"Be careful what you wish for because you just might get it" - this old adage keeps being repeated as the unexpected restoration of Sunday store opening in Hungary, following a one-year ban, brings with it some extra challenges retailers had not anticipated.
Sunday opening restricted in 2015 but remains unpopular
Hungarian retailers have been allowed to open on Sundays and overnight since the mid-1990s, but, from March 2015, a highly debated piece of legislation significantly reduced the number of retailers that were allowed to open during these critical periods. Only grocery retailers at gas stations, airports, train stations and farmers' markets were allowed to open on Sundays, leaving outlets in shopping centres, hypermarkets and discounters at a disadvantage, as approximately 7% of their total weekly sales had been generated on this one day. Overnight opening at non-travel- related locations was also banned, unless the owners or their family members were behind the counter.
One of the stated purposes of the ban was to boost the quality time that families could spend together instead of going shopping at the weekend, or just killing time with a walk in the mall. This was in line with the conservative philosophy of the government. The small print in the legislation and unofficial theories suggested that local convenience store chains like CBA and Coop would be able to gain a competitive edge against international hypermarkets and discounters as customers would be doing more weekday shopping in neighbourhood stores instead of waiting to do a bulk shop over the weekend at stores like Tesco, Aldi and Lidl etc.
The ban on Sunday store opening was not popular among Hungarians, as was confirmed by several polls: at least 60% of adults were against the change when the ban was introduced. Over time, this had risen to 70%, with respondents wanting normal Sunday opening back again, regardless of their political party preference. The ban remained highly topical, constantly generating negative press for the government.
About-face by the government
The initially desired sales growth for convenience stores and independent grocery outlets failed to transpire, despite high hopes, with the market concentration among larger stores and outlets in a high-traffic retail environment, like shopping malls, continuing to be seen. Customers simply changed their weekly shopping schedule and stayed loyal to their preferred outlets - especially in the case of bulk weekend shopping. This was also helped by extended opening hours on weekdays to smooth out peak shopping periods and extra cashiers working on Saturdays to reduce waiting times.
This also provided an opportunity for the opposition to attack the ruling party and initiate proceedings for a national referendum on the issue. The Hungarian government therefore cancelled the unpopular law (including paragraphs regulating salaries payable to employees working on Sundays or on overnight shifts) with a sudden and immediate decision in March 2016. The opportunity to reopen on Sundays and overnight was highly popular among retail operators, but it has also had a direct impact on their financial performance - and this was naturally not on their wish-list.
Although the changeover will be professionally handled and stores will open whenever customers want to shop - and for as long as the law permits - retailers learned harsh lessons about predictability and will calculate greater uncertainty into their financial forecasts.
Retailers now face three major challenges they did not prepare for: issues with labour- related costs, attracting consumers back to shopping on Sundays, and how forecourt retailers will adapt to the new situation.
Labour-related costs bound to increase
Increased labour-related costs are set to diminish rates of return as retail margins are difficult to increase due to intense price competition among retailers. Although any extra salary payable for Sunday shifts has still not been regulated, wage inflation in retailing is well above expectations. It is close to 9% at retail operators, and it is set to grow further, especially in the case of blue-collar workers, while price inflation is close to 0%.
Tesco and Auchan had already announced 10% increases for their employees just to prevent churn and migration to other companies offering less demanding work shifts. Sunday shifts are to be compensated with some extra pay to motivate checkout operators and shop assistants to show up, and further regulation on premiums payable for weekly rest day work is to be announced. The new guidelines on the minimum wage for Sunday work are expected to compensate workers handsomely for their work. Of course, this will further increase labour-related expenses, which are currently accounting for 30-50% of total retail operating costs.
Customers need to get used to Sunday shopping again
Opening hours will be rearranged again within a year according to changing shopping habits. Customers proved to be highly flexible, rescheduling their weekly routine during the one-year ban to make Fridays and Saturdays the main times for shopping. Retailers have to try and accustom them to Sunday shopping again in order to make Sunday operations profitable. Outlets at shopping malls will have to open, anyway, as mall operators are forcing tenants to operate according to their original contracts.
Increased advertising spending by retailers, special rebates and coupons valid only for weekend shopping are among the first examples of campaigns looking to persuade Sunday shoppers back. The leading hypermarkets Tesco and Auchan are also taking this opportunity to launch new communication platforms to increase top-of-the-mind awareness when it comes to shopping - and position themselves not just as an affordable but also an entertaining retail brand.
Forecourt retailers lose their competitive advantage
As a main loophole in the regulation, shops at gas stations were allowed to open on Sundays and sell any grocery products. The most recent legislative changes could put in question many recently launched grocery retail brand partnerships with forecourt retailers as Sunday and 24-hour opening, the key competitive advantages, will be much less relevant in the future. Spar and OMV will be most heavily impacted as they have already set up 50 Spar Express branded outlets within OMV gas stations, with a further 15 outlets planned to open during 2016. Most of these outlets are located in downtown locations and urban environments where the potential competitive threat is the greatest.
The concept was to extend the regular product assortment of a gas station with more grocery items and morph these outlets into a shop not just for car drivers filling up their gas tanks and buying some impulse snacks and drinks, but to also attract customers from the local neighbourhood as well. Initial plans are to keep the concept, but adjust the assortment and sell less basic food and more impulse products with potentially higher margins.
Near future will show the impact of the amended legislation
Discussions on changing opening hours are not unique to Hungary in the region - Sunday restrictions have been proposed in at least Poland and Romania as well, albeit to a lesser extent, and in neither of them does any drastic change seem likely for the time being. That the experiment failed in Hungary might mean less likelihood of similar measures being introduced in other key regional markets.
As for Hungary, the next 12-18 months will show who will benefit the most from the legislative changes and how the rearranged opening hours will change the retailing landscape.