Rewe reveals reliance on CEE stores

By Anita Awbi

- Last updated on GMT

Related tags Cent Romania

German retailer Rewe has shown increasing reliance on its
successful Central and Eastern European (CEE) supermarkets, as
insignificant growth in the domestic market stunts overall

The firm announced that total group turnover in 2005 rose by a nominal 2.2 per cent to €41.7bn, bolstered by international growth of 4.9 per cent to €11.1bn.

But Europe's fourth largest retailer made little ground in its domestic market, with turnover up just 1.5 per cent to €29.9bn.

Group CEO Achim Egner insisted the domestic growth rate was nearly twice as high as that for the industry overall however, as hesitant behaviour among German consumers and high unemployment impacted retailers profits across the board.

Full-year earnings before interest, tax and amortization of intangible assets (EBITA) were slightly above target at €525m, but under 2004's previous record of €544m.

"We are particularly pleased that we managed to gain ground in our turnover proceeds, even on the difficult German market,?/I> added Egner.

But the company cited two major challenges facing the company; continuing weak domestic consumption and a costly modernisation programme recently introduced across the group.

The firm intends to reshape its image in Germany and across Western Europe, consolidating stores under one uniform Rewe marketing brand.

And plans for CEE involve a huge investment programme that will see Rewe spend €1bn to expand its store base, with a two-fold increase in Russia alone.

The firm, now active in 14 countries, has been encouraged to invest in CEE after achieving consecutive double-digit growth rates in 2004 and 2005.

And figures from retail research group IGD show that food retail per capita is significantly lower in CEE, suggesting there is real potential when these markets mature.

Currently the whole Eastern European grocery market has a value of €187.8bn, compared to that of the UK, which is €176.7bn.

Boris Planer, analyst at Planet Retail believes these markets are Rewe's best option for growth as there is less competition in the countries further east and they are a good opportunity for long-term investment.

He argued it was better for the retailer to target countries where it can get a foothold and establish a brand, making it better acquainted with consumers, suppliers and local authorities ?which should ease any future expansion.

Russia, Bulgaria and Romania, where Rewe is already active, are the focus of future investment, the aim being to increase the percentage turnover received abroad from 32 per cent to 60 per cent.

The first new store under the plan opened in Ploiesti, southern Romania last month, and will be followed by the second in the summer, the location of which is yet to be announced.

Rewe's Selgros banner will expand its number of outlets in Romania to 20 from the current 11. Three of the stores will be located in Bucharest and the rest will be in Arad, Brasov, Targu Mures, Constanta, Tmisoara, Oradea, Cluj-Napoca and Craiova.

Rewe currently has a 3.6 per cent of the European grocery retail market behind Tesco with 4.1 per cent, Metro Group with 5.1 per cent and market leader Carrefour with a 6.1 per cent share.

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