By Anna Rzhevkina

Skyrocketing inflation has prompted Polish consumers to become more careful with spending. Prices of consumer goods and services jumped by 17.9% annually in October, the highest rate in almost 26 years, according to GUS, Poland’s statistics office. Prolonged price growth has been eating up households' savings, and, as a consequence, people are planning their budgets more rigorously, focusing on essential purchases and looking for cheaper alternatives.

As consumers reconsider their buying habits to cope with price increases, discount stores have been gaining in popularity. Private labels - products that are produced by a third party but which a retailer sells under its own brand name - enjoy a clearly positive trend in Europe, according to NielsenIQ. Globally the market share for private labels is 19.4 %, whereas, in Poland, it has reached 21%, well above the 14.7% market share in Eastern Europe as a whole, suggesting that Poles are pretty price-conscious. 

Discount stores have been actively expanding in Poland in the last five years. The German company TEDi, which positions itself as a family-friendly discounter, entered the market in 2018. A year earlier, the Dutch concern, Action opened its first store in Poland. The chain's core advantages are quality, simplicity, surprise, and low prices. Nowadays, the brand has more than 200 stores and about 3,000 employees in the Polish market. 

Action says it restricts price increases by buying in large volumes from producers. “Our prices also increase, but this way we do not have to pass on the entire increase in costs to our customers,” Sławomir Nitek, General Manager at Action Poland told Warsaw Business Journal.

Uninterrupted growth 

In total, there are more than 2,150 discount stores in Poland, and according to Bankier.pl, their numbers keep growing. Pepco, the largest chain among the non-food discounters, controls about half of the market with 1,200 stores. The British discounter Dealz, which already has 170 stores in Poland, is also managed by Pepco Group. The second biggest player, the German discount fashion and home goods chain Kik, has more than 400 stores in Poland.

Another German discount chain, Woolworth, announced its plans in October to enter the Polish market in 2023 with the aim of having up to 25 stores there in the first year of operation, reaching 400 stores in the long term. "Our analysis shows that the retail trade in Poland has enormous potential. We are sure that the Woolworth brand will have a similar level of success in Poland as we have achieved in Germany," the CEO of Woolworth Polska Maciej Ćwikła told Retailnet.pl. 

The opening of the first store in the Atut Kraków Shopping Center is scheduled for the beginning of May 2023, and its sales area will amount to around 1,000 square meters, Woolworth spokesperson Roland Rissel told the Warsaw Business Journal. "The success of discount chains shows us that people are open to offers of this kind. We are convinced that we can be an asset in the retail sector," he said.

Rissel stressed that rising prices pose challenges for retailers throughout the EU, and discounters are more critical than ever for price-sensitive customers at this time. "In our experience, rising prices can be observed in all product ranges. Our task as a discount department store is to pass as few of these on to our customers as possible," he said. Rissel explained that buying directly from producers and having lean supply chains enable Woolworth to offer its products "at particularly favorable prices without compromising on quality."

Saving strategies

Polish consumers adopted a range of strategies to cut their spending in 2022. Compared to last year's third quarter, the group of people cutting expenses grew by nearly 20 percentage points, a study by UCE Research and Blix Group showed. Nowadays, already 60% of Poles are trying to reduce their expenses. Apart from rising prices, the reasons for caution include the fear that the economic situation will worsen further and the lack of savings. Almost half of Poles are saving on clothes, and 44.5% of consumers limit sweets and snacks. Slightly fewer people save on alcoholic beverages, household appliances, and cosmetics. 

On top of that, Poles have already started saving on basic groceries, Rzeczpospolita reported, citing a study by market intelligence firm GfK. About 400,000 Poles stopped buying fresh fish or loose-leaf tea, and a slightly smaller group started buying cheaper margarine instead of butter. After the first nine months of this year, the value of food goods purchased by Polish households increased by 10.3% due to rising prices, but the volume of purchases shrank by 2%.

Consumers are seeking options like product promotions or cheaper goods to save costs. Not surprisingly, discount stores with a wide range of goods at affordable prices are flourishing. Pepco Group in October reported a full-year (ended 30 September 2022) revenue growth of 17.4% on a constant currency basis to €4,824 million.

 "These are very challenging times for families across Europe, and we remain committed to helping customers on a budget by offering great range, value, and convenience – and we are confident this will enable us to expand our customer base going forward," Pepco Group CEO Trevor Masters said in a statement.

Pepco plans to increase the number of new store openings in the Polish market to 550 next year and is eyeing expansion to Greece and Portugal. In Poland, the company plans to modernize 1,800 stores by the end of 2023, and in the next two years, all Pepco stores across Europe will have a new look. The changes include new branding, product lines, and store layout.

Dealz aims to double its number of stores to 340 by the end of next year and plans to open a distribution center in the emerging logistics park Hillwood Łowicz Południe in Łódź Voivodeship. The company has leased 47,700 square meters in the park to use as a warehouse, office, and social space. 

Action plans to develop its supply chain in Poland to ensure that all stores regularly receive the right products. The company is also considering opening another logistics center in Poland, Nitek told Warsaw Business Journal.

Mixed trends in the grocery sector 

The situation, however, is different for discount grocery stores that struggle to maintain margins amid growing producer prices and higher electricity costs. For example, Netto Polska has shortened the opening hours of several stores since November, saying that the solution will allow offering the "lowest possible product prices." A month earlier, Kaufland also shortened the opening hours of many stores, assuring that consumers visit stores less often in the evening.

On the bright side, major chains are still expanding their workforce. For example, Lidl Polska announced plans to create about 1,400 new jobs and allocate a total of PLN 230 million on salary increases in 2023. Kaufland Polska plans to hire new employees and spend PLN 120 million on salary increases next year. On top of that, the company gave its employees prepaid cards for up to PLN 1,000 as Christmas gifts.

The discount supermarket chain Aldi also continues expansion in Poland, and aims to have 500-600 stores in Poland within five years. At the moment, Aldi has 233 stores in Polish market and employs nearly 4,000 people.

All in all, stores in Poland face the challenge of responding to changes in consumer behavior as people are becoming smarter with their spending. Promotional offers, more affordable product alternatives, and a wide assortment of goods are some strategies discount stores use to attract new customers and retain existing ones. Although these work, growing competition prompts chains to constantly develop creative solutions to deal with customers who will think twice before buying.