Grocery Retailers in Bulgaria

TRENDS

Turmoil was the name of the game among Bulgaria’s large modern grocery retailers in 2016 as the flagging fortunes of chained players was the big story in the channel towards the end of the review period. Upheaval was evident in the exit of German discounter Penny Market from Bulgaria and the state of freefall at Piccadilly and Carrefour, all three of which were among the country’s top 10 leading grocery retailers as recently as 2014. Having failed to break even during any of its seven years of operations in Bulgaria, in October 2015, Rewe Group pulled the plug on its Penny Market division in the country. At present, similar developments are occurring at local supermarkets chain Piccadilly and the franchise-operated chain Carrefour, although each of these retailers attempted to dodge the fatal bullet with the announcement of a merger between them in 2014. The deal was officially declared void in mid-2015 due to failure of the Greek franchise rights holders for Carrefour in Bulgaria to provide the originally agreed financing. As a result of this, both chains continue to fend for themselves and they have each scaled down their operations, leading to a complete collapse in sales and a host of insolvency claims in the Bulgarian courts. Towards the end of 2016, the expectation was that Carrefour would close down completely in Bulgaria, while Piccadilly’s annual revenues had shrunk to just 26% of what it generated in 2014, while it was operating only one-third of the outlets it had at the chain’s peak in 2013.

COMPETITIVE LANDSCAPE

Kaufland, Lidl and Billa are the leading grocery retailers in Bulgaria and in 2016 these three retailers combined accounted for 26% of total value sales in the channel. 2016 saw value sales at hypermarkets chain Kaufland increase by 6% to BGN1.4 billion as the company registered a value share of 13%. This growth reflected the consistent expansion of the retailer’s outlet network as the chain opened three new stores during the year. Lidl reinforced its position as the second largest grocery retailer in Bulgaria as the chain’s value sales rose by 7% to BGN689 million and its value share in the channel rose to 7%. Lidl’s positive growth also reflected the expansion of its outlet network as the chain opened five new stores, although its positive results were also due to the withdrawal of its primary rival in discounters, Rewe group subsidiary Penny Market, from Bulgaria in 2015. Supermarkets chain Billa, another Rewe group subsidiary, ranked third in grocery retailers in 2016 as the chain’s value sales rose by 14% to BGN647 million, leaving the retailer with a value share of 6%. Billa benefited significantly from the exit of Penny Market because Rewe Group converted a significant number of Penny Market outlets directly into Billa outlets after the demise of the discounters chain. As a result, Billa was able to open as many as 15 new stores during 2016.

PROSPECTS

Over the forecast period, grocery retailers is expected to increase in value at a CAGR of 1% at constant 2016 prices. The declining and aging population of Bulgaria, in combination with generally weak purchasing power, is expected to undermine growth in the channel. The latest realistic forecasts of the Statistical Office show that Bulgaria’s population is likely to decline by 3% over the course of the forecast period, thus reducing demand for groceries. Over the same time period, the size of the elderly population aged 65+ is expected to increase by 4% to 1.5 million, with the relative share of the total population within this age bracket set to expand to 22%, up from 20% in 2015. The vast majority of those among this 65+ population group have to survive on monthly pensions just marginally above the poverty line, which means that the number of consumers able to purchase groceries in volumes greater than minimal sustenance levels is likely to decrease over the forecast period.

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