The Balkans: Europe's new emerging market

Country Profile
The Balkans: Europe's new emerging market

Poland, the Czech Republic, Slovakia and Hungary are promising markets with increasing GDPs and consumers eager to shop in modern retail outlets. It was this that initially attracted multinational retailers, and these are now using their position in Central Europe as a springboard to expand to a new range of emerging markets in the Balkan countries.
Elsevier Food International, Vol. 5, Number 2, May 2002
Pascal Kuipers

After decade of communist rule in the region, several Balkan states went on to endure civil war. With the war ended, Bosnia and Yugoslavia, Albania and Macedonia are still dealing with ethnic tensions and political instability. This has had a heavy impact on the economic situation in the Balkan markets. Only Slovenia and, to a lesser extent, Croatia are exceptions to the rule that the Balkan countries still have a lot of economic catching up to do when compared to the Central European states. Lack of infrastructure, massive bureaucracy, corruption, high unemployment rates and a thriving black market circuit can hardly serve to encourage investors to set up businesses in this south-eastern part of Europe.
Four out of the eight countries that comprise the Balkan region show a slower pace of change than the others, where the retail sector is developing more quickly. Albania, Macedonia, Bosnia-Herzegovina and Yugoslavia (Serbia-Montenegro) still suffer from a lack of legislation and political instability that, in combination with low levels of GDP per capita, deters investors in the short term. In the longer term, however, things are likely to change, as these countries will be positively influenced by developments in the other four Balkan countries, where the food retail markets have developed more quickly. Slovenia and Croatia primarily, but also Bulgaria and Romania, are attracting investors that seek to modernise the food retail sector.
By the end of this year a South Eastern European free trade zone is due to be created.
Functioning along the same lines as the World Trade Organisation and the European Union, the zone will see trade barriers removed for 90 per cent of all merchandise. All Balkan states will join, except for Slovenia, whose economy may well qualify it for EU membership in the years to come.

German pioneers
Metro AG was the very first western European retailer to venture into the Balkan region when it entered Romania back in 1996. According to M + M PlanetRetail, Metro currently operates ten cash & carry stores, and it hopes to double that number by 2004. By then it aims to have reached a sales level of US$ 980 million. In 1999 Metro expanded to Bulgaria, where it has eight cash & carry stores in the country's main cities. Last year the German retailer engaged in a joint venture with the Croatian company Agrokor. Konzum, as this joint venture is called, currently operates one cash & carry store, with plans to have at least five outlets by 2004. Further expansion territory for Metro includes Slovenia and Yugoslavia.
Another German retailer - Rewe - is also a pioneer in the Balkan region. Rewe's Austrian subsidiary Billa opened supermarkets in Romania back in 1998, and in Croatia in 1999. In Romania there are now nine Billa supermarkets, two cash & carry stores under the Selgros banner and one XXL Megadiskont hypermarket. In Croatia, Rewe is focusing on the supermarket format with an ambitious growth scenario that aims to see the establishment of 50 Billa supermarkets by 2005 (at the end of 2001 there were eight Billa supermarkets in Croatia). Rewe's Balkan ambitions are not limited to Romania and Croatia, as Billa opened its first hypermarket in Bulgaria in 2000. There are now eight EuroBilia hypermarkets in Bulgaria, and Rewe has expressed its ambition to be the leader in Bulgaria's hypermarket sector, with a target of 30 EuroBillas by 2005.
Closest to these German pioneers are Delhaize and Carrefour. In 2000 Delhaize acquired a 51 per cent stake in Romanian retailer Mega-Image, which had eight supermarkets with total sales of €27.7 million in 1999. In 2001 the number of Mega-Image supermarkets in Romania increased to ten, all in the Bucharest region, and Delhaize says it aims to have 15 stores by the end of this year. Meanwhile, Delhaize inherited a business in Bulgaria via its Greek subsidiary Alpha-Beta, which acquired the Greek retailer Trofo-Ena in October 2000. In 1999 Trofo-Ena opened a cash & carry outlet (ENA) and one year later the first supermarket was opened in Sofia under the Trofo banner. "Delhaize will grow gradually in the Balkan region," a spokesperson comments. "We don't look for acquisitions, but focus on organic growth, especially in Romania. We don't have a growth plan for Bulgaria."
French retailer Carrefour is also playing the Greek card when it comes to expansion in the Balkans. It aims to move into Albania and Macedonia via its Greek subsidiary Marinopoulos. Currently Carrefour is represented in Romania, where it has a 50:50 joint venture called Hiproma along with French retailer Hyparlo, in which the world's second largest retailer holds a 20 per cent minority share. In June last year, Hiproma opened a Carrefour hypermarket in Romania's capital Bucharest. This is the first of a total of ten hypermarkets that Hiproma aims to have opened by 2008.

Country Characteristics

Slovenia
With two million inhabitants Slovenia is a relatively small Balkan market. But the country has one of the highest GDPs per capita amongst the transition economies of Central Europe and is a leading candidate to join the EU. It does, however, need to speed up its privatisation process (45 per cent of the economy still remains in state hands) and to cut back on its restrictions on foreign investments. Market leader Mercator is an active consolidator in Slovenia's retail industry, but will encounter more competition now foreign retailers are entering the market. Mercator represents some 40 per cent of the market share and Slovenia's retail runner up Spar - a subsidiary of Spar Austria - wants to increase its current 10.3 per cent market share to 15 per cent by 2003.

Croatia
The Croatian retail sector is fragmented and in an early stage of development. It is therefore ideal for penetration via cash and carrv-stvle retail outlets catering to local independent retailers. Croatia still needs to change if it is to increase its attractiveness to foreign investors. It has to lower its high customs tariffs and its VAT, which is still 22 per cent for the majority of products. This, however, does not deter foreign retailers such as Metro AG, which targets the Croatian market in a joint venture (Konzum) with the Croatian company Agrokor and opened its first Konzum C&C in December 200l. Konzum aims to open four additional stores within the next few years. The hypermarket and supermarket channels are also developing. German retailer Schwarz, which also owns the Lidl discount chain, has very ambitious plans for its Kaufland hypermarket banner, and has already invested some US$ 9.3 million in two retail centres. It plans three more outlets in the near future and is looking to expand into Slovenia too. French retailer Leclerc will soon be opening a supermarket in Zagreb, following in the footsteps of the cash & carry operation that it opened in July 2000.

Bosnia-Herzegovina
Along with Macedonia, Bosnia belongs to the poorest republics in the former Yugoslav federation. This country is still a difficult market both economically and politically and is therefore not a priority for most retailers. French retailer lnterrnarche took the lead here: back in 1999 it expressed its confidence in Bosnia's future by opening a 1,200m2 large cash & carry outlet. M+M Planet Retail refers to lean-Francois Le Roch - son of lntermarche's founding father Alain Rocher and in charge of lnterrnarche's Bosnian operation - who said that, within eight months of its opening, the store was making money with an average basket spend equalling that of an average French supermarket.

Yugoslavia
War and economic sanctions completely disrupted the economy of Yugoslavia in the 1990S. Only since late 2000, when economic sanctions were lifted, has Yugoslavia been able to enter the first stage of economic reform. Yugoslavia's 2000 GDP growth rate looks encouraging after the country's dramatic performance in 1999, when its GDP plummeted 20 per cent due to its problems. Sloven ian retailer Mercator is the first foreign retailer to venture into this market, which is dominated by local retailers. "Mercator has not yet opened a store in Belgrade, but we expect them this year," comments Stretko Vukovic, commercial manager of Yugoslavia's second largest retailer Pekabeta. In the short term Vukovic expects Cora, Veropoulos, Metro AG and Carrefour to set up shop in Yugoslavia as well. Cora has already established a partnership with local company Delta to build a chain of five hypermarkets in Belgrade and the northern town of Subotica. Delta already operates a chain of hard discount stores called Maxi Discount.

Foreign followers
Other retailers interested in the Balkans are UK players Tesco and Marks & Spencer. Tesco is said to be expanding from its Hungarian base to the east, with plans to open a hypermarket in the Romanian city of Cluj Napoca as part of a US$ 60-80 million investment plan that targets Romanian cities close to the Hungarian border. Marks & Spencer franchises its concept in the Balkans via Greek retailer Marinopoulos, which is also a franchisee of Carrefour in Greece. After closing its wholly owned operations on the European continent, franchising is M&S' strategy for overseas expansion. Via Marinopoulos the Marks & Spencer chain has expanded into Slovenia, Romania and Croatia.
French retailers Cora, Leclerc and lnterrnarche are interested in the Balkans as well. Since 2001 Cora has operated three Profi discount stores in the western part of Romania, with plans to open five hypermarkets there in the medium term. In Yugoslavia Cora has established a joint venture with local retailer Delta to build a chain of five hypermarkets involving an investment of US$ 36.7 million. Leclerc began last year in the Balkan's most developed market Slovenia, where it opened a 8,500m2 store in Ljubljana. Leclerc plans to open some ten stores in Slovenia and is considering market entry in Romania and Croatia. Interrnarche's Balkan presence is limited to two countries with one store each. In 1999 ITM opened an Interex cash & carry store in Bosnia-Herzegovina's capital Sarajevo, and late in 2001 an lnterrnarche supermarket was opened in Romania.
Retailers from neighbouring countries such as Turkey and Greece are also actively engaged in the Balkan retail. Migros Turk and Veropoulos are active players with either operations or plans for Bulgaria, Macedonia and Yugoslavia.
And then there is Mercator, the ambitious retailer from Slovenia (where it controls the market with a 40 per cent share) that targets market leadership in South Eastern Europe and has expanded its business to Croatia and Bosnia. Mercator started in Croatia by opening a shopping centre in the city of Pula in 2000. Shortly afterwards it acquired local chain Sloboda in July 2001, Mercator announced that it was going to acquire six local retail chains. In the longer term, the retailer wants to capture a 12 to 15 per cent share of the Croatian market.
In Bosnia-Herzegovina, Mercator acquired a 51 per cent majority share in the Sarajevo-based company Trizni. In December 2000 Mercator/Trizni opened its first shopping centre in Sarajevo, which was so successful that new shopping centres are planned in the cities of Tuzla and Banja Luka.
Mercator has also set its sights on Yugoslavia. According to M + M Planet Retail the Slovenian retailer wants to invest US$ 26.5 million in a hypermarket in Belgrade, as part of its plan to achieve a 20 per cent market share in the medium term. Due to the region's economic and political instability, most ambitions are still at planning stage. M + M Planet Retail quoted Mercator's CEO Zoran Jankovic as saying, "We are opening in Croatia and Bosnia now, and in Yugoslavia soon. No one can escape globalisation and I think a regional approach is our only chance. It is therefore very important to take position now."  

Country Information

Croatia
Population: 4.5 million
Consumer spend: US$ 11.7 bn Total retail market: US$ 5.9 bn Food retail market: US$ 2.5 bn
Food retail spend per capita: US$ 556
GDP*: US$ 24.9 bn
GDP growth rate: 3.2% GDP per capita: US$ 5,800

Top retailers
1. Konzum
2. Getro

Foreign retailers
Billa (Austrian subsidiary of German retailer Rewe) Spar Austria (Austria)
Marks & Spencer (UK) (via its Greek franchisee Marinopoulos)
Leclerc (France)
Metro AG (Germany)
Schwarz (Germany) (Kaufland chain) Coop Italia (Italy) (planned) Mercator (Slovenia)

Macedonia
Population: 2 million
Consumer spend: US$ 2.5 bn Total retail market: US$ 1 bn Food retail market: US$ 0.5 bn
Food retail spend per capita: US$ 250
GDP*: US$ 9 bn
GDP growth rate: 5%
GDP per capita: US$ 4,400

Top retailers
1. Veropoulos (Greece)

Foreign retailers
Day's Market (Greece) Veropoulos (Greece)
Alpha-Beta (Belgian retailer Delhaize's Greek subsidiary) (planned)
Atlantik (Greece) (planned)
Marinopoulos (French retailer Carrefour's Greek subsidiary) (planned)
Migros TUrk (Turkey) (planned)

Bulgaria
Population: 8.2 million
Consumer spend: US$ 9.3 bn Total retail market: US$ 4.6 bn Food retail market: US$ 2.6 bn
Food retail spend per capita: US$ 317
GDP*: US$ 48 bn GDP growth rate: 5%
GDP per capita: US$ 6,200

Top retailers
1. Zentrale Koperative Sajus

Foreign retailers
Biskas (Greece) Metro AG (Germany)
Billa (Austrian subsidiary of German retailer Rewe) Migros TUrk (Turkey)
Delhaize Ie Lion (Belgium - via its Greek subsidiary Trofa Ena/Alpha-Beta)
Veropoulos (Greece) (planned)
Atlantik (Greece) (planned)
Dohle (Germany) (planned)

Slovenia
Population: 2 million
Consumer spend: US$ 11.1 bn Total retail market: US$ 6.7 bn Food retail market: US$ 1.2 bn
Food retail spend per capita: US$ 575
GDP*: US$ 22.9 bn GDP growth rate: 4.5%
GDP per capita: US$ 12.000

Top retailers
10. Mercator
11. Spar Austria
12. Zivila Kransjka

Foreign retailers
Spar Austria (Austria) Tengelmann (Germany) Leclerc (France) Carrefour (France)
Marks & Spencer (UK) (via its Greek franchisee Marinopoulos)
Metro AG (Germany) (planned)
Schwarz (Germany) (Kaufland chain) (planned)

Albania
Population: 3.4 million
Consumer spend: US$ 3.3 bn Total retail market: US$ 1.3 bn Food retail market: US$ 0.8 bn
Food retail spend per capita: US$ 235
GDP*: US$ 10.5 bn
GDP growth rate: 7.5% GDP per capita: US$ 3.000

Top retailers
N.A.

Foreign retailers
Marinopoulos (Greek subsidiary of French retailer Carrefour) (planned)

Romania
Population: 22.5 million
Consumer spend: US$ 23.7 bn Total retail market: US$ '5.3 Food retail market: US$ 6 bn
Food retail spend per capita: US$ 267
GDP*: US$ 132.5 bn
GDP growth rate: 2.2% GDP per capita: US$ 5.900

Top retailers
1. Metro AG
2. Billa Romania
3. Mega-Image
4. Enaco

Foreign retailers
Metro AG (Germany)
Delhaize Ie Lion (Belgium) (parent of Mega-Image) Carrefour (France) (via a 50:50 joint venture with French retailer Hyparlo in which Carrefour holds a 20% stake)
Cora (France)
Billa (Austrian subsidiary of German retailer Rewe) Selgros (Germany; C&C subsidiary of Rewe)
Enaco (Spain)
Gima (Turkey)
lnterrnarche (France)
Marks & Spencer (UK) (via its Greek franchisee Marinopoulos)
Leclerc (France) (planned) Tesco (UK) (planned)
Dahle (Germany) (planned)

Yugoslavia
Population: 11.2 million
Consumer spend: US$ 6.8 bn Total retail market: US$ 3.5 bn Food retail market: US$ 2.7 bn
Food retail spend per capita: US$ 241
GDP*: US$ 24.2 bn GDP growth rate: 15%
GDP per capita: US$ 2.300

Top retailers
1. C Market
2. Pekabeta
3. Rodic

Foreign retailers
Mercator (Slovenia) Veropoulos (Greece) (planned) Cora (France) (planned)
Metro AG (Germany) (planned) Migros TUrk (Turkey) (planned)

Bosnia-Herzegovina
Population: 3.9 million
Consumer spend: US$ 1.8 bn Total retail market: US$ 1 bn Food retail market: US$ 0.8 bn
Food retail spend per capita: US$ 205
GDP*: US$ 6.5 bn GDP growth rate: 8%
GDP per capita: US$ 1.700

Top retailers
N.A.

Foreign retailers
ITM/lntermarche (France) Mercator (Slovenia)
Droga (Slovenia - manufacturer that acquired the Konzum retail business in 2000)

Source: IGD Global Retailing 2001; M+M Planet Retail
* All GDP data are estimates for the year 2000. Source: CIA World Factbook 2001 

 

Published 20-05-2002 (10:47) by Jin Hahm

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