Pia_a FMCG Regional Summit 7-9 May 2008, Eforie Nord Looking at Bulgaria: Modern retail vs. traditional retail; international channels vs. regional channels; the experience of a local retailer; the development strategy on a market invaded by large international retail groups. Stefan Kossev PICCADILLY TODAY • 11 stores • 1800 employees • 2007 Turnover Euro 110 million BULGARIA ?Vidin ? Dobrich ?Lovech ?Pernik ?Pazardjik ?Sandanski Population – 7. 6 million. GDP – Euro 27. 5 billion / Euro 3600 per capita Growth – 6. 4 % DELTA HOLDING 18. 000 1. 71 BN EUR TURNOVER EMPLOYEES 2007
Ukraine grupa Moldova PLANNED REGIONAL IN BULGAR EXPANSION 2007 – 2012 Romania I A Croatia Bosnia Herzegovina Montenegro Macedonia Albania Bulgaria Bulgarian perspective OVERVIEW • What does Bulgarian Retail Market mean? • Do we know all about the Bulgarian business environment? • Is it a distorted view of the actual situation? • Significant renewal of interest – opportunity and potential. Still an emerging market. • Sustainable growth – commitment to structural reforms and sound macroeconomic policies. Rapid growth in private business activity • At what stage are we now? Should be optimistic? Bulgarian Retail Industry Overview • Relatively small and highly fragmented market • Steady GDP
Understanding the Local Business Environment • Unreliable official data: unemployment, disposable income, etc. • Differences in business environment and development are probably greater than the similarities in the region. Different starting points for transition. • Consumer preferences • Purchasing power parity • The importance of local knowledge and local partner • International retailers have exited some of the emerging markets, entering a new market with unsuitable format and lay out.
EU Membership • Since Jan 1, 2007 • Local business was not ready for the EU accession (technology and management issues). • Time pressure – no time for expansion and respective development, reaching critical mass and economy of scale • Positive impact on the economic environment, market liberalisation and investment activity • Increased competition and many local companies may not survive Modern vs. Traditional Retail Purchasing Patterns Of Bulgarian Households Local traditions and way of life, traditions, mentality – daily shopping prevailing • Changes in shopping patterns • Disposable income (official data) – 48 % of monthly family income spent on food only • Structure of consumer spending • Unemployment rate – critical low, immobility • Increasing spending power DYNAMICS IN DISTRIBUTION CHANNELS IN BULGARIA Base: FMCG measured categories ?Share of outlet types value (%) ?Source: GfK Consumer Tracking RETAILERS DISTRIBUTION IN BULGARIA ?Number of outlets by Retailers (%) ? 1HY 2007 Top 10 Retailers ?Source: GfK Consumer Tracking
Modern Retail • • • • • • Shopping Malls – 40 in the pipeline Retail Parks – 20 at planning stage Power centres – 5 Saturation will be reached in 2010 Over supply in 2011 Will local society “accept” the new formats? International vs. Local Retailers (Food retailers perspective) SOFIA Population – 1. 3 m International Retailers Advantages • • • • • • • • • • Being International, synergy among the network Budgets big enough to sustain long-term losses Experience. Well established organisations Incentives for the big investors with governmental support.
Donor financing Operational effectiveness and managerial skills Sourcing overseas, lower costs Outsourcing and “Off shoring” business processes Up-to-date technology, applying best practices Efficient Category Management Strong brand value International Retailers Disadvantages • Weak institutional frameworks and enforcement measures. Legislation and administrative constraints • Corruption and bureaucracy • Underdeveloped infrastructure. Supply chain issues. • Overall country risk for investments • Informal sector • Management issues • Eastern Europe is not one market. Underestimate the differences. • Quick expansion uniformity.
Copy and paste principle • Heavy overheads, expensive HQ • Long and hard decision process – not suitable for the current market development Local Retailers Advantages • Being Local – “even the walls are of a support”. Local knowledge • Legislation and administrative constraints. Corruption and bureaucracy • Reflecting local market characteristics, customer perceptions • Local Corporate culture – hard to understand and beat • Better (historically) locations, diversity in formats and appropriate product mix • Brand awareness • Focused team • Local producers co-operation • More than retail –inspiration, social engagement, ‘pleasure and fun’
Local Retailers Disadvantages • • • • Size Lack of time to expand Pressure on profits from Day 1 Access to finance ( interest rates and shorter tenures). Not considered investment-ready. Lack of trust in the ability to run the businesses and to manage expansion Banks traditional approach to lending and decision-making. Risk takes over the commercial side Management issues Owners’ bias Underdeveloped infrastructure. Supply chain issues. • • • • Local Retailer’s Development Strategy (Food retailers perspective) Local Retail Response • Why not expanding? Why not selling? Market Positioning and Re-positioning. Convenient Store Format? • Create or maintain the Own Concept, not a copy; Unique Shopping Experience • Niche market players. Segmentation • Co-operation, JV with multinationals • Consolidation – combining forces with other local players. Strategic Alliances • Vertical and horizontal integration • Innovation and copying globally successful best practice (incl. organisation) • Increase in customer loyalty • Raising product value and competitiveness to international standards • Optimising supply chain channels, distribution Trends Food retailers perspective) ?EVOLUTION OF THE TRADE Hypermarkets Open Markets Supermarkets Convenience Stores Specialist Retailers Tomorrow’s Society • Product and services not around 10 years ago is a “must” now. What about tomorrow? • Demographic changes – senior individuals, smaller families • Convenience driven. Lack of time • Service driven • More informative – Internet generation • Make shopping easier • Value for money • Wellbeing conscious • Safety Development trends • Market consolidation. The big retailers will become bigger through mergers and takeovers.
Intense cooperation • Always a room for niche and regional players • Diversifying the store formats – wider customer base and spreading the risk • Bulgarian market will follow the EU retail development, while keeping the traditions • Conclusion • • • • • • • Understanding the Customer – the key to sustainable market success Global knowledge – Local competence Growth of retail market concentration is slowing down – the potential for mass expansion is decreasing quickly There is No guarantee of success even for the biggest retailers Implementing flexible strategies for different markets and regions is a must.
Innovative regional and local players will create new formats and will retain or “occupy” the market niches Shopping habits can develop quickly but personal perceptions and values are more stable. Customer segmentation and decision process tend to change slower than retail development Thank you for your attention! Stefan Kossev Retail Industry Consultant Sofia, Bulgaria st. [email protected] bg