Change in store
Recent talk of a lingering economic crisis seems to be confirmed by the sight of shops and hypermarkets that were crowded with customers only a year ago, now appearing abandoned. Warsaw's empty shops are attempting to halt the ebbing consumer tide with what seems to be a never-ending barrage of sales and promotions. But they are having a hard time of it.
"The current economic situation does not lend itself to boom times for Polish supermarkets. High unemployment, the high cost of borrowing and lower spending have resulted in mostly decreases in the average basket size over the last year," said Julie Duthoit, a partner at PricewaterhouseCoopers, retail group.
But even as the retailers in larger cities seemed to be battling to survive in an oversaturated market, Kraków-based supermarket and do-it-yourself store chain Krakchemia announced bold plans to venture outside the large-city format and open new stores in medium-sized and small cities across the southern part of the country. At present the chain owns two supermarkets and one DIY store in Kraków and Tarnów. According to the company's latest plans, it will open stores on an annual basis, with the first scheduled for Nowy Targ this year.
"Moving outside large cities is a definite trend, as smaller cities have hardly any supermarkets present," said Tatiana Siemieniuk, associate director at the retail agency of Jones Lang LaSalle.
Henryk Kuśnierz, chairman of the supervisory board at Krakchemia, believes the company has found another market niche, and says he does not "intend to compete with large hypermarket chains in terms of prices."
Krakchemia wants to stock better quality products and aims to limit the net area of its stores to 3,000-5,000 square metres. Kuśnierz's optimistic view is based on record-breaking turnover last year, although he declined to divulge figures.
Whether Krakchemia will succeed in overcoming the current market slowdown is difficult to predict, but experts believe that the growth potential of its chosen niche is immense.
Andrzej Faliński, secretary general at the Polish Organization of Trade and Distribution, believes a new trend is emerging on a market that has, until now, been largely dominated by foreign brands. In Faliński's opinion, the key to success is cutting operating costs in order to be competitive against the foreign chains. The final outcome will depend on the way small firms will be able to cope with the current market situation, particularly since in EU countries the authorities have widely backed the development of this type of enterprise, whereas here official support rarely extends beyond EU regulations.
Krakchemia appears confident in finding the funds for its expansion itself.
"We intend to finance our further expansion from bank loans and our own financial means as well as the sale of assets that are outside our sphere of interest," Kuśnierz said. He went on to add that his company has already gained the experience needed to manage a larger number of retail outlets.
Lechosław Garbarski, chair of the marketing department at the Leon Koźmiński Academy of Entrepreneurship and Management, believes that the situation on the market can still change.
"During the next two to three years supermarkets are likely to gain control of 30%-40% of the Polish market," he said. "In some EU countries, such as France and Scandinavia, the saturation of supermarkets and hypermarkets reaches 90%."
Garbarski said he believes this is unlikely to happen here as most Poles live in towns where the population is under 100,000, and until now supermarkets have not entered those markets. The supermarket sector still has huge growth potential because there is an entirely undeveloped market segment to look at. He added that most companies still perceive Poland as a developing market, but its future is likely to be affected by the process of consolidation.
But Magdalena Zimna of market consultancy GfK Polonia said she believes a lot can still happen on such a highly fragmented market and that consolidation is one of the directions the market may follow.
As small regional chains such as Krakchemia or Poznań-based Piotr i Paweł seem to be doing quite well, the nation's Goliath-like hypermarkets are finding the market increasingly less accommodating.
Meanwhile, the plot thickened with some of the larger players on the global market finding the current economic situation hard to handle. When it was revealed that the world's third largest supermarket operator - and a major player on the retail scene here - Ahold, was in serious trouble, interest focused on potential takeover bids for its local operations, which according to market experts are not doing as well as anticipated.
The Dutch giant with a network in 27 countries and sales that totalled €72.7 billion in 2002, announced that its chief executive and chief financial officer would be quitting in the wake of a €500 million accounting scandal involving its US operations. The British daily The Independent then reported that British hypermarket chain Tesco was considering a €15 billion buyout of the ailing retailer. Tesco representatives were not available for comment about the talks on the planned bid, but it soon appeared that Tesco was not the only interested party when it was joined by French retail chain Carrefour. Both Tesco and Carrefour have been named as potential suitors for Ahold's Polish operations.
"We do not exclude the possibility of buying out Ahold's operations that are present on the same market as our operations, but as of now we have not been approached with an offer," said Christian Honore, Carrefour's spokesman.
Tesco made its expansion plans on the Polish market clear when it acquired the German hypermarket chain HIT last year for a reported sum of €600 million. Experts are unanimous that Ahold's Polish operations would have no difficulty in finding a buyer despite the fact that the company's financial results are far from satisfactory.
A well-placed source at Ahold Polska, who agreed to speak to the Business Journal on the condition of anonymity, said that the Hypernova hypermarkets in particular were having serious difficulties. At some stores, sales plans for a day were sometimes taking as long as a week to fulfil.
"None of Poland's Hypernovas are earning any money," the source said, although he added that things were better at the Albert supermarkets. He also said that Ahold had recently undertaken a restructuring programme under which several mid-level managers were brought in from the Czech Republic, where the company is relatively successful.
The strong presence of Tesco and Carrefour on the market only proves its growth potential in the eyes of an investor. Its attractiveness to the big players becomes even more striking when confronted with the statistical data. Sixty percent of the country's retail market remains in the hands of so-called traditional shops, which are generally corner shops and other small retailers. By contrast, in western Europe, the figure is 10% to 15%. The five largest players on the local retail market generate 14% of all business, while in Germany the big five account for 80% of all retail sales.
On a market that has more than 200 hypermarkets, Ahold has an extensive network of 180 retail outlets, consisting of some 150 Albert supermarkets and almost 30 Hypernova hypermarkets. Only recently the company unveiled plans to open around 10 new Hypernova hypermarkets and 20-25 Albert supermarkets this year alone.
Ahold representatives failed to respond to several requests for information on how these expansion plans would be affected by the parent company's financial woes. But on the face of it, problems with its US operations can be expected to have little impact here, despite the size of the sum involved. This view is largely supported by Sean Briggs, head of leasing and marketing at the Central Europe Retail Property Fund, although he pointed out that one result of Ahold's overstatement of its earnings is that it will have less money in the coffers.
"As much as with any overstatement of earnings, you've less money to invest," he commented. Still, he said he thought Ahold was big enough to survive here, even though others might not. "In the food sector," he said, "I've always felt there are more big players than there's room for on the market."
"The current economic situation does not lend itself to boom times for Polish supermarkets. High unemployment, the high cost of borrowing and lower spending have resulted in mostly decreases in the average basket size over the last year," said Julie Duthoit, a partner at PricewaterhouseCoopers, retail group.
But even as the retailers in larger cities seemed to be battling to survive in an oversaturated market, Kraków-based supermarket and do-it-yourself store chain Krakchemia announced bold plans to venture outside the large-city format and open new stores in medium-sized and small cities across the southern part of the country. At present the chain owns two supermarkets and one DIY store in Kraków and Tarnów. According to the company's latest plans, it will open stores on an annual basis, with the first scheduled for Nowy Targ this year.
"Moving outside large cities is a definite trend, as smaller cities have hardly any supermarkets present," said Tatiana Siemieniuk, associate director at the retail agency of Jones Lang LaSalle.
Henryk Kuśnierz, chairman of the supervisory board at Krakchemia, believes the company has found another market niche, and says he does not "intend to compete with large hypermarket chains in terms of prices."
Krakchemia wants to stock better quality products and aims to limit the net area of its stores to 3,000-5,000 square metres. Kuśnierz's optimistic view is based on record-breaking turnover last year, although he declined to divulge figures.
Whether Krakchemia will succeed in overcoming the current market slowdown is difficult to predict, but experts believe that the growth potential of its chosen niche is immense.
Andrzej Faliński, secretary general at the Polish Organization of Trade and Distribution, believes a new trend is emerging on a market that has, until now, been largely dominated by foreign brands. In Faliński's opinion, the key to success is cutting operating costs in order to be competitive against the foreign chains. The final outcome will depend on the way small firms will be able to cope with the current market situation, particularly since in EU countries the authorities have widely backed the development of this type of enterprise, whereas here official support rarely extends beyond EU regulations.
Krakchemia appears confident in finding the funds for its expansion itself.
"We intend to finance our further expansion from bank loans and our own financial means as well as the sale of assets that are outside our sphere of interest," Kuśnierz said. He went on to add that his company has already gained the experience needed to manage a larger number of retail outlets.
Lechosław Garbarski, chair of the marketing department at the Leon Koźmiński Academy of Entrepreneurship and Management, believes that the situation on the market can still change.
"During the next two to three years supermarkets are likely to gain control of 30%-40% of the Polish market," he said. "In some EU countries, such as France and Scandinavia, the saturation of supermarkets and hypermarkets reaches 90%."
Garbarski said he believes this is unlikely to happen here as most Poles live in towns where the population is under 100,000, and until now supermarkets have not entered those markets. The supermarket sector still has huge growth potential because there is an entirely undeveloped market segment to look at. He added that most companies still perceive Poland as a developing market, but its future is likely to be affected by the process of consolidation.
But Magdalena Zimna of market consultancy GfK Polonia said she believes a lot can still happen on such a highly fragmented market and that consolidation is one of the directions the market may follow.
As small regional chains such as Krakchemia or Poznań-based Piotr i Paweł seem to be doing quite well, the nation's Goliath-like hypermarkets are finding the market increasingly less accommodating.
Meanwhile, the plot thickened with some of the larger players on the global market finding the current economic situation hard to handle. When it was revealed that the world's third largest supermarket operator - and a major player on the retail scene here - Ahold, was in serious trouble, interest focused on potential takeover bids for its local operations, which according to market experts are not doing as well as anticipated.
The Dutch giant with a network in 27 countries and sales that totalled €72.7 billion in 2002, announced that its chief executive and chief financial officer would be quitting in the wake of a €500 million accounting scandal involving its US operations. The British daily The Independent then reported that British hypermarket chain Tesco was considering a €15 billion buyout of the ailing retailer. Tesco representatives were not available for comment about the talks on the planned bid, but it soon appeared that Tesco was not the only interested party when it was joined by French retail chain Carrefour. Both Tesco and Carrefour have been named as potential suitors for Ahold's Polish operations.
"We do not exclude the possibility of buying out Ahold's operations that are present on the same market as our operations, but as of now we have not been approached with an offer," said Christian Honore, Carrefour's spokesman.
Tesco made its expansion plans on the Polish market clear when it acquired the German hypermarket chain HIT last year for a reported sum of €600 million. Experts are unanimous that Ahold's Polish operations would have no difficulty in finding a buyer despite the fact that the company's financial results are far from satisfactory.
A well-placed source at Ahold Polska, who agreed to speak to the Business Journal on the condition of anonymity, said that the Hypernova hypermarkets in particular were having serious difficulties. At some stores, sales plans for a day were sometimes taking as long as a week to fulfil.
"None of Poland's Hypernovas are earning any money," the source said, although he added that things were better at the Albert supermarkets. He also said that Ahold had recently undertaken a restructuring programme under which several mid-level managers were brought in from the Czech Republic, where the company is relatively successful.
The strong presence of Tesco and Carrefour on the market only proves its growth potential in the eyes of an investor. Its attractiveness to the big players becomes even more striking when confronted with the statistical data. Sixty percent of the country's retail market remains in the hands of so-called traditional shops, which are generally corner shops and other small retailers. By contrast, in western Europe, the figure is 10% to 15%. The five largest players on the local retail market generate 14% of all business, while in Germany the big five account for 80% of all retail sales.
On a market that has more than 200 hypermarkets, Ahold has an extensive network of 180 retail outlets, consisting of some 150 Albert supermarkets and almost 30 Hypernova hypermarkets. Only recently the company unveiled plans to open around 10 new Hypernova hypermarkets and 20-25 Albert supermarkets this year alone.
Ahold representatives failed to respond to several requests for information on how these expansion plans would be affected by the parent company's financial woes. But on the face of it, problems with its US operations can be expected to have little impact here, despite the size of the sum involved. This view is largely supported by Sean Briggs, head of leasing and marketing at the Central Europe Retail Property Fund, although he pointed out that one result of Ahold's overstatement of its earnings is that it will have less money in the coffers.
"As much as with any overstatement of earnings, you've less money to invest," he commented. Still, he said he thought Ahold was big enough to survive here, even though others might not. "In the food sector," he said, "I've always felt there are more big players than there's room for on the market."
