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The Romanian Retailing Rollercoaster Reached A New Peak In 2016 And The Ride Goes On

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The beginning of 2017 marked 10 years of Romania’s membership in the European Union. It is a perfect moment to look back and draw conclusions. Between 2006 and 2016, the retailing industry in Romania was on an economic roller coaster ride. It went from enjoying high growths with strong GDP performance (2006-2008), to a fast drop followed by a slower dynamic and unexpected turns (2009-2014). Towards the end of the period, it reached heights again, supported by a boost of governmental measures (2015-2016). Hold on and enjoy the ride!

How the Romanian retailing industry performed from 2006 to 2016

In 2016, retailing in Romania experienced not only the highest dynamic in the region but in Europe overall, with 12% current value growth. This was following a strong performance in 2015 when strategies implemented by the government led to a rise in consumption, increased wages, lower taxes and political stability. 2015 saw a historic reduction of the standard VAT rate from 24% to 9% for food and non-alcoholic drinks, while in 2016 the general rate was lowered to 20%. With more money in their pockets, Romanians increased their spending. Another peak marked the end of 2016 when Profi, seventh ranked in overall retailing value, changed owner. The buyer paid more than half a billion euro for Profi’s multi-channel grocery portfolio, a record value for the local retailing market.

Years preceding 2015 were also eventful. In particular, there was a significant increase in the VAT rate from 19% to 24% in mid-2010, and a period of political and economic instability, during which consumer incomes were also declining. Even worse, these events followed a milk and honey period of 2006-2008, when all retailers’ strategies were focusing on expansion supported by the population’s increasing incomes and expenditure levels. During 2011-2014, retailing in Romania adjusted to the new reality. Under the effects of the real estate market drop, one of the strongest hit channels was home improvement and gardening stores, which saw many ownership changes at its top.

Starting from a less competitive landscape, retailing in Romania saw many international companies such as Ikea, Auchan, Real, Lidl, H&M, and Leroy Merlin launch their businesses in the country. Praktiker, Bricostore, Baumax, Real and Billa are among the companies that changed ownership, while other important brands, such as Domo and Obi did not succeed and had to close.

Romanian retailing: before and after

While the top 10 retail companies cumulated only 13% value share in 2006, they accounted for 33% in 2016. In terms of origins, while in 2006 six players were international and four domestic, by 2016 only two out of the top 10 remained local companies. These were Dedeman and Altex, both dominating their channels. This shows an obvious consolidation trend and the stronger competitive position of international companies, backed up by increased know how, financing options but also by better vision and strategies. Grocery retailing was the one to see the highest interest and changes throughout these years. The share of modern grocery more than doubled from 26% in 2006 to 55% in 2016, at the expense of traditional grocery retailers. Romanian consumers’ habits changed, favouring modern grocery brands. They dominate the top ranks, holding eight out of the top 10 retailing positions in 2016, compared to only four in 2006.

The leaders of retailing paid the price for their front seat positions, growing organically but also by acquiring weaker competitors, investing in marketing and understanding the local consumers’ specifics. Kaufland consolidated its position to a comfortable level, tripling its value share over 2006-2016. Carrefour remained its main competitor over the years with a multi-channel and multi-brand format. The two, together with Cora, are the only brands present in top 10, which managed to maintain their presence in this group over the considered period. Lidl and Auchan launched andmanaged to build top positions during 2006-2016, and will most likely challenge Carrefour’s second rank in the years to come.

What is next for Romanian retailing?

Within the current competitive landscape, it is highly expected that more acquisitions will take place. Expansion to new channels, such as Auchan’s considered option to open smaller format outlets, is foreseen to take place as well. Although with no rumours around it, Mega Image with its multi-channel grocery portfolio could be a perfect acquisition target for the right buyer. As well, Rewe Group could mark its exit by selling the remaining brand in its portfolio, Penny Market. Dedeman, the dominating home improvement and gardening store, is slowly reaching its domestic expansion limits and might become an interesting acquisition target, but the buyer would have to offer the right price and deal with its current entrepreneurial strategy.

Internet retailing will continue to see the highest growth in the future, being the fastest and most accessible way to become multichannel, and to reach and please new groups of customers. It would not come as a surprise if at some point in the near future, after expanding its marketplace even more, Naspers would consider the sale of eMAG, the leading internet retailer.

The last 10 years were a success story for most retailers that saw the opportunity and seriously took on the challenge. Considering the still reduced but increasing incomes, the current low retail expenditure per capita, companies’ interest, and overall, the positive economic forecast, the thrilling rollercoaster ride will continue. After the record growth of 2016, retailing in Romania is expected to continue posting the highest growth in the region over the next five years but with sales far less dynamic than in 2015 and 2016. The general VAT rate was decreased to 19% at the start of 2017 and the latest news involves talks of another decrease to 18% in 2018. Even so, with a new government and with different possible scenarios regarding the development in Europe and globally as well, the ride could at any time, become less pleasant for the faint-hearted.


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