“There are just too many players on some segments,” a modern retail executive says.
The companies will keep expanding because the average retail space per capita in Romania is half the retail space in the West and 40% lower than in the countries in the region.
“All major international chains have entered Romania but mergers and acquisitions will follow in the coming years. There are just too many players on some segments, such as hypermarkets,” says a top executive in modern retail.
The most important transaction in Romanian retail was approved this year, after all, the takeover by Auchan of 20 Real hypermarkets.
Auchan decided not to buy four of Real’s stores, which can now seek a buyer or close them.
Eventually the German-held group will leave the market, as headquarters have already decided to.
Other retailers to have exited over the last few years include Interex (which closed its stores for lack of a buyer), Gmarket (its stores went to Mega Image and Carrefour) and Minimax Discount (bankruptcy).
“Some players are not developed enough and cannot aim for one of the top spots unless they buy a competitor. If they don’t they might end up being the ones bought,” a player on the market explains.
Almost every major chain in Europe has entered Romania trying to cash in on the excessive consumer spending appetite of Romanians during the boom years. The only big names not here yet are Aldi (discount store chain) and Tesco (rumored to have been in talks to buy a rival).
Any market entry at this moment will have to be done by an acquisition because organic expansion would not be enough to secure a position high up the ranking and would not open strategic spots on the market, because they have all been claimed.
The latest entry of a big name retailer in Romania was in 2011 when Lidl arrived after buying the 107 stores of Plus Discount. It then expanded organically to more than 160 stores.
“There will be at least three more years as good as 2013, with all chains announcing expansion,” says Daniel Mocanu, general manager and majority shareholder of DAAS, one of the leading suppliers of equipment for hotels, restaurants and food stores in the country.
More than 230 modern retail stores opened last year alone and no change of pace is expected this year, as ZF found from companies in this business.
Retailers have become more aggressive in their fight over customers in the last few years since the onset of the crisis that caused consumer spending decline, investing hundreds of millions of euros in expansion.
Most aggressive of all have been supermarkets and discount store chains, which need smaller spaces and investments of no more than EUR2 million per store. A hypermarket or a cash&carry store on the other hand, may require as much as EUR20 million.
If the expansion pace of the last four years remains the same, modern retail should reach 1,700 stores by 2016, according to ZF estimates, from the 1,000 in 2012 and 450 at the end of 2008, the last year of economic boom.
Despite the aggressive expansion of foreign companies in recent years, there is still room on the market for development.
Average retail space per capita is 0.56 square meters in Romania, according to the competition watchdog report on the Auchan-Real deal.
The same report says it stands at 0.94 square meters in Poland, at 0.93 square meters in Hungary and exceeds 1 square meter in Western Europe.
This and the possibility to eat into the market share of traditional retail motivate international chains to open new stores. Modern retail put at EUR7.5 billion to EUR8 billion last year accounts for 48% of the total retail, compared with 70% or 80% in the West.
(English version by Loredana Fratila-Cristescu)