The local and international manufacturers stayed out of the battle between foreign and Romanian stores at first, but lately more and more of them have been saying that traditional retail is important. It still contributes quite a lot to the revenue of Coca-Cola, Unilever and Nestle. As such, Coca-Cola has launched a campaign to support small retailers, and Unilever announced it would focus on traditional retail.
Laurentiu Dimitriu, sales director of Nestle Romania, has recently said manufacturers must go everywhere the consumer is, in their homes, in the subway, in the park or at the cinema. This is why traditional retail is important, because the small stores are always where the consumer is, he added. Traditional stores generate about 40% of Nestle Romania’s sales.
Moreover, while international retail chains have higher negotiating power because they have extensive networks and orders to match, the small stores do not. Therefore Coca-Cola may charge traditional retailers more, which translates into higher shelf prices and higher profit margins for the manufacturer.
For instance, while a 2-liter Coca-Cola bottle costs less than 5 lei (EUR1.1) in a hypermarket or supermarket, in a traditional store it may cost more than RON6. The price difference is what drove many Romanian consumers to do their shopping from modern retailers, putting 70,000 to 80,000 traditional retailers out of business.
The negotiating power of international chains is obvious in such cases as the Kaufland-Coca-Cola agreement. The local retail market leader, which posted more than EUR1.6 billion sales last year, has been negotiating a new deal with Coca-Cola for months but the two parties have not reached an agreement yet, for which reason the retailer only sells three kinds of Coca-Cola products. The contract between the two parties is estimated at tens of millions of euros.
“Do your daily shopping at the corner store. Buy bread, milk and Coca-Cola.” This is how the latest campaign of Coca-Cola sounds, which encourages Romanian consumers to keep shopping at traditional retailers.
Coca-Cola officials would not say how much of their sales are made via traditional retailers but overall the company has at least one brand on sale in 56,000 stores, restaurants, bars and coffee shops in Romania. Most of these are traditional retailers, considering modern retail only numbers 1,300 stores.
One of the reasons traditional retail is still important, Nestle’s Laurentiu Dimitriu says, is that people are moving outside cities, where traditional retail is still very strong.
Although the foreign networks were the ones that bet on expansion in recent years, traditional retail still has potential, Jarek Malinowski, head of the local operations of Unilever, said a few months ago.
Unilever has at least one product in 93% to 94% of the stores in Romania, and its most widely available product is Delikat, which Malinowski says can be found almost everywhere. Modern retail contributes more than 50% of the company’s revenue, but traditional retail has potential for development, he says.
Although major retail chains have turned their attention to small traditional retailers, turning stores into franchises, Malinowski says he thinks thousands of small stores remain that have the potential to develop on their own and Unilever will focus on them over the coming years.
While more and more producers support development of traditional retail, international retailers are going ahead with their plans. Dusan Wilms, who runs the four hypermarkets Germany’s Real still has in Romania, says the international chains will bet on convenience stores. The Romanian executive has previously run the Metro Cash&Carry network.
He believes people see saving time as something very important, which is why this type of retail is gaining ground.
“They are taking into account not just the price in stores but also how much time and fuel one can save when one goes to shop at the store on the corner of the street.”
The first chains to expand into convenience stores were Carrefour, Mega Image and Profi. The former two launched a special convenience store format and started to grant the franchise to Romanian entrepreneurs. Metro Cash&Carry, too, launched a franchise format, the LaDoiPasi in the spring of 2012, aimed at traditional retailers. The franchise now numbers more than 650 stores.
At the time Metro Cash&Carry introduced LaDoiPasi, small traditional retailers were going out of business in droves due to the crisis and to the aggressive expansion of the supermarket and discount store chains. Metro’s reason for introducing this store format was that traditional retailers are actually its customers and if they go out of business, it too stands to lose revenue.
(English version by Loredana Fratila-Cristescu)