(2008), "Romanian retail continues to offer opportunities", International Journal of Retail & Distribution Management, Vol. 36 No. 9. https://doi.org/10.1108/ijrdm.2008.08936iab.007
Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Romanian retail continues to offer opportunities
Article Type: Retail reports From: International Journal of Retail & Distribution Management, Volume 36, Issue 9
Rapidly developing modern retail formats, increased interest on the part of foreign investors and growing consumer incomes are making Romania one of the most promising retail markets in Europe. Despite the fact that several years have passed since Romania adopted the market economy, the retail industry is still far from saturation, and many chains are competing for pride of place.
In 2007, the Romanian retail market grew at a rate of 17.8 per cent and was worth RON 104.4bn (€31.3bn). This will increase by another 16.5 per cent in 2008, to RON 121.7bn (€38bn), according to Retail in Romania 2008, a report recently published by PMR (Figure 9).
It is worthy of note that, last year, the grocery market developed more rapidly than that of non-food, by 27.8 per cent. For 2007 as a whole, spending on food products accounted for more than half of all spending, excluding cars and fuel. This situation, which is unusual for developed economies, has been caused by a reduction in the importance of self-grown food in the grocery supply chain in Romania. People who once relied on their own farms are increasingly often going to shops instead, thus increasing the value of food retail sales.
In addition, the rising prices of food products, caused by poor harvests, have contributed to increases in grocery spending, as consumers were unable to reduce the volume of foodstuffs consumed and were thus forced to pay more.
Romanian retail catches up
Romania formally adopted the market economy in the 1990s, that is, at the same time as other countries of Central and Eastern Europe. However, because of a lack of market-oriented reforms, it was overshadowed by the more advanced countries of the region. This changed a few years ago, and since then Romania has rapidly been making up for lost time.
A good example of the increase in the rate of development is grocery retail, which has been driven primarily by the expansion of retail chains. In 2006, according to PMR estimates, the market share of large shops (hypermarkets, supermarkets, discounters and cash and carry stores) was 35.5 per cent, whereas in 2007 this figure grew to 37.6 per cent (Figure 10).
At the end of 2007, there were 70 hypermarkets in Romania, operated by seven companies. PMR estimates, however, that, despite the modest store count, the share of hypermarkets as a proportion of the grocery market was quite substantial, around 12 per cent. This means that Romanian hypermarkets are turning over a substantial amount, more than we would expect from a population with limited purchasing power. For example, a typical Carrefour outlet situated in Bucharest is the third most frequently visited Carrefour hypermarket in the world.
Not virgin soil but still new
Setbacks in economic development led to multinational retail companies entering Romania later than the Czech Republic, Hungary and Poland. In addition, local companies, which were not under pressure from foreign competitors, applied modern business solutions more slowly than was the case in those countries. The positive side of past neglect is the fact that there are still many development opportunities on the Romanian market which have already vanished in Poland and Hungary as a result of market saturation.
The first foreign entrants to Romania included cash and carry operators (Metro Cash and Carry and Selgros appeared there as early as 1996). Their early appearance partly explains the current substantial market share enjoyed by cash and carries. Many consumers have become accustomed to shopping in such places, just as people in western Europe shop in hypermarkets.
Another modern format which began its development as one of the pioneers was that of supermarkets. This was implemented by both foreign retailers - Mega Image (1995) and Billa (1998), and domestic concerns - Primavara (1998) and Angst (1996).
The other formats appeared more recently. The first were the Profi discount stores, established in 2000. The very first hypermarket chain which debuted in Romania was Carrefour (in 2001). This remained the only hypermarket brand in Romania for two years, until Louis Delhaize introduced its Cora chain.
However, in 2005 and 2006, Romania was flooded with foreign retail projects. During this period, a number of well-known grocery chains appeared in the country, including Plus Discount, Auchan, Real and Spar. In addition, non-food companies expressed more interest in the market. In 2006, two DIY chains established a presence in Romania: Austria’s bauMAX and France’s Mr Bricolage. Another three DIY companies joined the market in 2007: Tekzen (Turkey), Brithouse (the UK) and Hornbach (Germany). In 2007, the largest European clothing and footwear company, Inditex, also began direct operations in Romania (Figure 11).
More companies may invest in Romania in the next few years. The OBI DIY chain, owned by Germany’s Tengelmann, recently announced that it will start up its chain in Romania (along with Slovakia and Ukraine). Furthermore, it is known that Lidl and Aldi are ready to enter Romania, while the Portuguese Jeronimo Martins is considering introducing its discount store chain, Biedronka, which is tried and tested in Poland.
Discounters preparing to enter Romania are in a particularly promising situation, as this arena is the least developed modern format in the country. Many potential customers in small- and medium-sized towns do not yet have access to such outlets.
Marcin Szaleniec, Retail Analyst, e-mail: email@example.com