Retailers continue to face a challenging environment considering that the national retail turnover for food, beverages and tobacco (FB&T) increased by only 2.9% in 2012 while the non – food sales grew by a mere 1.9% (adjusted series for working days and seasonality) year on year. The results published for the first half of 2013 did not bring much good news to the market either, as the FB&T turnover rose by a marginal 0.5% whereas the non – food by 2.3% comparedto the first half of the previous year (adjusted series). Meantime, the National Bank of Romania reported an annual rate of inflation of 5.25% for the first quarter1.
In 2013, most of the large hypermarkets and supermarket chains reported increases in sales, Mega Image leading the top with a 44% growth year over year. Given the current situation of the market, profit margins were still below the levels reported during the boom years.
EVENTS THAT RESHAPED THE ROMANIAN TRADE LANDSCAPE
It appears that the convenience stores market was unusually active during 2012. First of all, in February, the Bucharest court allowed the insolvency of Mic.ro the chain of convenience stores, controlled by Dinu Patriciu. The company had been accumulating debt towards suppliers for several months, which in turn stopped deliveries of merchandise to the stores2.
On the other side, the Mega Image supermarkets, part of the Delhaize Group, adopted a strong expansion strategy.
According to company reports, the main driver of this extension was the launch of the Shop & Go convenience store format in 20103. While the chain concluded the previous year with 105 stores, they almost doubled the figure in 2012 to 193 outlets. All these led to the fact that, for the first time in Romania, the sales figure of a supermarket chain, namely Mega Image, surpassed that of a hypermarket network (Cora).
Besides Delhaize, the Metro group also became involved in the Romanian convenience stores sector. In March 2012, Metro Cash & Carry Romania launched the “LaDoiPasi” franchise, a program through which the company provides training and advice regarding the product mix and prices. In exchange, the retailers purchase their merchandise from the Metro stores. According to company reports, the Romanian “LaDoiPasi” program counted approximately 500 independent retailers4 at the end of last year.
2012 also saw the largest transaction of the Romanian online retail. The South African group, Naspers, purchased 70% of the shares of the largest Romanian online retailer, Emag. The sale was concluded in July5.
Towards the year end, the sale of Real’s Eastern Europe Operations was announced, with Groupe Auchan designated as the buyer that would take over the operations in Romania, Russia Poland, and Ukraine. The acquisition was subsequently approved by the Romanian Competition Council in the summer of 20136.
LARGE RETAILERS TESTING THE ONLINE ENVIRONMENT
The Romanian retail sector is starting to show an increasing interest towards online sales. Besides the online supermarkets that have been delivering groceries to consumers for the last several years, some large retailers have also launched their own electronic outlets (Metro Cash & Cary and Carrefour). One of the effects of online grocery shopping might be the reduction of impulse purchases. This is due to the fact that the clients are able to choose the products they want to visualize, as opposed to the classic store where they pass through most of the departments before reaching the cash registers.
MODERN RETAIL INVESTING FURTHER
Modern retail continued to consolidate its share of the fast moving consumer goods (FMCG) household consumption market, reaching 50% in the last quarter of 2012, according to a GFK study7. Replacing more and more the traditional retail with its more modern version could prove to be, for the moment, the solution for large chains (all this to the detriment of small businesses and local entrepreneurs). The national retail stock continued to increase in 2012. As previously mentioned, Mega Image followed an aggressive expansion strategy. Other large retailers present on the market like Lidl, Kaufland, Profi, or Carrefour Market also opened new outlets. The expansion continued in 2013. During the first four months alone, close to 50 new modern retail outlets have been opened all over the country8.
According to a CBRE study the national retail stock increased by 150,000 m2 during 2012, reaching a total of 2.7 million m2, 30% of which located in Bucharest. At the end of the year there was an average of 127 m2 of retail space per 1,000 inhabitants, whereas Bucharest benefitted of 416 m2/1000 people9. Considering that the European average lies at around 350 m2/ capita10 (according to Colliers), there may be room for potential expansion outside the capital city.
On the other hand, the large rural population of Romania may prove to be a hindrance to moving close to the European average. Although some modern retail facilities have been opened in several villages located in counties like Ilfov, Prahova and Giurgiu, the rural areas have been rather neglected so far by large retailers.
Retailer brands continued their increase in popularity, accounting for 12% out of the total sales of consumer goods according to a GfK study11. The evolution is significant considering that in 2007, at the beginning of the economic downturn, the market share of these products was only 2%. However, there is still room for growth given the fact that in Switzerland and Spain more than 50% of all products sold are retailer branded, according to the data published by the Private Label Manufacturers Association’s International Council12.
CONSUMPTION GROWTH PROSPECTS
Everybody is hoping for the revival of the economy. For Romania, the IMF has projected in the April Word Economic Outlook, a real GDP growth of 1.6% in 2013 and 2% for the following year, whereas the consumer prices are expected to rise by 4.6% in 2013 and 2.9% in 201413.
The accelerated growth of the retail sector that took place during the boom years was correlated with an increase in credit availability and the growth of disposable income. At the moment, the percentage of nonperforming loans keeps growing (Romania occupied the 3rd place in EU at the end of 201214), which suggests that loans will not be easily granted in
the future. Regarding the other driver of consumption during the boom years, the average net salary’s real growth was only 0.8% compared to December 2011. All in all, the conditions that fueled the retail boom in the previous years are not likely to be replicated over the medium term.
Moreover, the social and demographic phenomena described below may influence the consumption patterns and growth rates in the years to come.
SOCIAL AND DEMOGRAPHIC FACTORS THAT SHOULD BE CONSIDERED BY RETAILERS OVER THE LONGER TERM
Retailers should be aware of the health issues that are becoming more common in our country. The prevalence of ‘modern’ diseases like diabetes, obesity, depression and heart disease are influencing the shopping behavior of the average consumer. People are becoming more interested in healthier types of food and they are increasingly informed about the products they purchase.
Over the longer term the local demographics should be taken into consideration by all retailers. The population of Romania is slowly ageing and decreasing. This may imply a lower future disposable income as people get older, correlated with higher social costs per capita as the active population decreases.
One of the new social phenomena that may affect consumption growth is the unusually high percentage of high school students that do not pass the baccalaureate examination. Many of these young people face the prospect of low paid jobs, unemployment or emigration. The obvious implication for the retail sector is that they will spend less money in Romania compared to the previous generations of young people that succeeded to finish their education. All things considered, interesting trends are to be expected from the Romanian trade sector in the years to come.