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December 21, 2006

Polish grocery market poised for consolidation

Recent acquisitions by Tesco and Carrefour have set the tone for a period of consolidation in the Polish grocery sector, which Krakow-based consultancy PMR expects to see grow in the next few years as rising employment and wages boost consumer spending power.

Recent acquisitions by Tesco and Carrefour have set the tone for a period of consolidation in the Polish grocery sector, which Krakow-based consultancy PMR expects to see grow in the next few years as rising employment and wages boost consumer spending power.

Having shown a slight decrease in 2005, the Polish grocery retail sector is set for renewed growth, according to a recent report from the Polish research and consultancy group PMR. PMR expects the value of the grocery retail market in Poland to have grown by 6.2% in 2006, to PLN201.8bn (US$69.8bn), and expand by a further 4.8% in 2007 to PLN211.4bn.

“Market growth will be powered by dynamic increases in store counts, in particular in the supermarket and discount segments, which are actively seeking to penetrate less populated areas, and by higher value sales of non-foodstuffs in grocery stores,” says Malgorzata Machnicka, senior retail analyst at PMR and one of the report’s authors.

The report, entitled Grocery Retail in Poland 2006, also says improved consumer purchasing power, resulting from growing employment and wages, will be a further factor boosting Polish retail sales going forward.

While there had been a fall of 1.6% in total retail grocery sales in 2005, PMR sees this as more of a blip, caused by reduced non-food sales, and the fact that 2004 had represented a high comparison base because the market had been buoyant prior to Poland’s accession to the EU.

The report paints a picture of a highly fragmented retail economy, with no individual operator or chain holding more than 3% of the market. According to PMR, in 2005 the top ten grocery retailers accounted for only 20% of the market, while a year earlier they had represented just 18%. While this means that these larger companies are growing ahead of the market, they still represent a comparatively small share when compared with more mature retail economies such as the UK.

The largest retail operator in the Polish grocery sector is Jeronimo Martins Dystrybucja (JMD). The company operates the country’s largest discount chain Biedronka, and in 2005 had a market share of around 2.83%. PMR argues that JMD’s positive half-year results and its aggressive expansion during 2006 makes it likely the retailer will still occupy the top spot at the end of the year, but said the second largest player Tesco also has an opportunity to take over market leadership. Tesco, which operates under the Tesco and Savia banners, had a market share of 2.81% in 2005.

PMR expects competition for leadership in the grocery market will intensify in 2007, with Tesco poised for further expansion. The UK-based group, which had 108 stores in Poland (hypermarkets and supermarkets) in the second half of 2006, recently received approval from the Office for Competition and Consumer Protection (UOKiK) to acquire 142 outlets from the French group Casino which is withdrawing from the Polish market.

The market repercussions of this transaction will become clear next year. According to PMR’s estimates, the Casino stores being acquired by Tesco, which operate under the Leader Price banner, generated sales of PLN600m in 2005. Their acquisition will mean Tesco will significantly enlarge its sales area and sales potential.

In the same vein, Dutch retail group Ahold is also exiting the market and announced in early-December that it would be selling its stores to the French Carrefour group. That acquisition will further strengthen Carrefour’s position in Poland, and fuel further market consolidation. In 2005, Ahold had a 1.1% share of the Polish retail grocery market, so by integrating those outlets into its own operations Carrefour will also be challenging for market leadership.

According to PMR, Carrefour was the number three grocery retailer in Poland in 2005 with 2.5% of the market. Auchan was the fourth largest operator with a 2.4% share, followed by ZKiP Lewiatan ’94 Holding with 1.7%.

In terms of the market shares of individual retail brands, Biedronka, which is JMD’s sole retail identity, is the largest individual chain on the Polish market, followed by the Tesco brand. Other notable grocery retail brands according to PMR are Auchan (2.2% in 2005), Carrefour (1.8%), Lewiatan (1.7%) and Real (1.5%).

Given the enormous competition, the consolidation process in the retail grocery market has intensified over the past 12 months or so, with those foreign players who have failed to secure a satisfactory share of the market, notably Ahold and Casino, pulling out.

In addition to its acquisition of Casino’s Leader Price outlets, Tesco acquired nine stores from Julius Meinl, while Real has bought Casino’s Geant stores in Poland. The fast-expanding Polomarket group took over the Krakow-based ABC chain, while Eldorado merged with the BOS group. Both of the latter groups operate in the wholesale sector while also managing both company-owned and franchised retail networks. Meanwhile, another retail/wholesale concern Eurocash acquired Carment, the wholesaler/retailer which operates the Delikatesy Centrum supermarket chain.

Given that the three largest players still have a comparatively small aggregate share of the retail market, in comparison with other European countries, further consolidation over the next few years is inevitable, says PMR. The company expects that some foreign players may decide to withdraw but those companies that have now established a solid platform for growth will only grow stronger.

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