Modern retailers will open more than 100 stores in the last four months of 2013, the same as opened since the start of the year over twice as many months.
The 12 foreign retailers will spend EUR80 million to EUR110 million to prepare for the winter holidays, the best time of the year for local retail, with an extensive network.
The retailers are pinning their hopes on the last few months of the year to offset the three months of consumer spending decline in a row starting May. Many retailers continue to expand despite the feeble consumer spending because they can get lower land prices and rent. They are now securing key positions on Romania’s map dividing their turf for when Romanians regain their spending appetite.
In a time of foreign direct investment at its lowest ever – EUR666 million in the first half, 20% less than in the year-ago period, retailers are some of the few investors that continue to pump money into the economy even before the consumer spending rebound.
“Consumer spending rebound will happen once the signs of a real economic growth start showing and once consumers’ confidence in the prospects of the economy improves. Consumer spending will also increase if the purchasing power increases,” says Andreea Mihai, Carrefour’s marketing manager.
On the other hand, Lidl officials say that as far as they are concerned, the main steps that can help consumer-spending rebound in Romania are job creation and implicitly the improvement in the people’s purchasing power, infrastructure investments, lending reboot and taxation relaxation.
Romania still has about 330,000 jobs to recover after the crisis caused more than 600,000 to disappear. The fast-paced opening of stores in the last few years has turned retailers into some of the biggest employers in the economy, with thousands of employees each.
Still, employees in their stores usually have to settle for less than 1,000 lei (EUR224) in net wages per month, as the economy does not provide any other employment opportunities.
A hypermarket usually creates 200 or 300 jobs, while a supermarket or a discount store creates several dozens.
Alexandru Vlad, executive director of Selgros, says that unfortunately, the consumer spending trend does not necessarily go hand in hand with economic growth. The economic growth of 1.8% in the first half was largely because of exports, therefore to economic operators working with customers from abroad. Local companies see consumer spending flat or even going down in certain areas.
“Consumer spending rebound is tightly connected to the purchasing power of our customers. Two steps would be welcome: the VAT cut for all foods and not just bread and the reduction of payroll taxation.”
Economic analysts expect full-year economic growth to reach 2% to 2.2% in 2013, though not because of consumer spending rebound but because of a very good farming year, one of the best in the past decades.
The 12 modern retailers in Romania have stepped up expansion in the last few years and opened 100 to 200 stores annually. Supermarkets and discount stores have been the most aggressive of all.
Mega Image, which introduced two formats in Romania, the supermarkets by the same name and the Shop & Go convenience stores, has opened 54 stores since the beginning of the year and has been aggressively expanding since last year when it opened 88. It is the most aggressive retailer when it comes to expansion after all, serving mainly Bucharest and the surrounding area.
If it continues at the same pace, it should reach 283 stores, 90 more than at the beginning of the year, and come close to the target its chief executive officer Xavier Piesvaux announced for the local market. He said Mega Image might reach 300 stores in Romania by the end of 2013.
Mega Image’s direct competitors are moving faster, as well. Enterprise Investors’ Profi announced it would end the year with at least 45 more stores than in 2012.
While some prefer to expand by building their own stores, others would rather take over local networks or partner with them. Such is Carrefour’s way, which has four formats operational in Romania: hypermarkets, supermarkets, convenience stores and an online store.
Its Express convenience stores are mostly developed via partnerships with local entrepreneurs such as Angst and Traditional Ecologic.
The franchisee benefits from the expertise and know-how, as well as support from Carrefour, while Carrefour benefits from the knowledge and the experience the franchisee has in its specific spot, Andreea Mihai explained. Any franchisee seeking to partner with Carrefour has to have been in business for at least two years, she added.
Carrefour has expanded mainly by opening supermarkets and convenience stores in the last few years, which allowed it to get closer to consumers on the ground floor of apartment buildings or bedroom districts.
With the crisis changing Romanians’ spending behavior towards shops closer to their homes, modern retailers started challenging the turf of the small local traditional retailers.
This is how foreign retailers intend to grab a slice of the EUR7 billion to EUR8 billion traditional retail to offset consumer-spending decline.
“Lidl continues to develop in Romania, and the development has a lot to do with our expansion plans. We intend to reach 169 stores by yearend,” Lidl officials say. The company will open ten stores by the end of 2013 after having opened only four in the first eight months.
As with its direct competitors Penny Market, Lidl’s stores are most often greenfield investments, which takes more time to complete. This is one of the reasons why so many discount stores open later in the year. The same goes for hypermarkets.
Penny Market will open 11 stores by the end of the year. (EUR1=RON4.4653)
(English version by Loredana Fratila-Cristescu)
Planned store openings by the end of 2013|
Retailer |
Openings planned by yearend |
Total openings in 2013 |
Network in 2013 |
Network in 2012 |
|
Mega Image** |
36 |
90 |
283 |
193 |
|
Profi |
21 |
45 |
194 |
149 |
|
Carrefour*** |
21 |
40 |
150 |
110 |
|
Penny Market |
11 |
15 |
157 |
142 |
|
Lidl |
10 |
14 |
169 |
155 |
|
Billa |
7 |
9 |
80 |
71 |
|
Kaufland |
4-5 |
8-9 |
89-90 |
81 |
|
Cora |
1 |
2 |
12 |
10 |
|
Auchan |
0 |
20* |
31 |
11 |
|
Metro Cash&Carry |
0 |
0 |
32 |
32 |
|
Selgros Cash&Carry |
0 |
0 |
19 |
19 |
|
Real**** |
0 |
-20 |
4 |
24 |
|
Total |
111-112 |
223-224 |
1,220-1,221 |
997 |
* stores taken over from Real
** ZF estimate based on expansion in the first part of the year and market sources
*** In Carrefour’s case the number of openings is a ZF estimate based on expansion in 2012 and prior statements from the company. All four formats were included (hypermarkets, supermarkets, convenience stores and online stores)
**** stores left in the Real network after Auchan takeover of 20 hypermarket
Sources: ZF, companies
Planned investments by yearend
|
Retailer |
Openings planned by yearend |
Investment (mln. euros) |
|
Kaufland |
4-5 |
20-25 |
|
Carrefour |
21 |
15-20 |
|
Penny Market |
11 |
10-15 |
|
Mega Image** |
36 |
10-15 |
|
Lidl |
10 |
10 |
|
Billa |
7 |
5-10 |
|
Profi |
21 |
7 |
|
Cora |
1 |
5 |
|
Auchan |
0 |
0 |
|
Metro Cash&Carry |
0 |
0 |
|
Selgros Cash&Carry |
0 |
0 |
|
Real**** |
0 |
0 |
|
Total |
111-112 |
82-107 |
Sources: ZF, companies