The sale of Poland-based retail chain Zabka looks like it could be reaching the final stages following months of speculation over a possible deal.
The retail chain, which was acquired by Slovak financial group Penta in May 2007, operates around 2,300 stores across Poland and the Czech Republic, and has plans to expand this by a further 650 in the next three to five years.
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However, the bulk of Zabka stores – 2,300 – are in Poland. In addition to its flagship stores, Zabka opened a network of convenience, deli-type stores in the country last year, branded Freshmarket. Starting out with 15 stores in 2009, the total to date has reached 65.
And in the 2010 fiscal year, Zabka recorded EBITDA of PLN120m (US$40.2m), more than double the PLN46m it booked in 2006, making it the second most profitable and fastest-growing food retail chain in Poland, according to Penta. An interesting target for many companies operating in Poland, PMR analyst Dominika Kubacka believes.
No wonder then, that the likes of Tesco and Carrefour – which already have a significant presence in Poland – are reportedly eyeing the retailer’s wares.
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The French retailer and UK grocer are said to be among four bidders for the Poland-based retail chain. Two of the suitors are understood to be strategic investors with the remaining two financial parties, Reuters said. A source told the publication that the two strategic investors are Tesco and Carrefour.
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By GlobalDataTesco has made no secret of its plans for expansion in Central and Eastern Europe. In November, the retailer revealed plans to nearly double its selling space in the two regions over the next five years, driving growth from its Express convenience stores, compact hypermarket and hypermarket formats. It was also reported to be looking at a possible acquisition of around 24 of Rewe’s Billa stores in the country last year. However, these reports were unconfirmed.
But it has not been easy for Tesco to gain a foothold in Poland. The retailer had plans to build a chain of convenience stores under the Tesco Express banner, announced in 2008. However, high rental fees would have made the stores unprofitable, and so hindered the project. Tesco subsequently abandoned plans for the stores but Kubacka believes the Zabka stores could be another chance for the retailer to revive this idea and enter a segment of the Polish grocery market so far not served by the company.
“Tesco would be one of the most multi-formated retailers in Poland, having hypermarkets, compact hypermarkets, supermarkets and convenience stores in its portfolio, thus reaching many segments of customers,” Kubacka tells just-food.
“What is more, in terms of revenues, it could strengthen its position and would cut down the distance to the Biedronka chain of discount stores, the leading grocery retailer in Poland,” he says. “The questions is whether the company would decide to operate the new stores within the franchise/agency – the area it has no experience.”
Carrefour, on the other hand, may have a head start on Tesco. The world’s second-largest retailer is currently developing a network of local stores based on the franchise system under the Carrefour Express banner.
The retailer revealed its own “aggressive” expansion plans for Poland in October, with a target of opening 200 outlets by next year, in both small and large cities.
Carrefour began franchising in the country through its 5 Minut convenience stores during 2007, rebranding the outlets as Carrefour Express during the first half of this year.
With plans to have 50 Express stores open by the end of this year, Kubacka believes that while this number is “not imposing”, the takeover of Zabka outlets would be a “great opportunity” to speed up the expansion.
“It might be an important fact that Carrefour is experienced in [the] franchise system. And of course, additional sales revenues should improve market position of the company,” he adds.
Indeed, food retailing is a growing business in Poland. The industry recorded total revenue of $65.5bn in 2009, representing a compound annual growth rate (CAGR) of 9.6% for the period spanning 2005-2009, according to figures by Datamonitor.
Sales in convenience stores and gas stations proved the most lucrative for the industry last year, with total revenues of $24.8bn, equivalent to 37.8% of the industry’s overall value. In comparison, hypermarkets, supermarkets, and discounters generated revenues of $24.7bn in 2009, equating to 37.7% of the industry’s aggregate revenues.
And with the value of the industry forecast to increase by 44.7% between 2009 and 2014 to reach $94.8bn, it’s no wonder competition between the likes of Tesco and Carrefour is so fierce.
However, while Tesco and Carrefour have been touted as the main bidders for Zabka, Euromonitor analyst Raphael Moreau expressed surprise that the market leader in Poland had not been named as potential buyers.
“I am not sure whether either Carrefour or Tesco will be the winner but interestingly, who is not actually rumoured to be bidding?,” Moreau asked. “I’m thinking about Biedronka and [owner] Jeronimo Martins, as I thought they might be the most likely candidates to be interested in Zabka.”
However, Moreau says that while Carrefour and Tesco could both be suitable purchasers of the chain, he believes that Carrefour has more experience of rebranding stores.
“To re-brand such a wide portfolio of stores, this is going to take time and cost quite a significant amount of money and Tesco hasn’t really done this kind of re-branding on a great scale like this,” Moreau says, “whereas Carrefour has re-branded quite a lot of stores in France.”
However, he adds: “For Carrefour and Tesco, Zabka would be quite a low price, estimated at EUR300m, so this is quite a relatively small investment for them to buy such a big chain, although for relatively small stores.
“The size of the stores are very different to what all of them are doing (Tesco, Carrefour and Biedronka), but this is an area where there is huge growth potential in Poland, due to changing shopping habits,” Moreau says.
“It is very difficult to say which will win. Both of them have a lot to gain by buying Zabka and it will all depend on price.”
