In Vaslui County, for instance, one of the poorest of the country, there are only nine modern retail stores, seven of which discount stores and a low-price Kaufland hypermarket. In comparison, Bucharest and the surrounding area, that is Ilfov County, have 485 modern stores together, 85% of which supermarkets and convenience stores.
“The business model of discounters is based on efficiency so they cannot pay the same price for land as other networks can, which is why they choose to go somewhere other than Bucharest. Moreover, such networks go where there is demand for them, the areas where only traditional stores operate that are not as bold with their expansion, so they can easily cover the market,” says Luiza Moraru, head of retail department with real estate consultant CB Richard Ellis.
Supermarket chains, on the other hand, she adds, have a completely different business model, relying on a wider range of products and different sales volumes. Furthermore, rent and land acquisitions have a different position in the cost structure.
Most supermarket and convenience store chains bet on spaces of tens to hundreds of square meters, which they rent in good locations with traffic to match. On the other hand, discount store chains chose to buy the land underneath their stores, an investment that takes 20 years to recoup, according to the latest data available.
There are two discount store chains operational in Romania, Lidl and Rewe Romania – with its Penny Market and XXL Mega Discount. The two have about 350 stores, only 10% of which in Bucharest and the surrounding area. The two networks chose to go to other parts of the country, covering both big cities and those with 15,000 to 30,000 inhabitants.
The only two modern retail chains in the city of Lupeni (about 30,000 inhabitants) in Hunedoara County, for instance, are Lidl and Penny Market. Jobless rate in that county is 7.5% compared with the national average of 5.7%, and the net average wage is 1,311 lei (EUR293), 17% lower than the national average and about 43% lower than in Bucharest.
“Smaller cities are the main target of discount store chains because the only rivals here are the traditional retailers, a market segment that is losing ground fast,” says Marcelo Mihai, senior consultant with management advisory firm Geva & Company.
About twenty years ago, more than 150,000 traditional shops were competing over customers, but the onset of modern retail with the arrival of Metro Cash&Carry in 1996 drove many small traditional retailers out of business.
The about 80,000 traditional retail stores operating now account for less than 50% of the local grocery retail valued at more than EUR16 billion. The over 1,400 modern retail stores – hypermarkets, supermarkets, discount stores, cash & carry stores get more than 50% of the money Romanian consumers spend on food.
Supermarkets and convenience stores, that is small stores that do not need a lot of investment, account for more than half of the total modern retail stores in Romania. The number of hypermarkets stands at 177, because they were opened in the big cities of the country. Five networks, Kaufland, Carrefour, Auchan, Real and Cora operate on the hypermarket segment. Except for Kaufland, the local retail sector leader, the other networks only went to cities with more than 100,000 people.
“In Romania, hypermarket chains go to areas with low unemployment and above average incomes. Supermarkets and convenience stores normally choose Bucharest where 3.2 million people can be found in a normal day, that is one sixth of the country’s population. This is the biggest market and also the city with the highest average income and lowest unemployment,” Marcelo Mihai added.
The discount stores are seen as cheaper, as they focus on price. According to a survey, prices in such stores were only 5% lower than supermarkets and convenience stores. The difference is up to three times higher in the West, reveals a Roland Berger survey conducted two years ago. This is the latest information ZF has about price differences.
“There is a clear price difference between discount stores and other retailers in the West. In Romania, Lidl mostly relies on private label products that are up to 5% cheaper than similar products,” said a retail sector official who asked not to be named.
“Still, they stock a lower variety of products than other stores, so prices of fruit and vegetables are not lower but on the contrary. Hypermarkets have better offers for such products because of their bigger sales volumes.”
Despite the not so significant price differences, retail chains have clearly divided the market among them: supermarkets covered Bucharest and the surrounding areas, while discount store chains the rest of the country. The big cities remain the battleground of the hypermarket chains.
(English version by Loredana Fratila-Cristescu)