Romanian retail market to witness new entrances and expansion of existing chains in 2010

2010-02-17

Without doubt, the growth of modern retail formats in Romania is outpacing the development of traditional retail formats. There are currently more than 500 modern-retail stores nationwide and this number is set to rise further in 2010, as there are several new foreign investors who are using the economic downturn as an opportunity to enter the market. Of these companies, Lidl is perhaps the most evident example.

Modern retail formats growing in strength
In 2009 the whole FMCG market in Romania contracted by 10% compared to 2008, according to MEMRB. This resulted in the closure of more than 4,000 of the 91,000 stores operating on the Romanian FMCG market. However, this reduction in store numbers predominately concerned stores of traditional retail formats rather than their modern counterparts (e.g. hypermarkets, supermarkets, discounts and cash & carry units). By way of example, of the 4,000 units closed in 2009, a total of 3,200 were traditional-format stores.
The rise of modern retail formats and concurrent decline of the traditional retail formats, is also reflected by sales figures. Last year, sales generated by modern retail format stores were up 8% in volume terms and 13% in value terms compared to 2008 figures. Over the same period, however, sales generated by the traditional format stores fell by 15% in volume terms and 5% in value terms.
Hypermarkets remained the most popular store format among Romanian shoppers in 2009 – a statement confirmed by 46% of urban-area residents in a survey conducted by GfK. The discount store format has also steadily risen in popularity, especially during the economic crisis and the accompanying shift in consumer preferences towards lower-priced or private-label goods. In 2008 discount stores were identified as the favoured shopping destination of 17% of the Romanians consumers surveyed. In the 2009 edition of the survey, this figure rose to 22%. Supermarkets lost ground, falling from 17% in 2008 to 12% in 2009.

Lidl to enter Romania in 2010
After having been ranked eighth[1] out of 56 countries on the list of most attractive investment markets by the leading international retailers surveyed by CB Richard Ellis in 2010, it was likely that Romania would be targeted by retailers in 2010. In 2009 – the year of economic downturn – the Romanian market was entered by retailers such as the Polish Enterprise Fund VI, operated by Enterprise Investors, and Red Market discount store chain launched by the Belgian retail group Delhaize in December 2009. More new entrants are expected in 2010, most notably Lidl.
The German retail group Lidl & Schwartz plans to open the first stores of its hard-discount chain in Romania in H2 2010. The first such unit in the country is to be located in Bucharest. Ultimately, the retailer aspires to build a chain of 100 outlets located in the more than 20 Romanian cities where the company has already acquired land. The discounter will target cities with more than 30,000 inhabitants. The investment required per store is estimated at €1.5-2m.


Retailers currently present in Romania plan further development
It is not only new entrants who see the potential offered by the Romanian market – many of the retailers already operating in the country have plans to expand in 2010 and in the mid-term.
Kaufland, currently the operator of 45 stores in Romania, plans to invest approximately €50m in the opening of five or six new stores in Q1 2010 alone. For comparison’s sake, the retailer invested a similar amount in the whole of 2009. The company plans to launch stores in 20 Romanian towns and cities and is the first hypermarket chain in Romania to target towns and cities with populations of 25,000-40,000.
The Belgian retail group and operator of the Mega Image supermarket chain in Romania, Delhaize, plans to expand its Red Market discount store chain to a total of 200 outlets within the next few years. The company has earmarked a total of more than €200m for this purpose.
Rewe Romania, the Romanian division of the German FMCG retailer and operator of approximately 100 units in the country, plans to increase the size of its chains, which include the Penny Market discount chain, Billa supermarkets, Selgros cash & carry stores and Penny XXL stores, by a total of 25 new stores in 2010. The total cost of this expansion is likely to amount to €150m.
One of the reasons for such aggressive expansion plans could be the fact that the cost of opening new stores is significantly lower in Central and Eastern Europe than in Western Europe. This reasoning is strengthened further by the economic downturn and its effects. As an evidence, the majority of the FMCG retailers who operate in Romania, has a long-distance plans related to the development in the country.

Paulina Burzawa
Business Editor
PMR Publications
paulina.burzawa@pmrpublications.com

Lidl has been eyeing Romania for several years now and with its entry onto the Romanian market 2010, it will become the fifth discounter banner operating in the country. We expect that Lidl’s rapid expansion strategy will include the takeover of the Plus Discount chain – a move that will see the company operating a chain of over 150 units within the first year of operations.
In 2009 discounter chains were the fastest-growing modern retail format in Romania. The economic downturn and resultant declining purchasing power have served to alter shopping habits and facilitate the growth of this retail format. The leading four chains, all of which recorded double digit year-on-year revenue growth last year, launched a combined total of over 70 stores in 2009. We expect the number of openings of stores of this format to be 80 in 2010.

Magdalena Gis
Retail Analyst, PMR Publications