Daily Research News Online no. 5451 - Strong Potential for East European Retail

Strong Potential for East European Retail

April 28 2006

Latest research from MINTEL finds retail sales in the 9 emerging Central and Eastern European (CEE) market grew some 75% between 2000 and 2005 - more than five times faster than in Western Europe or the more developed CEE economies of Poland, Hungary and the Czech Republic.

In 2005 retail sales in these 9 emerging CEE markets came to a total of some EUR217 billion, with Russia alone accounting for over three-quarters (77%) of sales at an impressive EUR167 billion. Retail sales in the developed Czech Republic, Poland and Hungary together come to EUR110 billion.

'Many of the emerging markets of the Central and Eastern European region have been overlooked, or are relatively underdeveloped' comments Richard Perks, Director of Retail Research at MINTEL. 'Investors have chosen to favour the more developed markets of the Czech Republic, Poland and Hungary, but we can see that in terms of retail sales the emerging CEE markets are worth almost twice that of the developed ones.'

Despite being the largest of the retail markets in this region, Russia has experienced the second fastest growth rate since the start of the millennium. Russian retail sales grew an incredible 86%, only marginally behind the 88% growth seen in Estonia. This is particularly impressive considering that the Russian retail sales market is no less than 70 times the size of the Estonian market, where retail sales stand at EUR2.4 billion.

'Russia is a sleeping giant in retail terms. Increasing economic and political stability has led to spectacular growth in the retail market, yet the modern retail sector still accounts for only a very small percentage of the total, meaning that there is huge potential for further development in both the short and medium term,' says Perks.

Looking at per capita spend Slovenia is the clear winner, at a little over EUR3,000, which is approaching the Western European average of EUR3,365 and way ahead of the three developed CEE markets, Czech Republic, Poland and Hungary. Slovenia's nearest rivals within the emerging CEE region come in the shape of Slovakia and Estonia, both of whom have per capita spend of a little over EUR1,500 - almost half that of Slovenia. Bulgaria and Romania are the only countries with below average retail sales per capita suggesting that these are the least mature retail sectors and the ones that have the largest growth potential.

Future growth is expected to be strong across the region over the next five years, with the Baltic region topping the growth table. Lithuania (48% growth) is expected to grow marginally faster than Estonia (47% growth) to 2010, making it the fastest growing country in the region in terms of retail sales. Russia will continue to see impressive growth, taking the number three spot with 45% growth expected over the same five-year period.

MINTEL suggests four retailers to watch in this region: Koc Group, Tesco, Mercator and Billa/Rewe. Koc Group's Ramstore format seems very well suited to development in these markets and the company seems to be drawing on its construction expertise to have the right balance of skills in terms of property and retail.

Tesco is arguably the most successful food retailer in Europe at the moment. It has learnt from its early experiences in internationalizing and now has a strong proposition that it has successfully exported to a number of international markets, albeit with significant concessions to local conditions.

Mercator is one of the most active internationally and is using its tight grip on the Slovenian market to help fund its expansion into Central and Eastern Europe, particularly in the potentially lucrative former Yugoslav territories.

Rewe has been quietly empire building in Central and Eastern Europe, expanding its successful Billa soft discount fascia across the region from its original Austrian base. Rewe appears to be stealing a march on some of its hard discount rivals and this boldness should stand it in good stead, at least in the short-term.

MINTEL's web site is at www.mintel.com .