to increase as of 2011. “There is always the question to what extend this change will result in higher prices on the store shelves, as the experience of Hungary shows the big retailers trying not to burden customers with additional costs and avoid raising prices, as the price image gained importance in a tough environment” -adds Dominika Kubacka.
Troubled hypermarkets still dominate modern retail segment
The total share of the hypermarket segment in the whole CE region achieved nearly 20% and they are the largest among modern retail channels, providing revenues around one-fourth higher than the second-place supermarkets. The leading retailer on the Central European hypermarket segment is the British firm Tesco, which is a first-runner in all the countries but Romania, with Carrefour being the leader on this market. The segment, although possessing the highest share of the market, was significantly impacted by the economic downturn and the customers spending less on the non-food range and trying to rationalise their shopping habits. As a result, its size nominated in euros decreased in 2009, by nearly 9%.
Comparing the situation in different countries, the value of the hypermarket segment declined in Hungary and Slovakia. In the remaining countries, the largest stores recorded significantly lower sales dynamics compared to the previous year. In Romania, two operators were unable to service the high debts, leading to their insolvency.
In addition, the discounter chains have been developing organically at a much stronger rate, due to lower investment requirements and high saturation of the hypermarket segment. Together with the proximity to customers, the possibility of relatively fast shopping and low-price strategies based on own brands, they are becoming much more competitive with the largest stores format. Thus, hypermarket operators are forced to look around in search of other ways to grow -e.g., downsizing the store to a more compact format, refurbishments, new concepts on the CE markets, price investments and development of private labels.
Note: Central European (CE) countries in this article and the PMR report “Grocery market in Central Europe 2010. Market analysis and development forecasts for 2010-2012” refer to the Czech Republic, Hungary, Poland, Romania and Slovakia.
This press release is based on information contained in the latest PMR report entitled “Grocery retail in Central Europe 2010 – Czech Republic, Hungary, Poland, Romania and Slovakia. Market analysis and development forecasts for 2010-2012“.
For more information on the report, please contact:
Marketing Department:
tel. /48/ 12 618 90 00
e-mail: marketing@pmrcorporate.com
About PMR
PMR (www.pmrcorporate.com) is a British-American company providing market information, advice and services to international businesses interested in Central and Eastern European countries as well as other emerging markets. PMR’s key areas of operation include business publications (through PMR Publications), consultancy (through PMR Consulting) and market research (through PMR Research). Being present on the market since 1995, employing highly skilled staff, offering high international standards in projects and publications, providing one of most frequently visited and top-ranked websites, PMR is one of the largest companies of its type in the region.
Tags: consumer retail, Eastern Europe, emerging european retail, emerging markets, food market, grocery market, private equity, retail market