Ten years after the implementation of a market economy, multiple retailers in Bulgaria are still finding their feet. Supermarket operators who have ventured into this difficult market are using very different strategies to try to guarantee a reasonable turnover – with mixed results. CAD & Catherine Sleep report.
Most of the foreign supermarket groups operating stores in Bulgaria have only arrived recently, in 1999 and 2000. Metro (Germany), Billa (Austria) and Monsieur Bricolage (France) have ventured into a nascent market where their international rivals have so far feared to tread.
Bulgaria’s recent political history has discouraged a number of players from investing in the country. After the euphoria surrounding the fall of the Communist regime in 1992, the country saw its social structure crumple. While most of the population got poorer, a small minority grew in affluence beyond all comparison, and the local currency, the leva, collapsed.
It took intervention from the European Union to stabilise the currency, which was initially pegged to a basket of EU currencies and later to the euro. The advantage of this intervention was a perfectly stable currency, supported by a strict monetary policy. Inflation is restricted to 2 or 3% in Bulgaria, primarily for technical reasons related to the market.
Economic infrastructure holding back retail sector
In this framework, which is still considered temporary, the development of the country’s infrastructure and, notably, its road network, is being held back, which all conspires against progress in the multiple retail sector.
“Bulgaria is still an emerging market,” comments Samuila Jekova, marketing director for Stambouli, the owner of the Bonjour chain. “Many retailers are losing market share because consumers cannot afford to keep pace.”
Further evidence of Bulgaria’s continued status as an emerging market can be seen in the fact that local retailers have been slow to spread their wings to other regions. With the exception of Piccadilly, which has set up shop in the eastern city of Varna, the two other local multiple food retailers, Fantastiko and Oazis, remain focused on the capital city of Sofia.
Local products may be inferior – but they do offer value
Both groups only recently started trading. Oazis opened its first supermarket in 1997, using some of the old TZUM stores, the forefather of Bulgarian supermarkets. Today, the chain still has just four supermarkets, fitted out almost identically. They have sales space of 999m2, and are all in Sofia. The chain’s formula is to offer mainly Bulgarian products at the lowest possible price.
“This means we can be competitive,” said the manager of one of the stores. “Even if we have to admit that the quality of the Bulgarian products is slightly inferior to that of western products.”
Retailers need to adapt to the Bulgarian standard of living
The first foreign chain to move into Bulgaria was German behemoth Metro, which arrived in 1999. It now operates six cash & carry outlets, of which two are in Sofia. The group has spent some €100m (US$112.4m) on its Bulgarian campaign so far. As time went on and Metro gained experience, the company tweaked its strategy. Initially, the German company had targeted retailers as its customers, by setting up a membership card system and enforcing a minimum purchase requirement of 50 levas (then worth €25). It also adopted a targeted slogan, calling itself “the distributor’s distributor”.
When this formula met with little success, the group was forced to change its strategy for the Bulgarian market, abandoning the member’s card and minimum purchase requirement.
Another foreign company to suffer setbacks in Bulgaria was the Turkish group Ramstore. The company announced its entry in May 2001, setting up a store with 3600m2 of sales area in the west of the capital. Inside, the store boasted an area dedicated to Turkish sugar confectionery bought from small-scale producers. Emboldened by its success in Russia, Ramstore intended to open ten shops in larger Bulgarian towns. However, just two years later Ramstore is already in serious difficulties and is even considering whether it has a future in Bulgaria.
Billa and Monsieur Bricolage bucking the trend
Against this gloomy landscape, the arrival of foreign retailers in Bulgaria seems to be full of pitfalls – unless they meet the demands of local shoppers. By offering low priced Bulgarian products which suit the needs of the country’s primarily low-income populace, Austrian retail chain Billa, which opened its first Bulgarian hypermarket in Sofia in October 2000, has managed to buck the trend. The group now operates eight stores, three of which are in Sofia, and expects to keep growing at the rate of five new stores per year.
Monsieur Bricolage, the only large chain dedicated to home improvement, is proving a real success story in Bulgaria. The company started by opening two shops in late 2000 and in 2001, one of 3700m2 in Sofia and the other of 3300m2 in Plovdiv. These stores include an open-air area selling gardening and building materials. A third, much larger store with 7000m2 sales space was opened in Sofia in March 2003. This store is able to offer a far broader product range, some 32,000 lines, approximately 4000 more than in the chain’s other stores.
The low household income level of Bulgarian consumers plays right into Monsieur Bricolage’s hands, as the average person who needs to renovate his or her house cannot afford to pay a professional. Instead, they take care of it themselves. As result, customers visit Monsieur Bricolage about ten times per year, with a relatively high average basket spend of €22.5. Above all, the retailer is reporting a sustained growth in turnover in Bulgaria.
Given this encouraging example of adjustment to local requirements, the multiple retail sector in Bulgaria is expected to develop further this year. German hard discounter LIDL has announced it is heading for Bulgaria, and speculation is mounting about a forthcoming move by French giant Carrefour.
Bulgarian market still has a lot of growing up to do
Retail remains one of the economic sectors in flux in Bulgaria. With just a little more than eight million inhabitants, Bulgaria has yet to reach an ideal rate of development. The main reason is obvious: with national average monthly income of just 320 levas, and a little under twice this in Sofia, consumers are hard pushed to move beyond their daily shop in neighbourhoods stores.
The target customers of the multiple retailers have to have an income well above average. Right now, these customers only live in the largest cities (Sofia, Plovdiv and Varna). Although it is Bulgaria’s fifth-largest city, Rusé, for example, does not offer a clientele suitable for large and medium-sized commercial outlets.
Another problem the chains face is real estate. The denationalisation of the property market prompted a vertiginous rise in land prices.
Nevertheless, the Bulgarian market remains promising. Growth, which cuts across all major sectors of the economy, reached 4.2% in 2002 and the country is one of a very elite group of candidates to accede to the European Union. The EU looks favourably on Bulgaria’s market economy and its macroeconomic stability.
The major players
Piccadilly: Regional distributor, based in Varna, in eastern Bulgaria. The chain’s first store opened in 1995, the other two in 2000 and 2001 (average sales area: 2400m2). The Piccadilly formula: a wide range of products at a reasonable price, special care given to the presentation of the store, and a large inhouse delicatessen section, as well as an adjoining commercial mall.
Fantastiko: The Bulgarian distributor operates 20 outlets in Sofia, including ten supermarkets and seven cash & carry hypermarkets. The latter are located in the most densely populated neighbourhoods of Sofia and offer 20,000 food and non-food product lines.
Oazis: Oazis operates four supermarkets, all with sales area of 999m2 (33m x 33m). Each store offers 15,000 product lines, largely Bulgarian in origin.
Stambouli (Bonjour): Founded in 1984, this Bulgarian company started off importing sports and leisure equipment. Later it became a wholesaler to the State-run shops for foreigners, under the Communist regime. Between 1991-96, Stambouli underwent a period of growth, creating the Bonjour chain (24 stores of 200-1000m2 in town centres and at tourist sites). The company has exclusive rights to resell certain major brands and also has the Yves Rocher franchise in Bulgaria (five sales outlets).
Mr Bricolage (France): Opened via a franchise operated by the Bulgarian company DoverieBriko, the French chain made swift headway in a market where it encountered no real competition. Two and a half years after its entry into Bulgaria, the company operates three stores (at an investment of €18m) and employs 320 staff. Its annual turnover has pushed it into the top ten international subsidiaries of the French company. Mr Bricolage offers Chinese products (value range) as well as Turkish, Bulgarian and French products (at the mid- and top end of its product offering) and expects to open two other stores in 2004, on the east coast (Black Sea) and at Rusé in the north.
Metro (Germany): The first foreign entrant into the Bulgarian retail sector, Metro operates six stores on the edge of cities (two in Sofia, one in Plovdiv, one in Rusé, one in Varna and one in Stara Zagora). Confronted with the flimsy purchasing power of consumers in Bulgaria, the German group has abandoned its plan to sell to retailers and is targeting a broader customer base.
Billa (Austria): The Austrian chain Billa arrived in Sofia in October 2000. It met with immediate success thanks to installing sales outlets in the vicinity of the town centre in areas well served by public buses. It now operates eight hypermarkets with an average sales area of 5000m2.
Catherine Sleep translated this article from the French with permission from its authors, French retail news service CAD.