FREE ARTICLE The Romanian hypermarket sector freezes in 2010, expansion to resume in 2011 Source: Central Europe Retail Update January 2011
The economic crisis put an end to the expansion of hypermarkets in Romania during 2010 after the first signs of the freeze were already felt in 2009. With only 12 hypermarkets launched in 2010, 75% of which were opened by Kaufland, the hypermarket sector saw this year the worst decline since the entry of the hypermarket format on the Romanian market. In 2011, consumption and purchasing are still expected to limp, but all of the hypermarket operators in the country are geared to resume expansion, profiting from the lowering rents and labour force costs on the market, with at least 19 hypermarkets lined up to open in 2011. Hypermarket development in 2009: first signs of the crisis The Romanian hypermarket sector was estimated by market observers at over 3-3.2bn in 2009, which represented almost half of the sales revenues on the modern retail market. At the same time, 2009 was the first year when hypermarkets shut down some of their inefficient outlets in Romania. Overall, sales at hypermarket units were down in 2009, with all five hypermarket operators in the country suffering a decline in their sales per m² in 2009. The number of hypermarkets that opened in 2009 in Romania was down by 50% from 2008 when a total of 28 new hypermarkets unfolded. The decline in the number of openings was due to the postponement of most shopping centre projects initially planned for 2009, according to the real estate consultancy Colliers International. Overall, hypermarkets saw in 2009 on average a decline of their sales revenues of 10% year on year after a growth between 10-20% in 2008. The sales per square metre of hypermarket operators in Romania, 2008-2009 Retailer Change (%, y-o-y) Carrefour 7,915.1 6,459.1-18.4% Kaufland 5,118.4 4,954.5-3.3% Real 6,323.1 5,210.3-7.6% Cora 10,000.0 8,227.5-17.8% Auchan 5,568.0 4,315.8-22.5% Average 6,984.9 5,833.4-16.5% Source: Ziarul Financiar calculation based on companies' data, 2010
Investment activity of hypermarkets in Romania, 2007-2009 Chain Investment No. stores No. stores No. stores ( m) 2007* 2008* 2009* Real 90 14 20 24 Kaufland 50-60 31 39 45 Carrefour 40 11 21 22 Auchan 20 4 6 7 Cora 0 3 3 3 *at the end of the year Source: Ziarul financiar, based on company information, 2009 The hypermarket sector in Romania in 2010: the big freeze The expansion of the hypermarket chains in Romania almost froze in Q4 2010. Carrefour, Real and Auchan, the most expansive retailers until 2009, did not open any new outlets in the last quarter of this year. This was the result of the scarce sources of funding for new shopping centres coupled with the continuous decline in purchasing power and consumption in Romania. The developer Red Management, Carrefour s major partner in Romania, froze two shopping centre projects in 2010, one in Baia Mare and another in Satu Mare. The two projects were originally planned for inauguration in 2009. Carrefour opened a sole new hypermarket in 2010, in Drobeta-Turnu Severin. The modern retailer Auchan was also forced to postpone its project in Constanta following the decision of the real estate developer TriGranit to delay the launch of Polus Center until Q2 2011. This is the first year that Auchan has not opened any outlets since its entry in Romania in 2006. Real, which initially planned one or two openings in 2010, is finishing the year with a sole launch, Real Pallady, in Bucharest, inaugurated in the first half of 2010. In turn, Kaufland and Cora slowly started to change their strategy in 2010, opening more small-format outlets. Market share of retail formats in Romania in terms of sales revenues, 2010 Other* 14% Cash and carry 2% Supermarkets 12% Traditional retail 41% Discounters 10% Hypermarkets 21% *Other comprises of other forms of retail sales such as catalogue, online commerce and open air stores. Source: GfK, 2010
Forecasts and plans A total of 19 new hypermarkets are expected to open in 2011, which signals hopes for return to growth of the retail sector in general after two years of slumbering retail sales. The combined investment in the 19 projects is estimated at 250m, according to calculation by Ziarul Financiar. In the coming years, when launching new outlets, hypermarket chains are expected to pay increasing attention to chosen locations and the store formats, according to Roland Berger Strategy Consultants. In the past two years, retail chains, including hypermarkets, in Romania focused on the profitability of their older outlets rather than expansion. Consumption and purchasing power in Romania are not forecast to recover in 2011 following a 25% drop in the salaries of state employees and an increase in VAT by 24% as of July 2010. But still, what prompts hypermarkets to resume expansion in 2011 is a combination of decrease in rents and in the costs of labour force and logistics services that continued in 2010. Real Real plans to resume its expansion in the coming years, with four openings planned annually in the next years. However, the chain did not yet disclose its specific plans for 2011. Auchan Similarly, Auchan plans to double the number of its stores over the next three-five years with a combined investment of about 140m in seven new hypermarkets. In 2009 Auchan purchased two retail facilities with 15,000 m² each in shopping centre projects in Brasov and Constanta (yet to be built). The company is expected next year to open outlets in the shopping centres Polus in Constanta, Coresi in Brasov, Palas in Iasi and Pallady in Bucharest. Last year, Auchan posted sales reveneus of 307.5m and losses of some 10m in Romania. Market share of retail formats in Romania in terms of sales revenues, 2015 Cash and carry 1% Supermarkets 11% Other* 6% Discounters 16% Traditional retail 40% Hypermarkets 26% *Other comprises of other forms of retail sales such as catalogue, online commerce and open air stores. Source: GfK, 2010
Cora Cora, the least expansive retailer during the consumption boom of 2006-2007, plans to open five hypermarkets in 2011. Cora purchased plots of land in Constanta and Pitesti in 2007-2008 but its projects on these locations are still in an incipient phase. In 2010 Cora started the construction of a new store with a GLA of 8,000 m² in Drobeta-Turnu Severin, south-western Romania. The outlet is expected to open in March 2011 and is an investment estimated at some 22m. Cora wants to open in total ten outlets in Romania over the next four years. Carrefour Carrefour, the largest hypermarket operator on the Romanian market, has to date announced plans to launch only one store in 2011 in Bucharest at a location that it has rented since 2007. Carrefour, according to market insiders, is going to announce early next year more inaugurations for 2011. So far, Carrefour has the highest decline in investments compared to the original plans. The French chain wanted to open seven stores in 2010-2012. It has so far launched only one. Kaufland Kaufland is the sole hypermarket operator in Romania that is expected to open stores solely on its own lands and premises through stand-alone stores. It is expected to open some nine stores in 2011. Last year, Kaufland contracted a loan from the European Bank for Reconstruction and Development (EBRD) to expand in 20 smaller towns. Since it contracted the loan until now, Kaufland has opened ten new outlets. In 2011, hypermarkets are expected to continue their expansion, but discounters are forecast to expand at a much faster pace, according to Nielsen Romania. Modern retail is predicted to account for 54% of the total consumer good retail in 2015, up from 45% now, according to an analysis from GfK released in November 2010. Modern retail includes hypermarkets, discounters, cash and carry stores, supermarkets and proximity stores. Traditional stores still generate the largest amount of sales in the retail sector, according to GfK. But their share is expected to decline from the current 41% to 40% in 2015, according to the same source. After discounters, hypermarkets are forecast to register the highest boost in their share of the total retail sales in Romania from 21% now to 26% in 2015. This article has been published in the Central Europe Retail Update, a weekly newsletter published by PMR, tracking recent and prospective developments on retail markets of Central Europe.
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