|  05.08.2016

Increasing purchasing power and growing appetite for spending and consumption within the next 3-5 years

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In Ukraine, the share of retail expenditures in the average household private consumption is very high, up to 64% in 2015. Consumers are looking for big savings in leisure, travelling, services, clothing, and focus on basic needs.


Disposable income per household is another indicator to follow, because usually retailers target a household and a family as a consumption individual point.


The penetration of cars, phones and TVs to 1,000 households are indicators to consider, too, when making the strategic planning.


It is worth to mention retail market size and landscape. Romania and Ukraine are less developed markets versus EU in general. Romania has 0.69 square meters of retail space per capita; Ukraine has less – 0.42 square meters. And the productivity of retail space should be considered, as well; it is less than EUR 2,500 per square meter per year both in Romania and Ukraine.


This creates pressure on retail formats, sizes of the stores and, of course, the fight for a better location. From another perspective, we see cities in Romania with retail concentration similar with mature markets of Western Europe, e.g. Bucharest with 1mill+ sqm retail space and still new malls are under construction. Thus, it influences the lifecycle of some retail formats, creating pressure on big formats and encouraging proximity formats growth, due to less time spent in the store. People tend to go to big retail formats for experience and integrated services, and to small formats for basic baskets, food-driven.


On the other hand, analyzing consumption in different product categories versus other countries, identifying the gaps and growing categories, developing cooperation with manufacturers is essential for retailers to grow their business for the future. We say that it is not enough to meet the customer’s needs, it might be too late; sometimes we have to create new needs.


Q: As defined, an equation is a statement that the values of two mathematical expressions are equal. On the left side, we have super-cheap money provided by an accommodative monetary policy and the fresh memory of the crisis. What do we have on right side of the equation?


Adrian Ariciu: Specifically for Romania, the negative CPI, increasing spending and debt level of population. In 2015, the Romanian economy was growing, based on consumption growth; the same trend is foreseen for this year. In the long term, such trend can be dangerous. Especially when taking into account that mentioned indicators in the equation are influenced by one-time effects like VAT decrease, or cheaper energy and fuel.


In order to sustain robust GDP growth, the production volumes in agriculture, transport, construction sectors should be growing, as well.


Q: What are the tools that the cash & carry entities use in order to adapt to the consumer needs?


Adrian Ariciu: The top-of-mind reasons that predetermine consumer’s choice of the store are location, assortment and price. So, you can create a marketing mix which is scoring well on all 3 elements versus your competitors, or choose one and build on it and for customers to associate you with. I would rather prefer the second option and bet on the price element.


Q: How do you use technology and digital transformation in your strategy in order to satisfy the consumers and to please the shareholders, at the same time?


Adrian Ariciu: This is my favorite question; these days, it is very popular in the retail community. On one hand, it is necessary to listen to the customer and know his expectations. But, if you used to send your customers a leaflet with your offers for the last two decades, they will probably say they like it. So, on the other hand, we have to surprise the customers with innovations, including those in communications. E.g., METRO Ukraine chose to stop sending printed materials to the customers and focus on digital channels. In the digital world, we are communicating with a broader audience, bringing more customers to the store and, at the same time, the cost per contact is going down.


Q: The shopping experience has changed a lot. People have alternatives to the wonderful ‘buying experience’ they had when they actually shopped exclusively in stores. What drives the new buying experience, online?


Adrian Ariciu: The online shopping experience and the traditional retail experience are driven by different factors. And the online one is linked to technology development and people’s readiness to test new things. If you have the technical capability, you start the online channel; if you don’t have it, better wait and invest on it before start up. Just think to Amazon Dash, or goods delivery by car without a driver or by a ... drone. Beside this excitement generated by the online supply model, the majority of the customers are likely both to explore and order from online platforms, and shop with traditional retailers, because of the human touch there. The non-food sector is a champion in e-commerce in many countries. On the other hand, even advanced online markets, like the U.S., do not manage to sell online more than 10% of total food sales volume.


Q: From an executive point of view, taking into consideration ‘the new business equation’, what are the most important variables in terms of understanding the future of business?


Adrian Ariciu: Some of the above mentioned – purchasing power index, consumer confidence index, retail share from total household private consumption and retail size and productivity are macro indicators to understand the potential of the market. Among others are labor market trends, inflation rate, GDP development, monetary and banking policy.

However, our business remains simple, we buy and sell goods, and our customers continue to consume 3,000 calories per day. We just have to make sure that we meet their needs, better than others, day by day.

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