Poland features most of the world's leading retailers, who in the corning years will battle for the top three positions in the capital intensive hypermarket sector. Once the dust has settled, who will be the winners? French retailers Ceant (Casino) and Carrefour stand a good chance. But what about UK retailer Tesco, or the anticipated newcomer from Germany, Kaufland?
Elsevier Food International, Vol. 4, Number 2, May 2001
Juergen Elfers

In the year to come, six companies with shares of between ten and 20 per cent will compete for the market lead in Poland's hypermarket sector. Last year Tesco and Hypernova were the big winners in terms of market share, and this reflects their strong expansionist policies. Until 2004, these two companies will continue to dominate, along with Jumbo and Auchan.
Real, on the other hand, might lose market share between 2000 and 2004 because it is not expanding much. Its reticence is offset by a background in which the competition is increasing sales floor area by an average of around 25 per cent annually, and is surprising given the fact that Real still has at its disposal a huge property portfolio for the development of modern shopping malls. However, it reflects Real's preferred market penetration strategy of choosing small and medium-sized towns as its primary locations. On the other hand, though, Real's market share will be decreasing from a high base (23 per cent in 2000) to a level that still qualifies it for a leading position (13.8 per cent in 2004E).
The same applies to HIT. In an early move, the Dohle group subsidiary set up 13 new stores relatively rapidly, but its expansion activities over the next years will take place more slowly and HIT's market share is likely to fall. However, by 2004 we can expect that HIT will still have a market share of 8.1 per cent.
It is also interesting to see that Carrefour, the company with the largest international hypermarket exposure, is in last position out of the top six companies. However, from discussions with the Carrefour management we conclude that the company aims to become a market leader in Poland in the medium term.

Floor size
In a simplified analysis, the nine hypermarket operators can be divided into three sales concepts and sales floor sizes. Ceant, Tesco, Carrefour and Auchan have an average store size of over 10,000 sq m. If we add cash & carry, Selgros would also be included, with its average sales floor of 10,914 sq m.
At the lower end of the store-size scale are HIT, Hypernova, Leclerc and Jumbo, whose origins and primary competence lie in the food segment. Consequently, the non-food ranges either display less product authority, or serve to meet more basic needs with less breadth and depth.
With an average store size of 8,156 sq m, Real aims to focus much more on competence in the non-food segment than it does at the moment in its domestic market. However, compared to its French competitors, Real has only reached a true level of competence in a few non-food areas.
In the medium term, only Ceant and Auchan will remain faithful to a certain store size. In the case of Carrefour, its typical store size in 'provincial areas' can be seen in Krakow. Tesco is also likely to start reducing its store size now that it has built up a presence in all the key locations. Tesco has already introduced a smaller sales floor of only 8,000 sq m in Jelenia Gora and Tychy. Hypernova and Jumbo are at the lower end of the store size rankings, with the introduction of their smaller sized superstores. In contrast, Leclerc should retain its store size format of about 5,000 sq m. We believe that Leclerc's very successful hypermarket in Lublin (5,200 sq m) will serve as a blueprint for further expansion.

Sales density
As long as Poland continues its rapid development and the gap between Poland and western retail structures is reduced, sales density rankings must be treated with great caution. Caution is also needed because the competitive scene is set to change, not least because all areas of modern retailing (supermarkets, discounters, superstores and hypermarkets) are counting on strong expansion. In addition, the strong competitive situation will take on new dimensions when the German large-scale discounter Kaufland (a format of Lidl & Schwarz), enters the Polish market. Kaufland will position itself with about 40 stores of an average size of about 5,000 sq m. With a food share of 80 per cent and a clever arrangement of its products, management has been able to convey strong product competence, although Kaufland has relatively low SKU figures.
Up until 2004, the Polish hypermarket sector is committed to strong growth. Annually, net sales will soar by 32.4 per cent, the sales floor area will expand by 25.1 per cent and the number of hypermarkets will increase by 28.4 per cent. Underlying market trends is an expected rise in demand for non-food products in 2003/04. Average sales will also be boosted by the quality of the stores. First-mover advantage is a key factor, as well as a willingness to pursue a relatively expensive market position in prime retail locations (eg, Tesea). If companies have locations where spending power will be rather slow to develop (medium-size towns) or where there is already a surplus in sales area (Lódz or Poznan), the low quality of the portfolio will be reflected in a below-average sales density.
Due to their competence in the non-food segment, the French hypermarket operators Ceant, Auchan and Carrefour hold high positions on the sales density rankings. Leclerc however will remain number one when it comes to its excellent portfolio of stores. It can afford to devote itself fully to its existing sales floor and expansion.
HIT's sales density is boosted by the high importance of its food sales and its first-mover advantage - the company has many stores that we believe to be of excellent quality. However, HIT is likely to have difficulties in closing the competence gap in the non-food segment by 2004. With the anticipated increase in competition specifically within the food segment - not least due to the greater market penetration of discounters and supermarkets ¬there is a risk of deflation.
Jumbo's sales density is also likely to benefit significantly from the fact that a high share of the company's sales are generated in the food segment. The company has an impressive sales concept and is expanding at a fast pace. Caution is needed when it comes to Tesco. Expansionist momentum should outweigh any increase in the sales density of the network, which could fall well below expectations.
Real is likely to develop below sector average, mainly due to its relatively poor quality of store portfolio. Real is said to be considering closing some stores to cut its losses. As Real also lags behind players such as Carrefour and Ceant in terms of product authority in the non-food segment, it is likely to be difficult to increase the sales density in the non-food segment. Hypernova is a tail-ender in terms of sales density, but only because we expect high expansion momentum, not least in the superstore division.

Criteria for success
There is no single recipe for success in Poland. However, hypermarket who satisfy the following criteria should have a good chance of achieving it:

• First-mover advantage in terms of location quality and invested capital.

• High level of competence in the hypermarket business in general, and the non-food segment in particular.

• High level of competence in own brands to complete the strike price ranges.

• Sales floors between 8,000 sq m and 10,000 sq m should be easier to operate than much larger stores.

In the matrix on page 81, we have aimed to make the decision-making process as to who will be Poland's winners and losers as transparent as possible. The data shows a leading group comprising Ceant, HIT, Auchan, Carrefour and Leclerc.lf the financial strength of the controlling company gains importance in the tougher competitive environment and in the race to become one of the top three in Poland, then HIT, Auchan and Leclerc will fall out of the leading group, leaving Ceant and Carrefour the winners. Tesco then should catch up with this group in the medium term. However, under the present scenario, Tesco does not seem to be a certain winner, despite its retail competence, its relatively high investment per location and its still low sales per sq m of sales area. Given the dominant demand for food products, its sales areas could prove too large.
Hypernova's, Jumbo's and Real's positioning is below average compared to their competitors. Hypernova has secured a new position for itself in 2000 and is strongly focused on expansion. But it is a late-comer: locations are relatively expensive and sales density is below average for the sector. The same holds true for Jumbo.
Real is suffering greatly from a rather questionable market entry strategy and its initial focus on retail parks and medium-sized towns. In addition to spending power deficits and footfall problems it also faces increasing competitive pressure. Furthermore, the company does not have a top position in the non-food segment.
Cash & carry giant Makro, though, is a different story. Makro has an above-average position in 80 per cent of the factors considered. The company's mature concept has enjoyed early market implementation. Consequently, Makro has not only been a most pleasing enterprise for its controlling company, but it is also helping to reduce the impact of Real's operating start-up losses on Metro AG's group earnings in Poland. Rewe's cash & carry subsidiary Selgros, on the other hand, holds a below average position due to the fact that it is a late-comer with limited financial backing .