Retail Routes in the Eastern Europe

Septembrie 2008

KING STURGE

After struggling for years to achieve macroeconomic stability and to become full members of international or regional communities or organisations, the former communist block successfully managed to adopt the “western way of thinking and living”. The best reflections of this capitalist attitude are, undoubtedly, the new commercial routes born in the recent years in the region of Eastern Europe.

Integration of East-European retail market has started several years before, but became effervescent last year. The trend continued this year even on the background of a worsening international financial environment.

Apart from investment funds and developers, retailers are a separate category that proved to be more and more mobile in the recent years. As exponents of demand both for commercial and logistic spaces they seem to have a significant influence over the real estate market as a whole but also a contribution in attracting foreign investors (international big retailers looking to expand their business).

A distinction must be made between famous large format retailers like Metro, Selgros, Carrefour, Auchan, Real, Kaufland etc. that have easily conquered the East due to their financial power, and local retailers that gradually and successfully emerged and became important competitors for big players.

Sometimes, the local companies even created difficulties for international chains trying to enter or expand in the market, as it is the case of Romanian-based company PIC that refused to facilitate Tesco’s entrance and rejected the take-over intentions of Carrefour. Karavan chain (owner of 4 stores in Kiev, Kharkov and Chernovtzy, totalling 28,600 sqm) has recently denied the talks about the negotiations with Carrefour. The French retailer was trying to follow Auchan’s example, that last year acquired 20% of local player Furshet in order to enter Ukraine, and was planning to acquire the majority stake of Karavan.

One of the most prospering retail markets worldwide is Ukraine, with 47 million potential consumers and important local retailers dominating the market: Fozzy Group, Quiza Trade, Furshet (top three retailers with over USD 200 mn brand value), ATB Market, Eco, Intermarket etc. According to research released by Planet Retail Company, last year 20 out of 30 of East European Top Retailers were coming from Ukraine and Russia.

On the other extreme, one of the less developed is Moldova, with only several local chains: Supermarket No 1, Green Hills (acquired by Ukrainian Quiza Trade – managing company of Velyka Kyshenya - last year) and Sheriff Supermarket.

Traditional affinities between the countries combined with the consumption potential are the key elements considered by shopkeepers in their strategy to establish their business.

One of the most attractive countries for retailers remains Ukraine, but none of the regional countries are missed (not even FYROM, Albania or Bosnia Herzegovina, these small countries with high development potential becoming important targets for regional retailers starting this year).

As expected, underdeveloped Moldova became an opportunity especially for Russia and Ukraine, and more recently for Romania. Whilst the highest “traffic” is spotted between Russia and Ukraine. Russian Vester Group (supermarkets and hypermarkets) is one of the most expansionist retailers in Ukraine. Entering the market last year, it has plans to open 50 hypermarkets and 24 supermarkets in 35 Ukrainian cities by the end of 2011.

Traditional commercial routes have been re-established inside former Yugoslavia too. Sometimes, but very rarely, political disputes are interfering with retail developments: Slovenian Merkator had to postpone its opening this year in the Serbian city of Nis as the premises had been attacked a few weeks before the inauguration date by Serbian demonstrators protesting against Slovenia’s role in the Kosovo crisis.

But these are only isolated events. Usually, retailers do not take into account politics and do not hesitate to exploit the market opportunities.

Delta Holding, the largest private company in Serbia with a profit in excess of EUR 1.72 bn in 2007 (360 Delta Maxi stores are opened in Serbia) is the most active player, not only inside former Yugoslavia, but also in the Balkans. After starting businesses in Bulgaria and Montenegro, Delta Maxi recently opened (in July, 2008) its first store in Bosnia & Herzegovina. The company didn’t give up expansion plans inside Serbia, where a shopping complex called Delta Power Center should be opened in Novi Sad on a 10 ha plot of land.

Together with international investment holding Finstar, Delta Holding plans to “aggressively” attack Ukraine and Belarus. Locations are under study as well in Albania and Macedonia.

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