May 22, 2013

German retailers welcome Croatia EU entry

Lidl tourist holiday advertising (photo: Jörg Konrad)
Pioneer: German discounter Lidl was one of the first to realise that Croatia has more to offer than holidays (photo: Jörg Konrad)
If all goes to plan, beautiful Croatia is set to become the 28th member state of the European Union as per the beginning of July.

Whatever EU entry may mean to its 4.4m consumers, the opening of this small Balkan market will certainly facilitate the expansion of foreign retailers.

To date, most of Europe's Big Boys (Tesco, Carrefour, Casino, Auchan etc.) have given the Istrian republic a miss. As Croatia only offers annual retail sales of around €16bn, they have clearly decided to concentrate on larger Poland and Hungary.

Meanwhile, the nearness of Germany and Austria to Croatian borders, has given their national retailers a head start. So Lidl, Kaufland, Spar Austria, Rewe Group (Billa, Bipa), Metro C&C, perfumery group Douglas, drugstore operator Müller, and DIY leader Obi now look set to profit from their first-mover bonus.

Tough times


At first blush, they are not in for an easy time. After gaining independence from Yugoslavia in 1991, the Croatian economy has become overdependent on tourism with around 12 million holidaymakers per year.

Private consumption has slowed recently with unemployment at 22 per cent. The World Bank now ranks the country no. 84 in terms of national prosperity -- behind Rumania and Greece.

This hasn't scared away the Germans, however. After all, GDP per capita (€10,227) is still higher than that of Poland and is roughly at Hungarian levels. Trade information service PlanetRetail estimates that this parameter will increase until at least 2018.

To date, the Croatian food industry has been protected from foreign competition by a wall of customs duties. EU entry will break down these barriers and provide medium-sized German, Austrian and Italian producers with an excellent opportunity as exporters.

Inevitably, this increased supply will reduce local food prices and thus retailer buying costs, although the continuing devaluation of the local currency (kuna) will inevitably affect calculations.

"We shall also be able to offer many own labels and exclusive brands in our perfumeries," Douglas adds.

Local heroes


Nearly all the German retailers as well as Spar Austria plan to continue their expansion in Croatia, which will inevitably hit local heroes Agrokor, Mercator and Plodine and accelerate trade concentration.

Market leader Agrokor now achieves annual gross revenues of around €3bn. The former State-owned company has an impressive portfolio, including C&C, neighbourhood stores, kiosks, supermarkets and superstores, flanked by a manufacturing division.

If Agrokor succeeds in its second attempt to buy Slovenian-based Mercator, currently ranked as no. 3, for a rumoured price of €490m, the combined group will become the largest retailer in the Balkans.

Agrokor CEO Ivica Todoric is said, however, to fear the expansion of Schwarz Group, with its price-driven "Kaufland" mini-hypermarkets and "Lidl" discount stores, precisely because the Zagreb-based company doesn't have a discount format.

Canny Lidl, clever Billa


According to German trade union Verdi, Schwarz Group has also been canny in profiting from loans provided by World Bank subsidiary International Finance Corporation (IFC) and the European Bank for Reconstruction & Development (EBRD).

Meanwhile, Rewe International supermarket subsidiary "Billa" has skilfully met local consumer demand for fresh food and competitive prices. Fresh produce now accounts for half of all store revenues, and the economy own label range "Clever" makes 10 per cent of sales. This is not good news for Agrokor whose principal business is in supermarkets.

To make matters worse, Metro Group plans to expand its C&C network with smaller, more compact stores under the "Metro Pro" banner. This will enable Metro to extend its reach into smaller towns which are the main fief of Agrokor's C&C division.

Clearly, you have to be very heroic if you want to be a local hero these days.



Podcast microphone (photo: Gerhard Seybert-Fotolia)
(photo: Gerhard Seybert-Fotolia)

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Lebensmittel Zeitung print and digital (photo: LZ)
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: By international editor Mike Dawson in 
Lebensmittel Zeitung, no. 20, 17.05.2013


 










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