Romanians’ homes are more crowded than westerners’ and the country is also in last place even in terms of number of cars per thousand inhabitants. Farther ahead of it are developed countries in the West, with Germany on the top position most of the times. Neighboring countries like Poland and Hungary are also ahead of Romania.
The gaps between Romania and the West may very well become growth drivers in the future, which will reboot consumer spending, because there cannot be long before the first TV set in the household has to be replaced or the rural area household gets an automatic washing machine.
“Romania has certainly reached the tipping point and it is so far behind western countries that there can only be an upward trend in the coming years,” says Adrian Olteanu, chief executive of Flanco Retail, a company that operates the electronics, home appliances and IT products retailer by the same name.
Statistics in Poland have been tracking the number of laptops, of dishwashers and food processors in households for a number of years now, while Germany stopped including data about the number of washing machines or vacuum cleaners in its statistics a long time ago, because they have already reached a 1:1 ratio in each household and therefore have nothing left to count.
On the other hand, only 75% of Romania’s households own a washing machine and only 60% own a vacuum cleaner. Romanian homes are far behind their Western counterparts considering there are still households without running water, electricity or an in-door bathroom.
“Consumer spending in Romania remains extremely low on certain segments even when comparing it with the consumer’s purchasing power,” said Dan Minulescu, 44, who developed the largest frozen food wholesaler, Macromex, an about EUR100 million business, from the ground up.
Under the circumstances, the only way is up. Businessman Dan Sucu, owner of furniture maker and retailer Mobexpert, believes the middle class suffered the most through the crisis, which does not mean the need for things disappeared, just that people have been postponing the actual purchase. He believes the time when the decision to buy will no longer be possible to postpone is near.
Flanco’s Adrian Olteanu believes that spending on electronics, home appliances and IT products for instance is connected to infrastructure investments (this applies to purchases of washing machines and other electronics and home appliances in rural areas) and to the trend of the consumers’ incomes.
“The current state of the economy in Europe makes us think we cannot be talking about a significant growth of the market any sooner than medium and long term, when consumer spending resumes growth stimulated by lending,” he added.
Dan Ostahie, owner of the electronics and home appliances retailer Altex, says the gap between Romania and the developed countries is obvious but acquisitions of home appliances and IT products depend on incomes and salaries. “The growth of the economy would show in an increase productivity and in an increase incomes after that. It is hard to make forecasts now about when we should see these increases.”
Romania has a lot of growth potential, even more so given the current crisis.
“Romania has a high growth potential. In 2008, when we started to feel the effects of the crisis, the market was following a strong upward trend. However, we are below the level of European markets, which are more mature in this regard,” says Ciprian Hatneanu, manager of retail and technology with GfK Romania. “In addition, the crisis hurt us the most, widening the gap between us and the other countries. This means we have a lot to catch up. It remains to be seen when the incomes of Romanians, which are still very low, will allow us to narrow this gap.”
The gap between Romania and the neighboring countries is wide in terms of first purchases of products such as dishwashers and especially in terms of replacement of electronics and home appliances, believes Flanco’s Adrian Olteanu. This is due to both money problems and the overall lack of a culture of constant investment in new models in these product categories among consumers in order to improve their lives.
“The average product replacement rate in Romania is three times the product lifespan (18.5 years versus 5.4 years). Particularly over these last few years, Romanians have been replacing their appliances, electronic and IT products only when they stopped working.”
He believes the entire market will grow, though.
“We expect fast-paced growth on the market of LED, LCD and 3D TV sets, considering their penetration rate is still low and they are becoming more and more affordable for medium and even lower-income people. The IT (notebooks, netbooks, tablets) and the telecom (smartphones) segments are on the rise.”
Statistics in Romania merely count TV sets without distinguishing among the various types (black and white, CRT, LCD or LED). LCD TV penetration rate stands at nearly 50% in Germany, while in Romania such TVs are in their early stages of adoption.
Businesspeople believe gaps between Romania and other European countries are also due to the fact that almost half of the country’s population lives in rural areas and earns much less than the average income.
Alexandru Vlad, chief executive of cash&carry store chain Selgros, says that Romania has been unable to implement steps to lead to a stabilization and economic growth in agriculture and implicitly to an improvement of the financial situation of people living in villages. “Unfortunately, we’re talking 40% of the country’s population here. Unlike Romania, only 25% of Poland’s population lives in rural areas and the percentage in the other European countries is much lower.”
Altex’s Dan Ostahie in turn says Romania is divided into two – the rural and the urban country. He explains that one cannot expect growth in the number of washing machines, for instance, from people living in rural areas, unless the proper sewer infrastructure has been built.
“Refrigerators, TV sets, cell phones and laptops are doing better. Internet, for instance, has reached all the regions of the country. It has to do with how easy it is for a product to reach the two Romanias.”
Ostahie explains products like cell phones and laptops will be easier to spread to rural areas in the near future considering the infrastructure needed is already in place. That is not the case with washing machines.
Selgros’ Alexandru Vlad suggests a solution: create the necessary premises for a modern and efficient agriculture.
“We’ve got plenty of fertile land, and good premises for development of livestock farming. When that happens we will be able to boost consumer spending by equipping households in rural areas. And there’s tremendous potential here. Let’s not forget we’re talking 40% of the country’s population.”
He says it is obvious that the non-food sector will be the one with the highest growth, that is electronics and home appliances, cars, and especially agricultural machinery and equipment.
“Anyway, it’s a long process. Any measure that creates large farms would bear fruit in a matter of years.”
There is one tractor per every 16 Romanian farmers now. The ratio is one to two in Poland. With its 9.4 million hectares of farming land, Romania has a fleet of 175,000 tractors, while Poland has 1.5 million tractors operational for 14 million hectares of land, according to statistics of United Nation’s Food and Agriculture Organization. Every tractor in Poland covers about ten hectares, while in Romania every operational tractor has to cover five times as much.
Romania is also the EU’s laggard when it comes to the number of cars per thousand inhabitants with its rate of 198 cars/1,000 people, far behind Bulgaria and Hungary (331/1,000 and 301/1,000). The average in the EU stood at 473 cars/1,000 people in 2009.
(English version by Loredana Fratila-Cristescu)