The Romanian grocery retail could see a reconfiguration via mergers and acquisitions over the next few years as the do-it-yourself retail did.
The most important retail groups have entered in Romania, the seventh most populous EU country over the last 18 years, but many of them either do not have a strong enough position to be able to vie for a top spot or do not generate the profit margins that would make their shareholders happy. So news about takeovers, mergers and exits may surface soon, bringing the grocery retail closer to the Western model.
The same thing happened on the DIY market, which saw some radical changes in the span of 15 months: Obi decided to pack up and leave, Bricostore sold the network to Kingfisher, Praktiker stores stayed in Romania but under a new owner, while France’s Leroy Merlin bought BauMax out of the country.
“Things settled on the DIY market after several shareholder changes and acquisitions. We might see moves in modern [grocery] retail following the same model, where many companies operate, so there might be consolidation at some point in the future,” believes Dusan Wilms, the manager of the four Real hypermarkets left in Romania.
He had previously run the Metro Cash&Carry network and held various international positions with the German Metro group.
Real completed a deal at the end of 2012 (approved by the Competition Council almost a year ago) with France’s Auchan, which bought 20 of Real stores. This was the largest deal in local retail, put at more than EUR200 million.
Several retail companies are now analyzing their position to decide whether to continue expansion, halt it or sell their Romanian operations altogether. The Auchan-Real deal drove the former up to a top three position among retailers in Romania, thanks to its more than EUR1 billion revenue in 2013.
Moreover, any new entry will be done via a takeover, considering a new retailer would need several years to catch up with its rivals if they were to proceed with greenfield stores and has no key retail space available, which has already been taken in the last 18 years. Modern retail in Romania began with the arrival of Metro Cash&Carry in 1996, after which many more international retailers came.
Today 12 modern retail networks operating hypermarkets, supermarkets, cash&carry stores, discount and convenience stores are operating in Romania and posting sales of EUR8 billion to EUR9 billion or more than half of the total grocery retail.
In almost two decades, foreign chains have gained control of more than 50% of the market, while the rest is split among 70,000 to 80,000 small retailers.
“The local market is crowded, highly competitive and dominated by western retailers. International retailers came in Romania in great numbers because they had high hopes for good results here,” says Marcelo Mihai, senior consultant with management advisory firm Geva&Company.
“Romania is a large market, because it is the seventh most populous EU country.”
He believes a number of moves will happen on the market over the next decade, whether mergers or takeover, so the local market will consolidate using the western model.
“Some companies are in the red or barely profitable and they will reconsider their position in Romania.”
No Romanian retail chain has been able to grow as much as to attain a key position in local grocery retail. The most developed Romanian-owned network is Succes Nic Com of Gorj businessman Nicolae Sarcina. The network generates EUR50 million to EUR60 million revenue with more than 100 stores. The smallest foreign retailer in Romania, Billa is seeing EUR300 million revenue from about 80 supermarkets.
The Romanian market is one of the most crowded in Europe, considering 12 foreign retailers account for a little more than 50% of the local retail, while the top three for less than 25%. In comparison, the top three retailers in UK, Tesco, Sainsbury’s and Asda account for almost 60%, while in Denmark and Sweden, this percentage stands at more than 75%, according to Data & Trends of the European Food and Drink Industry 2012 report.
(English version by Loredana Fratila-Cristescu)