ROLAND BERGER SRL

 | 

ALINA FLOREAN

  |  27.06.2014

Modern grocery retail in Romania: next frontier for growth

Modern retail established its leadership in 2013, but is not looking to slow down – Driven by increasingly sophisticated consumer demands and the industry’s appetite for innovation, retailers will continue to break new barriers.

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ROLAND BERGER SRL

ALINA FLOREAN

ALINA FLOREAN

SENIOR PROJECT MANAGER at ROLAND BERGER SRL

2013 was a hallmark year for modern grocery retail in Romania, marking a series of firsts on the local market: the first year in which modern trade surpassed traditional retail in value share of sales, the opening of the 1,000th modern retail chain store, the first launch of an online order and home delivery platform for grocery sales by a major retailer, and the first signs of consolidation on the retail market with Auchan having taken over 20 of Metro Group’s Real Hypermarket stores in the country.

 

In a challenging market, still feeling the weight of the economic downturn, most modern retail chains continued their expansion, largely at the expense of small independent retailers. Although macroeconomic forecasts do not indicate a rapid recovery yet, modern retail will continue to grow as there is still some distance to be covered before catching up with mature markets in both CEE and Western Europe.

 

Several trends will continue to underpin this expansion, as confirmed by evolutions in 2013: large chain retailers will  increasingly gain market share in the convenience segment, previously reserved for traditional trade; as retailers continue to  expand their reach, private labels will follow, growing in relevance and sales; finally, the launch of online ordering services will open up new avenues for consumers.

 

Overall market developments
Grocery retail trade in Romania stood at around EUR 14bn in 2013, a year when private consumption registered a modest increase of 0.4%, following growth of 3.3% in 2012 and a decrease of 17% over 2009-2011. Retail trade in Romania suffered heavily throughout the economic crisis as personal income decreased and consumption plummeted.

 

Modern trade however continued to outperform the market, managing to gradually increase its share in total grocery retail sales from below 40% at the onset of the crisis, to a new maximum of 53% in 2013 (Figure 1), driven by continued expansion of large retail chains, with Kaufland, Lidl and Mega Image at the forefront of sales growth.

 

  

 

But despite progress in past years, Romania still exhibits a lower degree of retail penetration compared to other CEE and EU countries, indicating there is still significant potential for future growth. At around 90 m² of modern retail surface per ‘000 inhabitants, Romania lags even behind Bulgaria, with 140 m² per ‘000 inhabitants, while in Hungary, Poland or the Czech Republic the figure stands above 250 m²/ ‘000 inhabitants (even around 400 m²/ ‘000 inhabitants in the case of Hungary). It is therefore not a surprise that the modern trade penetration ratio, although now up to 53% of all retail trade, is significantly below the level of EU countries and is still lower than for CEE peers where penetration exceeds 70-80%.

 

One of the major limiting factors for the expansion of modern trade remains the high share of population living in rural areas (46% according to the latest census figures). Rural largely remains ignored by modern retailers as logistical complexity and local factors (such as the common habit of traditional retailers to sell on debt to clients they know well) reduce attractiveness for modern retailers. However, even this threshold is now being crossed – the first sign was Metro’s development of the La Doi Pasi franchise (a hybrid of modern and traditional trade), which reached over 300 stores in rural areas (out of a total of  around 700). And now Carrefour launched its own retail format targeting rural households – Carrefour Contact – having already opened 6 stores.

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