The heads of the international retail networks, which generate about EUR8 billion revenue a year, have more than 1,000 stores and 60,000 employees, are the first to assess Romanian consumers’ spending appetite.
They feel that steps are needed to encourage spending, such as a cut of the VAT on foods in order to achieve steady growth thereof.
“I believe Romania’s economy has a growth potential of 2% to 2.5% in 2014 and the main growth drivers are agriculture, trade and exports,” says Maksymilian Braniecki, chairman of the managing board of German-owned discount store chain Lidl Romania.
He also says construction sector and processing industry may have a contribution, too, though not as important.
Sorana Georgia, who runs the local 80-store network of retailer Billa, says the economy will not see significant growth in 2014 because no major investments are expected and consumer spending is flat.
“2013’s economic growth largely came from two pillars: agriculture and automotive industry, which exported its output. The 2014 economic growth depends on a number of factors: how good the farming year is, the investment trend, that is whether investment thaws up or not, the increase of the utility tariffs and the enforcement of the fuel excise duty.”
Sorana Georgia, however, thinks the government has to take steps to encourage consumer spending and investment. A cut of the VAT on foods is, executives in the retail business feel, the precise step that would help consumer spending thaw up. Consumer spending was relatively flat last year but lost about 15% during the crisis.
Retail turnover, the main indicator of consumer spending trend, fell 0.1% in January-October 2013, compared with the same time in 2012, according to the National Statistics Institute.
“People are buying more, but go for cheaper products. They continue to save up on almost all categories that are not necessary,” says Pawel Musial, who runs Profi, the second largest retail chain in Romania, which numbers 207 stores.
This is as transparent as possible a sign that the purchasing power of Romanian consumers has shrunk, he added.
The bread VAT cut from 24% to 9% in September led to an increase in the production of flour and bread subject to taxes by 10% and 15%.
Under the circumstances, retailers believe a VAT cut on other staple foods such as meat, vegetables and milk, would have a similar effect and could lead to an increase in consumption.
Alexandru Vlad, executive director of Selgros retail chain (EUR800 million revenue a year), has recently said a VAT cut for all foods would make them cheaper and encourage consumers to buy.
To see consumer spending rebound, Romania should stress on developing its agriculture, which would lead to lower shelf prices, believes Jean Baptiste Dernoncourt, who was appointed chief executive officer of Carrefour Romania not long ago.
The bread VAT cut made a positive impact so similar steps should taken for other foods, he added.
Carrefour did well in 2013, Dernoncourt says, adding the second half came with signs of an economic rebound, which showed in consumer spending.
This year’s trend of consumer spending, the growth driver of economy in the boom years when it used to increase at a rate of more than 10% a month, depends on the macroeconomic conditions and on the steps announced by the government.
Xavier Piesvaux, chief executive of local operations of Belgian-held retailer Mega Image, says he does not expect significant changes of the macroeconomic indicators in 2014, so the economy should perform about the same as in 2013.
A consumer spending rebound, however, also depends on foreign direct investment, which was estimated at some EUR2.1 billion last year, flat from 2012 and the lowest in a decade.
Official figures available show the FDI to have reached EUR1.8 billion in January – October 2013, down 8.2% on the same time in 2012.
Attracting new investors would create jobs, drive wages up and boost spending appetite.
“I doubt we will see a strong rebound of foreign direct investment. For that to happen, the economy and legislation should be more predictable and Romania should stop being a “country of insolvencies” and of contracts awarded in a non-transparent manner,” explains Billa Romania’s Sorana Georgia.
The year 2014 will be an election year so investments could moderately increase, believes Lidl Romania’s Maksymilian Braniecki. Foreign direct investment depends on the perception of political and macroeconomic stability, he added.
In a time of very low foreign direct investment, retailers are among the few that still continue to make investments, even though consumer spending has not recovered.
They say they will continue to open stores this year at the same rate as in 2013 when about 250 new stores were inaugurated. Opening new stores is a way of getting as much market share from rivals and as high as share of consumers’ wallet as possible.
Billa, Lidl and Profi announced they would continue to expand at least as fast as they did in 2013.
(English version by Loredana Fratila-Cristescu)