They see 3,500 supermarkets and hypermarkets in Romania in 2020, in the hands of only five or six foreign companies, half as many as today.
Modern retail will therefore go through a series of mergers and acquisitions without any new arrivals on the market. The potential mergers and acquisitions will be conducted among the already existing players, which will consolidate their local business for a chance at the top three. The largest companies in this business in Romania are Kaufland, followed by Carrefour and Metro Cash&Carry. They are the only three retailers with more than EUR1 billion sales a year.
The smallest are Billa supermarket chain, and Cora and Real hypermarket networks. ZF has learnt they are the likely takeover targets. Carrefour is about to complete talks to acquire the Billa network, after Mega Image and a private equity firm dropped out of the race. Real, held by Germany’s Metro, only has four stores in Romania, after selling the other 20 hypermarkets to rival Auchan in the most important deal on the local retail market, valued at more than EUR200 million.
Metro officials have recently said they will sell the remaining four stores if they find a buyer for them, but are under no pressure to do it, so they would rather wait for a good offer first. Several retailers are analyzing their position in Romania to decide whether to continue expansion or end it and leave, because not every network is making enough profit to keep shareholders happy.
Analysts and modern retail executives believe the market is too crowded, which is why mergers and acquisitions are due to happen over the next five years.
“I think only five or six players will be left on the Romanian market in five years, which will stand real chances of competing for a place among the top three. Romania will follow into the footsteps of the western markets, where the top three account for most of the market,” says a top executive in local retail, who would not be named.
The market is heavily fragmented in Romania but despite this Kaufland has emerged as the undisputed leader, following acquisitions and fast-paced development in the past few years. Its market share is now 20%. The top three retailers, Kaufland, Carrefour and Metro account for some 45% to 50% of the modern retail, according to ZF calculations.
“The retail market in Romania will continue consolidation, there may still be 12 modern retail chains in several years, 3 to 5 of which leaders and the rest specializing on niches such as fresh produce, meat etc.,” said Xavier Piesvaux, the 48-year old Belgian executive who ran Mega Image until recently and turned it into the largest modern retail chain in Romania, with more than 420 stores in several formats.
On mature markets, once modern retail stopped expanding, specialization on niches followed, he added.
Modern retail started with the arrival of Metro Cash&Carry in 1996, following a partnership with the German group and local businessman Ion Tiriac. Expansion of international chains has taken the share of modern retail in the total retail to more than 55%. Any modern retail store that opens puts several small traditional retailers out of business. The small traditional retailers do not have the bargaining power of the international chains, so their prices are higher. The number of traditional retail stores has halved in 1996-2015 to some 80,000. Still, modern retail’s share of the market is lower than on western markets, where it stands at more than 70% to 80%.
“Expansion of modern retail will continue, the networks will move from big cities to small provincial cities,” says Pawel Musial, the Polish executive, who ran retailer Profi until several months ago and is now a member of its Supervisory Board and chairman of its Strategy Committee.
The focus of the expansion will be on supermarkets with convenience store elements. Many retailers will bet on franchisees and on taking over local retailers. In case of such takeovers, the former owners will be kept in management positions. Two or three networks will bet on small cities so in five years, modern retail will go from 1,500 to 3,500 stores, he added.
The VAT cut is helping modern retail develop as it had been losing ground to the black market. Romania will follow into the footsteps of Western Europe, where markets are a destination for customers looking for really fresh and special organic products. Modern retail will develop fast over the coming years, Pawel Musial concluded.
(English version by Loredana Fratila-Cristescu)