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Frisco.pl reported a 37% increase in sales in 2018 to reach PLN96.5m (US$25.6m). This continues the double-digit growth rates it has been reporting since 2015. The pure online retailer is set to grow at above the rate for the channel, which we estimate to be around 15% between 2019 and 2023.

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Joint ventures and partnerships by some of Russia’s leading ecommerce retailers is evolving the channel’s service levels. Alibaba and Yandex are forming partnerships with various companies to develop their online shopping offer and improve their services. Such a move is encouraging competing ecommerce retailers in Russia, such as Ozone, to enhance theirs too.

Alibaba signs strategic partnership…

Alibaba signed a joint venture in Q3 2018 with Mail.ru Group, MegaFon and the Russian Direct Investment Fund to create a single platform for shopping, social communications and gaming. The partnership combines the expertise of ecommerce, technology, and telecommunications companies, and the support of state funds. The joint venture will be called AliExpress Russia, with Alibaba owning the largest share, at 48%.

…to benefit from mutual expertise

Alibaba and Mail.ru will benefit from their mutual expertise, with the former offering knowledge in operating an ecommerce business and the latter leveraging its 100m internet users across its social media, messaging, email and online games platforms.

Alibaba and Mail.ru will create Russian ecommerce ecosystem…

The partners in the joint venture aim to integrate the ecommerce business with Russian social media and communication platforms. They will utilise VKontakte (VK), Russia’s equivalent of Facebook, to develop a social shopping platform with the support of its own payment tool VK Pay. Mail.ru could use its instant messaging service, TamTam, with its seven million registered users, to develop a social payment method akin to WeChat Pay in China.

…and develop group buying on social networks

Alibaba’s Tmall (AliExpress) is already encouraging group buying on its Russian website under the tagline S Dryzyemi deshevle (With friends cheaper). It encourages shoppers to buy in groups with discount offers and free delivery for orders. The joint venture will help transfer and expand the shopping concept on to the Russian social network.Source: Tmall Russia

Yandex and Sberbank also sign their own ecommerce joint venture…

Russian search engine firm, Yandex, and state-owned bank, Sberbank, set up a joint venture in Q4 2017. This led to the launch of two ecommerce services, Beru (I’ll take it) and Bringly, in Q4 2018. These are in addition to Yandex’s search engine shopping platform and price comparison site, Yandex.Market.

…to offer a domestic and cross-border shopping platform

Beru and Bringly are business-to-consumer shopping platforms, with the former fulfilling orders from within Russia only, and the latter dedicated to cross-border shopping for shoppers in Russia. Orders from Beru are processed in a fulfilment centre in Moscow and dispatched to homes or pick up points in Sberbank branches across Russia. Bringly fulfils orders from its Latvia-based warehouse to expedite shipping through customs.Source: Beru.ru

Source: Bringly.ru

Alibaba is improving cross-border delivery times…

The ecommerce company signed an agreement with Russia Post to upgrade the latter’s fulfilment service centre. This will improve cross-border purchases by processing same-day orders and reducing average delivery times from the current of 10 days.

…while Yandex builds on ranging

Yandex.Market announced it will be selling JD.com goods in Russia through its ecommerce platforms. This will strengthen Yandex’s ranging and share of cross-border trade, which is currently dominated by Alibaba’s AliExpress and Tmall.

Marketplace competition heats up with new (re-)entrants

As Russia’s ecommerce evolves, local companies like Ozon are investing in their businesses to keep up with the competition. Ozon has launched its own third-party business-to-consumer shopping platform, Ozon Seller, in Q3 2018. This is the second attempt by the pure online retailer to launch such a business concept. It announced plans to double its fulfilment infrastructure in 2019 to accommodate the additional trade. It is also differentiating its service with its consumer-to-business lending platform, Ozon Invest. Shoppers can grant loans to small and medium-sized businesses with a return on investment.Source: Ozon.ru

Subscribers can read the latest news about the Russian grocery retail market here.

Amin Alkhatib

Amin Alkhatib

Senior Retail Analyst – Central & Eastern Europe

Central and Eastern Europe is a region that illustrates great growth potential for both retailers and suppliers. The region also presents opportunity for retailers to evolve their business model to widen their shopper base and draw more traffic to their stores.

This in-depth guide to Russia explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.

See the latest industry news on Central and Eastern Europe.

Tesco’s loss-making operation in Poland has been a drag on the retailer’s profitability in central Europe. Tesco Poland has managed to turn around its profitability via its three-year transformation programme, which has helped boost regional profit in 2018. Tesco has done this by reorganising its logistical and store operations to introduce cost efficiencies and offer shoppers lower prices, which help it to compete against discounters.

Tesco Poland sees biggest decline in sales in 2018 in the region…

Tesco Central Europe reported a 4.5% drop in 2018 sales at constant exchange rates, to reach GBP6.0bn (US$7.6bn). This was partly explained by a 2.3% decline in like-for-like sales, due to Tesco’s non-participation in Black Thursday promotions in the region. The performance was also affected by a 9.1% sales decline in Poland, due to the loss of 25 trading days from the Sunday ban and the closure of 62 stores.

…but grows profit significantly

Although sales growth was a pain point for the central European operations, it reported an improvement in its operating margin from 1.8% in 2017 to 2.9% in 2018. A significant part of that is from the closure of unprofitable stores in Poland. But was also due to costs efficiencies introduced in the store and logistical operations. In addition to lowering costs, these efficiencies also helped to raise sales density by reorganising ranges and store operations to lower prices and attract more shoppers.

Repurposing of space in large formats stores continues

As part of the three-year transformation programme, Tesco has repurposed space by renting it out to third-party retailers. This is in line with shopper trends in Poland where they shop little and often. To help raise a revenue stream and lower costs in its larger stores in 2018, it added 22 new tenants to 14 hypermarkets. It also partnered with an insurance provider in 2019 to open 32 Superpolisa Ubezpieczenia outlets in Tesco stores. Similarly in Tesco Hungary it has added Media Markt shop-in-shops in nine hypermarkets.

Source: Super Polisa

Managing stock level and rotation

As hypermarket space shrinks so does the number of SKUs in Tesco Poland stores. The retailer is optimising its assortment by removing unprofitable categories, such as electricals, and focusing on more sustainable ones, such as baby. It introduced cost efficiencies via inventory management, which reduced stock levels and lowered replenishment frequency. This has translated into less transportation, reduced storage space, optimal use of store warehouse space and fewer out-of-stocks.

Fewer price changes and use of back-office staff

Across Tesco Central Europe it reduced the number of price changes by 28% in 2018, as many prices were reduced on a more permanent basis. Also, some back-office staff duties were moved to the shop floor to support in customer service and shelf replenishment.

Prices on food staples permanently lowered…

The retailer removed unprofitable assortments to focus on 600 basic food products, which it marked as Starlines, and promoted under the Nasz Cena (Our Price) tagline. They have had their prices permanently lowered to improve the price-quality ratio and to help Tesco become price competitive. The products were also given more shelf space. The retailer seems to be responding to market conditions in central Europe, and especially in Poland, by adopting elements of an EDLP strategy.

Source: IGD Research, Tesco Poland

…and the visibility of private label ranges raised

In some categories it is raising the visibility and shopper awareness of its private label ranges. One key example is in the baby category, where it has reduced the number of brands and assigned more space to its 200 SKU own labels, entry price Gaga and core range Fred & Flo. It is building awareness about the new brands through sampling in selected stores, special store decoration, leaflets and POS materials.

Source: IGD Research

Sunday trading ban will continue to drag Tesco sales in 2019 and 2020…

Poland is phasing in additional Sunday trading bans to reach 40 days in 2019 and extending this further in 2020 to cover all Sundays. For Tesco Poland to turnaround its sales decline, its strategy would have to be focused on recovering sales from the reduced trading days in the next two years. So far it has shown little sign on efforts to offset the loss from these trading days, like its key competitors Biedronka and Lidl.

…and profits will be hit by possible new tax law in 2020

The Court of the European Union ruled against the European Commission’s (EC) case that the Polish government’s tax on retail  is a form of state aid. It remains the case whether the new tax structure will go ahead or not in 2020, as the EC can appeal this decision. If the tax does goes ahead then this will hit retailers with a 0.8% or 1.4% tax bill on turnover above PLN17m (US$4.4m) per month, which will also hurt Tesco’s efforts to return its Polish operation to profitability.

Subscribers can read the latest news about the Polish grocery retail market.

Netherlands-based SPAR International reported sales rose 5.4% globally to €35.8bn. The organisation said entry into four new markets, the addition of 335 new stores and the continued focus on its ‘Better Together’ strategy had underpinned the pace of its growth.

2018 ‘an exceptionally strong year for SPAR’

Discussing the results, SPAR International’s managing director, Tobias Wasmuht, described the retailer’s performance as representing ‘another exceptionally strong year for SPAR’. Wasmuht went on to highlight the importance of the retailer’s ‘Better Together’ strategy, of which it was in the third year of five. The strategy is focused on ‘SPAR’s core ethos of uniting together the global scale and resources of the SPAR network so that all shall benefit’.

At the end of 2018, SPAR operated in 48 countries, with 13,112 stores under the brand accounting for 7,441,838 sq. m of selling space.

Continued strength across Europe

SPAR said sales grew by 4.1% to €22.1bn in Western Europe and by 15.8% in Central and Eastern Europe, to €5.8bn.

In Western Europe SPAR said its continued investment in its stores and the growing shopper trend of buying little, often and locally was benefiting its members, who operated neighbourhood-based stores. This trend was being accentuated by longer term trends, such as ‘smaller and single households, as well as aging populations and urbanisation’, which are likely to continue to benefit the retailer.

In Central and Eastern Europe SPAR gave more country-specific reasons for growth in the different markets where it operates. SPAR Hungary saw growth advance by 9.8%, SPAR Croatia by 15.3% and SPAR Slovenia by 4.1%. SPAR highlighted how its partners’ combined sales broke through the €2bn mark for the first time, with sales up by 27.8% in local currency terms.

Strong growth in Africa and the Middle East

Across the 15 countries where it operates, SPAR said sales rose by 8.2% to €5.9bn. South Africa continued to dominate its performance in the region, where it generated sales of €4.9bn, after growing sales by 5.7% at constant exchange rates. This was supported by fast paced growth in Botswana (+19.2%), Cameroon (+65.6%), Mozambique (+56.2%), Nigeria (+8%) and Zimbabwe (+39.1%).

There was continued good growth in the Middle East, where it said its partners had ‘been able to adapt and tailor their retail proposition in tune with modern consumers’.

SPAR approaches €2bn in sales in Asia

In its smallest region, SPAR said its seven countries’ operations generated sales of €1.96bn in 2018 from their 573 stores. China accounted for most sales, with its members generating sales worth €1.5bn in 2018 ‘with particularly strong growth in the Shandong and Guangzhou provinces’. It highlighted the importance of its members’ growing use of technology in-store, such as ‘facial recognition payment technology and engaging with customers instore through mobile applications, including scan & go solutions’.

Short term focus to remain on ‘Better Together’ strategy

SPAR said its performance in 2018, and over the last three years when it has generated a ‘compound annual growth of over 5%’ gave it the confidence to sustain its existing strategy. This will see it accelerate its international joint buying and procurement ‘ by further harnessing [its] international scale, pooling [its] global resources to reap economies of scale in all areas of [its] business and uniting [its] global partners to be and act better together’.

By region, SPAR said it expected to benefit from existing trends in Western Europe, expansion in Central and Eastern Europe, through the award of two new licence agreements in the region, with a similar reason given for its faith in driving growth in China. It noted that ‘plans are at an advanced stage for the expansion of SPAR in South and Central America’, which would see it enter the continent for the first time.

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Presentations

15/07/2019
In this round-up we share our key highlights and trends that impressed us over the last few months in the course of our store visits. Within this report we present examples from retailers in a number of markets including Boots, Waitrose, X5 Retail Group, Giant Direct and many more.
12/07/2019
We look at Ahold Delhaize's priorities for the next five years in light of its Leading Together strategy, which it announced in 2018. We provide forecasts on how and where the retailer will generate nearly US$100bn in sales by 2023 and what is going to drive that growth.
01/07/2019
As competition and low levels of volume and value growth continue to affect markets in Europe, the importance of buying groups like AgeCore, AMS, Coopernic and EMD is coming into focus. In this insight presentation we provide an overview of the key groups, their members and their size.
27/06/2019
As the market leader, Biedronka faces competition from all other retailers. We looked at how it constantly improves its stores and offer, to cover more missions and attract new shoppers.
19/06/2019
The Perekrestok dark store is one of three types of fulfilment solutions that deliver in Moscow and the wider region. The other two types of online fulfilment units are a regular store and a hybrid one. In comparison to the other two fulfilment formats, the dark store has the advantage of greater picking efficiency and speed. We visited the store to observe its operational effeciency.
View all presentations

Key presentation

Central and Eastern Europe is a region that illustrates great growth potential for both retailers and suppliers. The region also presents opportunity for retailers to evolve their business model to widen their shopper base and draw more traffic to their stores.

Europe is often overlooked and dismissed as a low, slow growth region. However, our in-depth look at the key countries and their expansion opportunities shows how the region is set to enjoy good growth to 2023.

We've developed a single, universal methodology for calculating food and consumer goods retail data, supported by our programme of primary and secondary research. This makes Retail Analysis the most reliable and robust source available for data of this type. 

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