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Thinking outside the big box

As Metro Cash & Carry tests a new small format in Romania, the company’s managing director for Romania, Dusan Wilms, gives views on the national retail picture to Corina Ilie

October 2010 - From the Print Edition

Consumption and sales decline and few new store brands interested in entering Romania due to the tough financial climate is how Romanian retail looks in 2010.
While some chains have chosen the last two years to continue expansion due to the lower cost of land prices and the concept that higher volumes means higher returns, others have scaled back their launch plans or closed unprofitable units.
Meanwhile maintaining a low-price policy has helped discounters seize a market share, while hypermarkets are facing a drop in customer footfall.
Cash & carry chains have not rushed into too many new openings, with the German Metro Group instead focusing on developing more own brand product and emerging with a smaller size store, which is less risky in terms of sales.
In this context, the managing director of Metro Cash & Carry Romania, Dusan Wilms, does not expect spectacular developments or new entries in retail in 2011.
Cash & carry retailers tend to expand slower and with fewer numbers than hypermarkets and supermarkets, because their large format does not suit every city in Romania. Only two big box cash & carry chains exist in Romania - both of which are German-owned - Metro and the Rewe Group’s Selgros, and their Romanian expansion almost came to halt at the end of 2008. This followed ten years of annual consumption growth between seven and 25 per cent, according to market research company GfK. But as the 2008 crisis bit into client spending power, fmcg consumption began to decline and, in the first half of 2010, dropped by four per cent.
In 2009 Selgros opened one store in Bucharest’s Drumul Taberei neighbourhood and has no further plans for expansion this year. In 2010, Metro opened a store in the east of Bucharest inside Pallady Shopping Center on Blvd Theodor Pallady.
At the same time, the retailer has launched a smaller 1,500 sqm size cash & carry concept - Metro Punct - in mid-sized towns Satu Mare and Piatra Neamt. Flexibility for customers and a proximity to market are the ambitions of this new format.
“Our cash & carry concept does not allow us to open stores in smaller cities and with this new concept we can get closer to resellers who, due to the large distance they have to drive to the closest Metro Cash & Carry store in their area, can only visit us once a week,” says Wilms. “The Satu Mare and Piatra Neamt units are test stores, which will show us if we should continue the expansion with this concept. Satu Mare is a difficult area, with a lot of competition, including those coming from Hungary, while in Piatra Neamt the competition is low. Our customers in Satu Mare can supply their stores with merchandise from Metro Punct every day and can visit once a week Metro Cash & Carry store in Baia Mare, which is the closest large format store to Satu Mare, to buy goods that do not sell so fast.”
The Punct stores are in part a response to the economic decline of the last two years. “This crisis situation also helped us build a much closer relationship with our customers,” Wilms says. “We have a new perception inside the organisation, a new inner motivation and it gave us the opportunity to experiment with new revolutionary ideas which would not have otherwise been possible.”
In the large format stores, food sales remained stable, but customers started to buy cheaper products, such as chicken, instead of pork and Metro’s own-brand products, including cleaning products, stationery and office accessories, HoReCa products and wine.
“Metro is a niche business, we address the professional customers, such as hotels and restaurants,” says Wilms. “They buy non-food products from us, such as tablecloths, tables, TV sets and computers. But many of these firms postponed their investments in IT equipment for next year and this is where we registered a decline in sales.”
Recently Romania hiked its VAT from 19 per cent to 24 per cent – in a move which impacts consumption and inflation. But this has not been a reason for Metro customers to buy less from the retailer, according to Wilms. To stimulate the sales, Metro offered a 4.04 per cent discount on the promotional products sold by the stores between 1 and 14 July 2010. “We were the first retail chain which offered a discount to customers after the VAT increase, so our sales were not affected by this economic measure,” he adds. “The smaller size retailers felt this rise more than us.”
Many convenience store owners and other customers of Metro find it hard to borrow for expansion, due to a scaling back of bank lending, which is a factor that influences the growth of Metro sales. However sales could be boosted by new stores undertaking a dynamic expansion. Convenience chain Mic.Ro, operated by businessman Dinu Patriciu’s Mercadia Holland, launched last May, has already reached 100 units in four months in Bucharest alone.
Due to the crisis, competition on the local market is no longer as aggressive as before 2008. Meanwhile few new retailers have decided to enter the market, although German discounter Lidl is preparing for an aggressive expansion in Romania. Lidl entered Romania through acquisition, after buying 96 Plus Discount stores from the Tenglemann group. The German retailer has 25 land plots in Romania and has started the construction of its first stores, one of which will be in Bucharest’s Drumul Taberei neighbourhood.
Lidl’s fellow hypermarket Kaufland has shown the most dramatic expansion in the last two years, with six new supermarkets in 2009 and ten planned for the end of 2010. Meanwhile the Metro Group’s hypermarket Real opened four stores in 2009 and one in 2010 inside Pallady Shopping Center on Blvd. Theodor Pallady.
Meanwhile the biggest British retailer Tesco has been rumoured to have an interest in Romania since 2005, but no definite plans exist for its expansion, which could be through the purchase of an existing hypermarket chain in Romania.
“The so-called crisis is in fact a return to a normal situation,” says Wilms.
Next year, Lidl will open its first stores in Romania, while Kaufland plans show a very dynamic expansion in 2011.

What is Metro?

Metro Cash & Carry stores are present in 30 countries with over 670 units. The store opened its first unit in Romania in Bucharest in 1996. Now Metro has 25 large format stores across Romania. In April 2010, Metro Romania launched the Metro Punct small-format concept in Satu Mare and Piatra Neamt.

Who is Dusan Wilms?

Romanian-born Dusan Wilms started his career at Metro Cash & Carry in 1998 and was appointed managing director for Romania one year later, where he oversaw the expansion plan of Metro from ten to 20 stores. In 2004 Wilms coordinated the development of the first Metro store in the Republic of Moldova and, in 2005, contributed to Metro’s expansion in Serbia. In May 2005 he joined the Metro Group’s hypermarket chain Real’s international team as chief operations officer and member of the Real-international board and, in 2008, was appointed expansion manager of Real International.
In June 2009 he returned to Romania as managing director of Metro Cash & Carry Romania. “When the Real expansion in Poland, Turkey, Russia and Ukraine was over, the shareholders asked me if I wanted to return to Romania, because they needed local managers able to understand the market better during the crisis,” says Wilms.

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