Russian food retail full of promise
region's food retail sector is growing at an unprecedented rate, a
recently published report finds. Fuelling that growth is the boom
in large-scale supermarket and hypermarket operations, particularly
in countries such as the Czech Republic, Slovakia, Poland and
Hungary. On the other hand, the development of the Russian food
retail sector is still limited, but the potential is enormous.
Only 10 years ago, the number of hypermarkets in Central and Eastern Europe could be counted on the fingers of one hand. Next year there will be more than 500, according to a new report from PMR entitled 'Russia and CEE Retail 2003/2004. Retail Trends for Emerging Europe'. We offered some of the findings of the report last week and in this second taster we look in more detail, revealing expectations for the specific key markets.
PMR analysts calculate that in the five CEE countries analysed in the report - Poland, the Czech Republic, Slovakia, Russia and Hungary - by the end of this year there will be 460 retail outlets with a sales space exceeding 2,500 m2. Currently by far the largest number of such stores are in Poland - 186, some 10 times more than the number that have been opened in Russia.
Poland
The rate at which new large-scale retail outlets are springing up in Poland has not slackened this year. In fact, according to PMR calculations, by the end of December 2003 as many as 32 new hypermarkets will have been opened, which equals the number of openings in the record year of 1999. This is chiefly due to the expansion of the German group Schwarz, which has only been present on the Polish market since the second half of 2001, but in that short time has succeeded in creating a chain of over 30 'compact' Kaufland hypermarkets (with an average sales space of 3,000 m2) and more than 60 Lidl discount stores.
The PMR report also estimates that 2004 will see 28 new hypermarkets open in Poland. This slight decline in numbers from 2003 levels is due on the one hand to the gradual saturation of the market with this type of store in the largest cities, and on the other to the strategy newly adopted by international retailers in this region, which entails investment in more profitable supermarket and discount chains as well as plans for expansion into smaller towns.
An example of this strategy in action can be found in the Leader Price, Champion and Albert chains, which have been present on the market for a few years now, and all belong to companies that started out in Poland by opening hypermarkets (Carrefour and Ahold). These chains have been joined this year by E. Leclerc, which has added to its 10 hypermarkets two new supermarkets in Klodzko and Belchatów. The leader in the hypermarket segment, the British firm Tesco, is also looking into launching a new supermarket chain.
"Besides new openings by hypermarket operators, further consolidation in the sector should also be expected. It is highly likely that 25 outlets in the Hypernova chain will be changing hands. Their present owner, the Dutch concern Ahold, which is in serious financial difficulties, is shedding a proportion of its unprofitable assets," said Piotr Byrski, a PMR analyst and author of the report.
"Unofficial sources suggest that the buyer may be either the French Carrefour, which recently acquired two Hypernova stores in Sosnowiec and Bydgoszcz and has expressed an interest in Ahold's Spanish assets, or Wal-Mart, the world leader in retail and hitherto absent from the Polish market but in talks with Ahold regarding the takeover of its Bompreco chain in Brazil," he added.
The data quoted in the PMR report suggests that a significant realignment of influence can be expected next year on the Polish market.
Neighbouring countries
The Czech Republic is the regional leader in terms of numbers of hypermarkets per million inhabitants. At present the market numbers over 130 such outlets, including 42 Hypernovas and more than 50 Kaufland hypermarkets.
The picture is diametrically opposed in Russia, where large stores remain a niche area of the retail market that is in practice accessible only to the more affluent inhabitants of the largest cities. Of the fewer than 20 hypermarkets at present operating in Russia, the vast majority are in Moscow and its environs. Nevertheless, as Russia numbers 11 other cities with over a million residents besides Moscow and St. Petersburg, a real revolution in the structure of the retail market there can be expected before long. One by one, the large commercial chains are unveiling their plans for expansion onto the Russian market. The French group Auchan, already present there, is planning to open a further eight hypermarkets, and the German concern Metro hopes to launch its first stores, under the Real brand, next year.
In Hungary, the CEE leader in terms of modern shopping centre surface area per head of population, the number of hypermarkets alone has doubled in the last three years, and they have now conquered over 20 per cent of the retail market.
Slovakia, the smallest country in the region, only recently attracted its first hypermarkets. The investment boom in the Slovakian retail market peaked in 1999-2001, when the largest players - Tesco, Ahold and the Schwarz group (Kaufland) - entered the market.
Brighter outlook
PMR analysts also draw attention to the rising consumer confidence indices in the five countries in the region. This is supported by the consistent year-on-year improvement in the 'misery index', which is the sum of two variables: inflation and unemployment. Naturally, the higher the value of the misery index in a given country, the lower the standard of living there, the lower the level of consumer confidence, and hence the lower the turnover of retailers.
An analysis of the data suggests that the lot of consumers in this region is improving gradually, and the same can be expected in the year ahead. The drop in the misery index is especially marked in Russia, where PMR estimates a 12 per cent decrease in the value of this indicator over the 2000-2004 period to 18.9 per cent. This will bring Russia ahead of Poland, whose indicator will continue to fluctuate around the 20 per cent mark as a result of high unemployment. The only country forecast to suffer a rise in the value of the indicator in 2004 in relation to 2000 is the Czech Republic. This will be minimal, however (0.2 per cent), and the index will remain at the relatively low level of 12-13 per cent.
This article is based on a PMR Ltd market report entitled Russia and CEE Retail 2003/2004. The Retail Trends for Emerging Europe.
