Coca-Cola does not disclose data about sales in traditional retail and about their weight in total receipts. According to ZF estimates, the US giant wants to spur traditional retail consumption as this segment covers at least half of its receipts in Romania.
Additionally, while international networks negotiate with producers from a strong position owing to their large networks and orders, small stores have a weak position in talks. Thus, Coca-Cola can impose higher prices to traditional retailers. This also translates into higher shelf prices.
For instance, while in a hypermarket or supermarket a 2-liter Coca-Cola bottle costs less than 5 lei, in traditional retail prices go beyond 6 lei. Coca-Cola’s campaign stipulates the maximum price recommended for a 2-liter Coca-Cola bottle stands at RON5.5, but “retailers have the leeway and autonomy to set the prices of products they sell”.
The price gap is the main reason why many Romanians have chosen to do their shopping in modern retail in recent years, and this has led to the disappearance of 70,000-80,000 stores from traditional retail.
“Traditional retail remains the channel with the highest visit frequency and the highest penetration rate among Romania’s households,” stated Coca-Cola HBC Romania representatives. They believe that while the weight of traditional retail is falling to modern retail, traditional retail is betting on the “proximity card”, and buyers can always find the products they seek here.
Coca-Cola started promoting traditional retail after Germany’s retailer Kaufland, leader of Romania’s retail, this spring confirmed it no longer sold Coca-Cola products in its Romanian stores, except 2.5-liter bottles. There is no information yet on whether the two sides have resumed collaboration. The contract between the two is worth several tens of million euros, according to ZF estimates based on market data. Such a “hole” in Coca-Cola’s budget is likely to be behind the company’s move to promote traditional retail.
Overall, the US giant is present with at least one of its brands in 56,000 stores, restaurants, bars and coffee shops of Romania. Most of these are in traditional retail and HoReCa in the context where modern retail includes just 1,300 units.
Thus, the US company covers almost half of Romania’s retail and HoReCa, which now includes 110,000 units, according to a survey by market research company Vektor Marktforschung.
Coca-Cola HBC Romania, leader of the soft drinks market, has three plants in Romania, in Ploiesti, Timisoara and Vatra Dornei and 14 distribution points. The company ended 2013 with revenue of EUR410 million, 7% below the 2012 level, and with a 5% net profit margin, the lowest level the producer registered during the crisis.
The 2013 decline was doubled by a series of top management changes at Coca-Cola HBC Romania.
Small traditional stores have in recent years lost the battle with the crisis and with international networks. Many of those that remained on the market say they can survive owing to sales of several product categories, including soft drinks.
“Traditional retail is being supported by sales of bakery products and vegetables-fruit. The reasons Romanians are attracted to such stores include variety on some product categories, the presence of a large number of Romanian brands and the personnel,” say the representatives of GfK market research company.
“In their turn, 44% of Romanians state they feel good when they go shopping, so that going shopping has also become a form of spending spare time. This spurred the development of modern proximity retail to the detriment of traditional retail,” says Irina Mandoiu, commercial manager of Albalact, the largest Romanian-held dairy producer. She also says small producers are the hardest hit by the expansion of modern retail.
“The aggressive expansion of supermarkets and hypermarkets in Romania has a strong impact over resellers,” say the representatives of Metro Cash&Carry, the first modern retail chain that entered Romania in 1996. Unlike hyper and supermarket chains, cash&carry chains do not address end consumers, but small merchants and HoReCa players.
To halt the decline of traditional retail, Metro Cash&Carry launched the LaDoiPasi franchise system. Thus, Coca-Cola’s move to prop traditional retail comes around two years after the German-held group had the first such initiative.
With an area of even as much as 10,000 square meters and an offer of over 50,000 items, a top hypermarket gets to generate receipts of EUR100 million. At the opposite end, a top unit of traditional retail has a 100-sqm area, several thousand products and receipts of EUR1 million.
Nonetheless, traditional retail still holds 70,000-80,000 units and still is a channel where large producers need to be present.
(English version by Catalina Apostoiu)