PwC Advisory. Romanian Retail in the Macro Context: Perspectives for March 2012

Transcription

1 PwC Advisory Romanian Retail in the Macro Context: Perspectives for 2012 March 2012

2 Consumer spend/capita (2010, in EUR) Retail sales/capita ( 000 EUR) Romania has a strong long-term potential for further development of modern trade Consumer Spend Dynamics 25,000 20,000 15,000 10,000 5,000 0 Slovenia Hungary European Union (27 countries) Czech Republic Latvia Turkey Croatia Estonia Lithuania Macedonia Poland Serbia Bulgaria Kazahstan Russia Slovakia Belarus Romania Ukraine CAGR consumer spend ( ) GDP and Retail Sales per Capita, Bulgaria 4 6 Romania 8 10 Poland Slovenia Czech Republic Hungary GDP/capita ( 000 EUR) France Germany Avg 197 Modern Retail Stock Density Benchmark (sqm/1000 population) 290 Spain 265 Italy 228 Czech Republic 211 Poland 200 Hungary 103 Romania 83 Bulgaria Source: National Statistics Institute, World Bank, Eurostat, PwC analysis and estimates Key findings Romanian consumption per capita still lags behind EU levels and that of other CEE countries and showed one of the highest growth rates in Europe during The retail sector is expected to increase as Romania closes the gap in terms of GDP/capita and consumer spend Modern retail stock density in Romania stands at only 45% of the EU-27 average and continues to be significantly lower than in Czech Republic, Poland or Hungary 2

3 Yet, the current environment remains challenging due to low consumer confidence and limited purchasing power EU Consumer and Retail Confidence Index RO-Retail 1/1/95 1/1/00 1/1/05 1/1/10 EU-Retail EU-Consumer RO-Consumer Gross monthly salaries benchmark (EUR, 2010) Czech R. Hungary Poland Russia Romania Bulgaria Ukraine Moldova Source: National Statistics Institute, Eurostat, PwC analysis and estimates Household production Investment Household expenditure type and consumption structure (%) Taxes 10% 1% 16% Consumption Other 3% 70% 1% 1% 3% 1% 9% 5% 4% 5% 9% 6% 11% 1 5 % 3% 4% 4% 1 3 % 5% 8% 2 4 % 4 3 % Romania 6% 5% 4% 1 3 % EU-27 Key findings Education Restaurants and hotels Recreation and culture Other Healthcare Communications Transportation Housing, water, electricity & fuels Furnishings, household equipment Clothing and footwear Alcoholic beverages & tobacco Food and non-alcoholic beverages Consumption accounts for 70% of household income and the highest proportion is represented by food and nonalcoholic beverages (43%) Purchasing power remains limited, due to low salaries as compared to other European countries, and this limits the volume of retail trade Romanian consumers are significantly more pessimist than EU consumers; however, retailers see increased potential for the Romanian market in the future 3

4 Romanian retail sales showed signs of stabilization in recent months 200 Real monthly turnover evolution in retail trade Q Q3 2011, Series adjusted by number of working days and seasonality), 100 =2005 Key findings RO - retail of non-food RO - total retail turnover RO- retail of food EU 27 - total retail turnover Growth rates for retail sales turnover in Romania have been significantly above the EU-27 averages throughout the period, but started from low absolute levels The Retail sales index started to grow in November 2011 mostly due to retail of non-food products; growth continued into 2012 for both food and non-food Retail sales of non-food products had a stronger growth than those of food products in the last years Source: National Statistics Institute, National Bank of Romania, PwC analysis and estimates 4

5 In this environment, modern trade continued to grow; further development is expected, but its timing and scale is dependent on the overall economic climate Traditional Romanian FMCG retail market (bn. EUR) (67%) (59%) (50%) (44%) (41%) (38%) (36%) (35%) Structure of modern retail (%) 33% 29% 28% 26% 26% 26% 25% 25% 1 3% 1% 1 0% 11% 1 3% 1 5% 1 6% 1 7 % 1 7 % 1% 9% 2% 2% 1 3% 2% 3% 4% 4% 1 2% 1 4% 1 5% 1 5% 1 6% 1 6% Cash&carry Supermarket Proximity Discounter CAGR -5% -12% 0% +9% CAGR -1% +5% +21% +3% Modern 7.0 (33%) 7.0 (41%) 8.0 (50%) 9.1 (56%) 10.1 (59%) 11.2 (62%) 11.9 (64%) 12.5 (65%) 43% 46% 49% 44% 42% 40% 39% 38% Hypermarket +4% -3% e 2012f 2013f 2014f 2015f e 2012f 2013f 2014f 2015f Key remarks The Romanian FMCG retail market grew fast, reaching more than 21 bn. EUR in 2008, which was sustained in particular by the fast development of modern retail Significant dynamics also occurred in the structure of modern retail in Romania; the market share of hypermarkets grew fast, but aggressive development in other segments like supermarkets, proximity stores and discounters is expected to increase the relative weight of these segments Source: Press release, Ministry of Finance, PwC analysis 5

6 In the FMCG segment, several retailers grew through new store openings, which intensified the competition Growth versus profitability margin analysis Market share (2010) Number of stores (2011) Turnover CAGR (%) 7.5% (Avg. CAGR) Lidl(Plus) % (Avg. EBIT margin 2010) -4 Minimax Auchan -3 Turnover, Real Mega Image % (Avg. EBIT margin 2009) Profi Succes Nic Com Billa Penny(Rewe) Selgros Metro Kaufland Carrefour 5 6 Cora 7 8 EBIT margin (%) Company Market share Metro 16% Kaufland 14% Carrefour 12% Selgros 11% Real 10% Rewe (Penny) 5% Auchan 4% Lidl (Plus) 4% Cora 4% Billa 3% Mega Image 3% Profi 2% Metro 30 2 Selgros 18 1 Kaufland Carrefour Real 25 0 Cora 6 3 Auchan 7 1 Profi Mega Image Billa 56 5 Lidl (Plus) Rewe (Penny) New openings in 2011 Some retailers have pursued expansion strategies during 2010 in order to achieve growth in the context of reduced spending, which put additional pressure on margins Source: ISI Emerging Markets, Ministry of Finance Romania, press releases 6

7 The Romanian DYI market remains highly fragmented, with 7 players accounting for half of the total sales Growth versus profitability margin analysis Market share (2010) Number of stores (2011) Turnover CAGR Obi 1.83% (Avg. EBIT margin, 2009) 3% (Avg. EBIT margin, 2010) Dedeman Company Market share Dedeman Praktiker % (Avg. CAGR) Baumax Praktiker Hornbach Bricostore Dedeman 21% Praktiker 12% Bricostore 9% Baumax 8% Ambient 6% Bricostore Baumax Ambient Hornbach Ambient Hornbach 4% Obi 2% Obi Leroy Merlin 1 7 EBIT margin 2010 (%) Turnover, 2010 Increase of market share in an overall declining market has been obtained through ambitious expansion strategies Source: ISI Emerging Markets, Ministry of Finance Romania, press releases Note: Not all needed data was available for Leroy Merlin and Baumax; Obi s distorting effect is explained by the fact that Obi started operations in Romania at the end of 2008; 7

8 New entrants in the Romanian furniture market have experienced fast growth rates in a very fragmented market, however profitability has been on a strong declining trend Growth versus profitability margin analysis Market share (2010) Number of store (2011) 26% (Avg. CAGR) Turnover CAGR (%) Romeur 0.95% (Avg. EBIT margin 2010) Kika Mobexpert Casa Rusu Poltergeist 11% (Avg. EBIT margin 2009) Phylosophy Design Furniture Design Distribution IKEA Company Market share Mobexpert 7% Ikea 2% Kika 1% Casa Rusu 1% Poltergeist 1% Phylosophy Design 1% Romeur 1% Furniture Design Distribution 1% Mobexpert Ikea Kika Casa Rusu Phylosophy Design Romeur Turnover, 2010 EBIT margin 2010 (%) Growth rates in the furniture & home design retail are expected to remain moderate, due to the cautious attitude of consumers in view of the continued economic turmoil Source: ISI Emerging Markets, Ministry of Finance Romania, press releases Not all data concerning the number of stores is available. 8

9 The Romanian clothing, footwear and accessories market remains fragmented, with major players trying to consolidate their positions Turnover CAGR (%) 19% (Avg. CAGR) Growth versus profitability margin analysis Kenvelo Romania Leonardo 6.5% (Avg. EBIT margin 2009) Decathlon Deichmann Miniprix Otter B & B Collection 10.4% (Avg. EBIT margin 2010) New Yorker Bershka Massimo Dutti Zara Pull and Bear Peek & Clopenburg Market share (2010) Company Market share Inditex 10% Leonardo 8% B & B Collection 4% Kenvelo 2% Deichmann 2% Decathlon 2% New Yorker 2% Otter 2% Miniprix 1% C&A 1% Number of stores Inditex 72 Leonardo B & B Collection 52 Kenvelo 69 Deichmann 36 Decathlon 7 New Yorker 22 Otter 30 Miniprix 6 C&A EBIT margin 2010 (%) Turnover, 2010 Despite increased competition margins have evolved favourably, driven by the good performance of large international players such as Inditex, C&A or New Yorker Source: ISI Emergin Markets, Ministry of Finance Romania, press releases Note: Not all needed data was available for C&A and H&M; for Decathlon, CAGR was computed only for , as the company entered the market in

10 Cosmetics retail is very fragmented, as most products are also distributed by pharmacies and supermarkets and profitability has been strongly impacted by the crisis Growth versus profitability margin analysis % -12.1% Turnover CAGR (%) (Avg. EBIT (Avg. EBIT margin 60 margin 2010) 2009) 50 Market share (2010) Company Market share* Number of stores Sephora % (Avg. CAGR) DM Sephora Douglas Sephora 4% DM 2% Douglas 1% Ina International 1% Prestige 0.5% DM Douglas Ina International Ina International Prestige Turnover, 2010 EBIT margin 2010 (%) * Computed for an estimated market value of 600 mil EUR Prestige 13 Despite moderate growth, profitability remains very low in the cosmetics retail segment. Source: ISI Emerging Markets, Ministry of Finance Romania, press releases Note: Not all needed data was available for C&A and H&M; for Decathlon, CAGR was computed only for , as the company entered the market in

11 Key challenges for Romanian retailers Continuous need for operating efficiency Increased competition Decreased customer loyalty Low consumption levels and increasingly demanding customers Pressure on margins due to accelerated expansion of store networks Growing marketing expenses with promotions to attract price-sensitive customers Postponed consumption due to economic uncertainty 1 Purchasing & Category Management 2 Store operations 3 Supply Chain 4 Private Label Effectiveness in fiscal and legal operations Competition Council investigations VAT-related issues Increased scrutiny over transfer pricing issues Fiscal Code changes 5 Competition regulations 6 VAT cost optimization 7 Transfer pricing 8 Fiscal Code changes Strategic growth & repositioning Short-term growth perspectives are uncertain, despite significant long-term potential Significant network expansion despite the crisis, leading to increased competition Retail markets in large cities could become saturated Increased relevance of e-commerce as customers require more information and added convenience 9 Consolidation 10 Multichannel strategies 11

12 Consider for delisting Improve profitability or reduce exposure 1 Category management and procurement are key levers for profitability Share of Sales Average Profitability Grow Sales Average Sales Share of Profit Category Performance Create competitive advantage through systematic category performance assessment to close performance gaps Assortment optimization Pricing optimization Promotion optimization Placement optimization Procurement Optimization Create competitive advantage through sourcing Buy characterization Supply market analysis Strategy development Supplier selection Fact Based Negotiations: price, quality, performance Daily Execution Implement; supervise supplier performance improvement programs Perform daily tactics optimization Evaluate new listing opportunities Track supplier/ SKU performance Follow market and adjust prices Select SKUs & features for promo Identify alternative suppliers 12

13 Mon Tue Wed Thu Fri Sat Sun Fri Sat Sun Mon Tue Wed Thu 2 Improvements in store operations can generate important benefits for customer experience, boosting the top line and the bottom line Staff not aligned with the store format / specifics Staff not targeted at the right time of day or the right days of the week Staff Store Two Store One Size: Large Turnover: 100K Staff: 4 FTE s Size: Medium Turnover: 800K Staff: 32 FTE s Branch Overstaffed Demand 17:00 14:00 11:00 Branch Understaffed Store Three Size: Small Turnover: 500K Branch Overstaffed 14:00 11:00 20:00 Staff: 20 FTE s 17:00 20:00 OVERSTAFFING Increased cost - operation becomes uncompetitive UNDERSTAFFING Low customer service, lost sales, increased shrinkage, reduced staff morale Are store operations optimizing customer service and costs? Do Store Managers have the right tools plan and manage store operations? Are KPIs, reporting and incentives suitable for continuous improvements in store operations performance? 13

14 3 Optimization of supply chain has multiple implications for cost and quality of service 1 Planning Suppliers Distribution Center Store warehouse Store Execution Execution Typical issues by phase of the process Process & Planning Suppliers DC Store Warehouse Low forecast accuracy Poor store-level promo planning New item build-up (distro) quantity Lack of resources / training, metrics and tools, tracking, incentives Poor supplier execution (fill rate and on-time delivery) Wrong order (quantity, lead time) Change in vendor product or practices Wrong / late replenishment orders with vendors Inadequate DC safety stocks levels Poor planning of promo / new item (quantity, lead time) Poor store execution / service level performance Wrong / late replenishment orders with DC (quantities, lead time) Inadequate store shelf capacity (planograms) Wrong labelling and/or placement Store Execution Lack of adequate replenishment procedures Missing shelf tags Promo / new item product not placed on shelves prior to the introduction date 14

15 Low Relevance High 4 Our approach to Private Label management increases profits and customer fidelity Private Label expected to grow substantially Private Label positioning is diversifying Private labels are estimated to increasingly replace B and C brands Defining and sourcing private labels can boost margins significantly Private label selection must be aligned with the overall category and product strategy Private labels can play a major role for strengthening key categories (including destination and routine) "A" products "B" products "C" products Private label Occasional / Impulse Provide value to customers Market assortment Convenience/ Service Good value, one stop shop Limited assortment Destination Define image; primary provider Leads sales Preferred/ Routine Most products; main profit & cash driver Large assortment Now Estimated Development Low Margin High 15

16 9 Increased competitiveness and the likelihood of further consolidation threatens retailers which do not have a differentiated position on the market Success probability Frequency of winners (%) % 25% Today - Status quo 17% Expected consolidation 7% 7% Agressive consolidation % 49% 15% 60% 72% Local Specialist (LS) Regional Hero (RH) % International Champion (IC) % 0% 6% 1 Opening 2 Scale 3 Focus 4 Balance 5 (CR3*<20%) 20%<CR3<40% 40%<CR3<70% CR3<70% 8% 14% Industry Shark (IS) *CR3 is combined market share of three biggest players in the industry. For global retail industry CR is estimated at 33, for Romania at

17 Product Diversification 9 Our research of profiles of past decade winners identified success formulas for the next decade Regional Hero Industry Shark Metro Group Baumax Praktiker Walmart Carrefour Tesco Mercadona M-Preis Esselunga Amazon Apple i-tunes Aldi Lidl Local Specialist International Champion Internationalisation 17

18 9 Companies have to manage six success factors to survive industry concentration Develop unique growth capabilities Determine scale profile Benchmark growth profile Examine growth direction Adjust organization Use right growth paths Published in Romanian language in: Andrej Vizjak, Vasile Iuga: Formule de succes 2011, page 54 18

19 Electronic Appliances Clothing Cosmetics Travel Airplane Tickets Beauty Jewelry Perfumery Theatre Museum Train/Bus Tickets Medical Services Food Books Tobacco Alchoholic Beverages Furniture Others 10 E-commerce can be a promising growth direction, specially with the spread of mobile internet Use of online shopping by country, 2011 (% of internet users) Share of e-commerce in retail turnover by country, % 65% 60% 54% 25% 19% 17% 17% 14% 14% 37% 28% 20% 20% 16% 12% 10% 11% 11% 11% 3% 2% DE UK FR CZ RO HU HR RU RS BA TR CZ HU DE UK FR AT SP NL PL RO BG Romanian e-commerce evolution f (mil EUR) Structure of Romanian online commerce (%), % 32% +63% % 15% % 7% 7% 6% 5% 5% 4% 4% 3% 3% 2% 1% 1% f 2013f Source: Eurostat, GfK, Romcard, press releases, PwC analysis 19