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.

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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.

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Dino Polska reported a 22.7% year-on-year growth in revenue to reach PLN1,560m (US$406m) in the first quarter of 2019. This comes off the back of a robust growth strategy to improve its trading position with suppliers and effective in-store initiatives to attract store footfall.

Retailer continues with dynamic growth rate…

The retailer grew faster than the market of around 5.5% in Q1 2019, as reported by the Central Statistical Office of Poland. Much of the growth was due to 33 store openings, to reach 1,009, which also benefited from higher than average sales areas. However, like-for-like sales growth of 5% is a steep slowdown from the 20.3% it achieved in Q1 2018. Profit increased to reach an EBITDA margin of 8.5%, which is healthy when compared to Biedronka’s 6.7% for the same period.

…but at a slower pace due to timing of Easter and Sunday trade ban

When compared to the period 2014 to 2018, this is a deceleration in performance. Dino Polska’s CEO, Szymon Piduch, attributed the slower performance to an unfavourable calendar effect, which shifted the timing of the Easter Holiday to Q2 2019, and due to the reduced number of Sunday trading days. In 2019 the retailer intends to open a record number of stores, which is likely to offset the impact of reduced trading days on sales growth for the year.

Rapid organic store growth is Dino Polska’s core strategy…

It invests in growing its network of stores by building them on its own owned land. This makes up most of its stores, with a small number of franchised ones. However, an organic growth strategy does place it at a disadvantage against its competitors. Multinational retailers have access to more financing and franchise businesses require low capital expenditure to open new stores or convert established ones.

…that strengthens its position with suppliers

Its dynamic store growth improves its bargaining power with suppliers, as the larger network helps it grow procurement volume and improve commercial conditions. This is especially important as it is operating in a highly competitive market where larger retailers put pressure on its prices and, in turn, profitability. It also looks to attain costs efficiencies for itself and suppliers by opening another distribution centre to shorten supply routes.

Private label growth is not a strategic priority

Its product offering consists of 5,000 SKUs in stores that averaged 385 sq. m. in 2018. Of these products private label represented less than 2% of value sales. It reaches a 17% share if the Dino-owned meat and cold cuts label Agro-Rydzyna is included. The retailer became the sole shareholder of this business in 2018, and currently promotes its range in its stores and online. In its 2018 annual report it stated it does not plan to expand its share of own brands sales.Source: IGD Research

Ranging strategy that is boosting fresh food share

Fresh food is a growing category for the retailer, and it will continue to invest in the ranging and quality to increase its share of sales. Fresh goods make up 39% of the revenue, as it increased share by 1% each year between 2017 to 2019. More space was assigned to the category and the assortment was widened. It also raised the perception of quality by replenishing stock with daily deliveries and on-site preparation of baked goods.Source: IGD Research

Locations with low rent and relatively high footfall

Dino Polska stores are commonly found in villages, small towns, and suburbs of cities, like the store we visited outside of Warsaw, in the village of Nadarzyn. This is because it faces less competition from major retailers, which typically place their stores in cities and towns that benefit from high shopper density. Locations are selected based on their relatively high footfall or vehicle traffic. Most stores are free-standing buildings with parking available, so it can attract shoppers from a wider catchment.Source: Google Maps, map shows store location in Nadarzyn, just outside of Warsaw

Weekly promotions help generate traffic

Promotional activity is present throughout the store, and areas have been dedicated to bulky items such as beer and soft drinks. Product discounts are marketed throughout the store with placards near the entrance, on billboards and in-aisle with shelf-barkers. The retailer activates their marketing campaigns on a week-to-week basis to support visit frequency. This is in alignment with the local market, as shoppers in Poland shop little and often.Source: IGD Research

Adequate staffing for stores, but it faces challenges

Stores are well staffed with a person employed to each position in the store, including the meat counter, check-outs, re-stocking, security and management. In the Dino Nadarzyn store each of these positions were covered with a staff member. However, it faces a labour shortage in the retail sector, which will make it difficult to sustain its commitment of adequate staffing and rapid store expansion strategy.

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

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 Poland 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.

Schwarz Group released its financial year 2018/19 results, reporting a strong sales increase of 7.4% to €104.3bn. The growth was driven by Lidl and the group’s international operations. Lidl’s turnover increased by 8.8% to €81.2bn while Kaufland’s sales grew by 1.6% to €22.6bn. Tönsmeier Group, the waste disposal company acquired in 2018, generated sales of €500m.

According to Schwarz Group’s CEO, Klaus Gehrig, sales were driven by ‘new stores’ openings and attractive prices’. The group now operates more than 12,100 stores across 30 countries, thanks to 400 stores opening in 2018, of which, most were under the Lidl banner.  

Lidl’s good performance in Germany

Lidl’s sales increased by 5.9% to €22.7bn in its home market. Despite a more competitive environment, especially in terms of consumer’s prices, Lidl’s posted a stronger growth than the previous financial year (+5.2% in 2017/18). The discounter’s investment in remodelling its existing stores, in private labels and the fast expansion of online sales contributed to these overall good results in Germany.

Kaufland’s growth slows

Kaufland posted a growth of only 1.6% in FY2018/19, -1.4pts compare to the 2017/18 growth. The retailer has been affected by a challenging environment for hypermarkets in the markets where it operates. But the group is currently investing in its stores to improve the shopping experience and in its categories to offer more solutions.

Lidl’s international operations driving the group’s growth

Outside of Germany, Schwarz Group sales increased by 9.1% to €67.3bn. In October 2018, the group entered Serbia where it opened 23 Lidl stores. In the US, Lidl acquired 27 Best Market in November 2018 as it looks to build its presence in the market. Lidl sales remained strong in Spain (+11.5% to €4bn), while in Italy it opened its highest number of stores for many years, adding more than 40.

2019: investments to continue and focus on digital

In 2018, Schwarz Group invested €7.5bn, mainly in store upgrades and openings. The group anticipates a similar level of investment for 2019, with strong development plans for Lidl across Europe.

Digital is becoming a focus for the group. Lidl now offers online food or non-grocery in a growing number of countries. In 2018 its online sales grew by 56% globally. Lidl also continues the roll out of its loyalty app, Lidl Plus.

Keep up-to-date with the latest developments of international retailers, sign up for our newsletter. For subscribers wanting to know more about Schwarz Group, please have a look at our Lidl and Kaufland Strategic Outlook for 2019.

If you need some support when building your strategy for discounters and more broadly for international retailers, please get in touch with Milos Ryba, Head of Retail Strategic projects, [email protected].

maxime-delacour.jpg

Maxime Delacour

Senior Retail Analyst - Discount

If you have a specific business challenge or training requirement we can put together something just for you.

As Lidl continues its rapid expansion across Europe and the US, it is looking to build stronger relationship with its shoppers. As Lidl invests in its stores and expands the ranges and services it offers, identify your opportunities with the retailer as we explore the latest strategic priorities that will influence its future performance.

We visited Kaufland stores in Krakow, Poland, to look at its latest developments in the country. We were impressed by the initiatives it was taking to create a more relevant range for shoppers and to help it differentiate itself from the competition.

1. Retailer partnering with start-ups to develop new products

Kaufland allocated a gondola-end for new product developments from several start-up companies. This is part of its incubator Startup initiative. It illustrates the retailer’s keenness to support new product developments by helping small suppliers launch products in the market. Keeping in line with its sustainability initiatives, the range included eco-friendly laundry detergent, Sansin, bamboo toothbrushes and reusable sanitary products by Loffme.

Source: IGD Research

2. Extending private label lines

The Bevola private label began as a personal care-focused range, but now extends into the baby category. Kaufland has also rolled out standard-priced own brand Favourites in pet care and extended healthy range Take-it veggie and K-free to compete with brands.Source: IGD Research

3. Premiumising its range

The retailer is using both ranging and category management initiatives to improve shoppers’ perception of the quality of its range. One way it is doing this is with a premium dry-aged meat offer at the fresh meat counter. It has also refreshed the whisky category with an aisle design that illustrates a premium ‘look and feel’. It does so by using a black glossy look and digital screens to attract and engage shoppers around brand selection.

Source: IGD Research

4. Support the main shop mission with a wider non-food offer

There is a strategic move to enhance its range to become more of a one-stop shop retailer. It is helping shoppers achieve more from their shopping missions by adding relevant non-food categories, such as eye ware, magazines and electronic accessories. This indicates the retailer’s interest in adding new categories to attract further shopper spending.Source: IGD Research

5. Showcasing the food-to-go and ready meal offer

Placing the food-to-go category near the front of the store means it is one of the first packaged food ranges shoppers come across. Relatively high footfall in this section will help raise awareness of the category. A wide and strong assortment of ready-to-eat and ready-to-cook meals, with local and international dishes, are available.Source: IGD Research

6. Helping shoppers eat and live healthily

The Aleja Zdrowa ‘Healthy Aisle’ and fitness accessories sections are located near each other. Kaufland offers shoppers several free from and organic foods alongside sport supplementary products and apparel. By bringing the ranges in close proximity to each other, it is positioning itself as a health-focused retailer.Source: IGD Research

Subscribers wanting to find out more about retailer’s strategic priorities can look at Strategic outlook for Kaufland.

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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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