Modern retail formats the first to come out of the crisis in Romania?

2010-07-21

The FMCG market in Romania continued its decline in the first four months of 2010, as did the grocery segment of this market. As a result, the modern retail sales per squere metre declined by 10% year on year in the country in January-April 2010. However, in Q1 2010, the aggregate investments in expansion of international retail chains operating in Romania were estimated at €77m, which was 30% higher than in Q1 2009, according to estimates from the largest retailers on the market. This may indicate that the modern retail sector is slowly overcoming the crisis and focus on development of their chains.

Condition of the Romanian FMCG retailers in the first few months of 2010
The FMCG market in Romania continued its decline in 2010, according to a recent study from MEMRB in Romania. In the first four months of this year, the FMCG sales contracted by 16.5% towards the same period of 2009, which was a steeper decline than in the analogous period of the last year. The grocery market also followed the declining pattern with an 18% drop in sales in January-April 2010, after a 4% decline recorded in 2009. The last year’s drop was reflected in the results of major grocery retailers in Romania, the majority of which suffered from the declines in sales revenues and profitability.

Four of five largest grocery retailers in the red
One of the few large modern retailers on the grocery market in Romania that managed to boost its net profit in 2009 against the previous year was Kaufland. The retailer was the sole player among the five largest grocery retailers in the country, including Metro Cash & Carry, Carrefour, Real and Selgros Cash & Carry, that posted an increase in profit between 2008 and 2009.
In turn, the cash and carry retailers Metro and Selgros posted the most significant declines in sales per outlet in 2009 compared to the previous year, by more than 17% in euro, each. This brought the sales of Metro Cash & Carry down to the level attained in 1997, Metro’s first operational year on the Romanian market. Last year, Metro had total sales revenues of €1.23bn in 23 stores, an average sales value per outlet of €51m. At the end of 1997, Metro registered total sales worth €102m with its two stores.
Despite the decline, the cash and carry outlets still remained more profitable than hypermarkets last year. Selgros led the market in terms of profit per store with almost €1.4m, followed by Metro. The cash and carry outlets have similar GLA as hypermarkets but target a different category of clients, such as restaurants, hotels and resellers.

Cora the most profitable among hypermarkets
Owned by Louis Delhaize group, Cora was the most profitable hypermarket operator in Romania last year. The retailer posted an average annual profitability of €8,230 per m², which was €1,700 more than Carrefour. Cora, the only retail chain that did not open any outlets in 2009, posted a decline in its sales revenues by 18% last year to €330m. With only three outlets, Cora netted €20m in 2009, same as Carrefour with 22 hypermarkets. Cora and Carrefour are the oldest hypermarket operators on the Romanian market. They entered Romania in 2003 and 2001, respectively.
In turn, Auchan was the least profitable hypermarket operator in Romania last year. Auchan registered a decline in profitability per m² in 2009, but a growth in sales revenues of 25% year on year to €350m. Auchan posted losses of €9.6m, a deterioration from a negative result of €7m in 2008, according to the Romanian Trade Registry.
Last year, the retailer opened one hypermarket in the Iulius Mall shopping centre in Timisoara. Total hypermarket sales in Romania last year reached €3.2bn.



Plans for 2010
Following insolvency, 37 hypermarkets and supermarkets were closed last year. They included five Pic hypermarkets, 10 Spar supermarket, 20 Ethos supermarkets, one hypermarket and one supermarket Trident.
However, in Q1 2010, aggregate investments in the expansion of international retail chains operating in Romania were estimated at €77m, 30% higher than in Q1 2009, according to estimates from the largest retailers on the market. Over the period, six hypermarkets were launched in the country, of which five Kaufland outlets and one Cora store.
Moreover, Kaufland, which currently runs 45 outlets in Romania, plans this year to buy parcels of land with trading areas of 8,000 m² each. The chain is targeting the purchases in towns with over 50,000 inhabitants. It plans to open new stores in Medias, Botosani and Mioveni in 2010.
Real, part of the German group Metro, increased its registered capital by €40m at the end of May, shortly after a capital injection of €50m, in a move to raise cash for the opening of four new hypermarkets in Romania this year. The retailer plans to double the number of its stores in Bucharest to eight outlets over the next few years.
Metro Group launched in 2010 a new store concept, Metro Punct, in Romania. Metro Punct units are smaller than other formats operated by the company and offer a smaller assortment of goods than hypermarkets. In H1 2010 it opened one Metro Punct unit in Satu Mare and the second is expected to open in Piatra Neamt at the end of July 2010. The retailer wants to open at least one more Metro Punct outlet by the end of the year. In addition, Metro is also expanding its hypermarket chain: at the beginning of May 2010, Metro Cash & Carry opened its fifth store of that kind in Romania, an investment of up to €20m. In total, Metro invested some €16m to expand its chain of stores in H1 2010.


Another modern format retailer, Carrefour, halted its expansion plans on the market in 2009 after launching 11 hypermarkets in 2008. In turn, in 2010, the main aim for Carrefour is to enter the supermarket market in Bucharest by taking over some proximity stores operated by local retailers. Carrefour Romania already closed two stores this year in Hunedoara and Baia Mare. They were part of Artima chain bought by Carrefour for €55m in 2007 and re-branded as Carrefour Express. Carrefour had plans to open ten new supermarkets in Romania in 2010; six of them were launched in H1 2010.
Selgros Cash & Carry wants to redesign its older-than-a-year stores in 2010, a process that is scheduled to be completed in 2013. The planned investments in this process are estimated at a total of €8.5m, covering 17 outlets. In 2010 Selgros plans to redesign 11 outlets; five of them have been revemped in H1 2010.
Cora Romania plans to open one hypermarket in Romania this year, in the Gold Plaza shopping centre in the town of Baia Mare. This will be the firm’s fifth store in Romania. The sixth one is slated to launch in the town of Drobeta Turnu Severin in 2011.
Auchan plans to open just one outlet this year in the town of Constanta, which will bring the number of Auchan’s stores to a total of eight in Romania. The investment in the Constanta store is estimated at some €20m. The store will be located in the shopping centre Polus Center Constanta, which is now under construction. Polus Center project has been delayed for some time, but eventually TriGranit announced its completion in H2 2010. In 2011 Auchan wants to open a new outlet in the town of Brasov and is eyeing a new location in Bucharest.

Forecasts for the Romanian grocery market
In January-April 2010, the modern retail sales per square metre declined by 10% year on year in Romania. The increase of the VAT from 19% to 24% starting 1 July 2010 forced retailers to increase prices, which will further dent the shopping appetite of the Romanians. The hike in VAT led to the increase in the price of groceries by some 8% as of July 2010, according to MEMRB.
This year, Romanians are expected to spend more in modern retail formats, which may push traditional shops out from the market. In 2010 a total of six hypermarkets, 23 supermarkets and 66 discount outlets are primed to open in Romania. As result, the country will have a total of 110 hypermarkets, 438 supermarkets and 344 discount stores.

Marius Dragomir
PMR Romanian Correspondent