One can’t deny the fact that retailing in Serbia is modernising. After all, growing popularity of non-store based retailing is a good indicator that speaks in favour of that claim. Euromonitor International’s data and forecasts outline several interconnected trends that push Serbian retailing sector towards the evolution path which mature markets have already passed. These trends can be identified in the following: 1) market consolidation, 2) increasing share of discounters, 3) growth of private label products, and 4) “demonopolization”.

In last couple of years we were witnessing accelerated market consolidation within the Serbian retailing sector. There are numerous examples. First of all, one has to mention acquisition of Familija outlets by Slovenian Mercator Group, which took place in July 2011. Equally important in this context is the fact that Agrokor’s Idea purchased Tuš outlets. All in all, it is more than clear that chained players are aggressively claiming ever larger market shares in Serbian retailing sector. For example, share of Independent Small Grocers (typical “neighbour” stores) in overall retailing sales fell from 40% in 2006 to 25% in 2012.

The second macro trend that influences retailing sector in Serbia is growing volume of sales in discounters and (expected) increase in their number. Actually, there is only one discounter chain in Serbia so far, Tempo Express, and it is so called “soft discounter”. According to Euromonitor International’s data, sales in discounters in Serbia grew 12% in current value terms in 2012, reaching RSD4.3 billion, and further growth is forecasted, so sales in discounters will reach almost RSD8 billion by 2017. Situation is similar in all the countries of the ex-Yugoslavia zone, with difference that Slovenia and Croatia have far larger presence of discounters (share of this retailing channel in overall retailing sales for 2012 is 8% in Slovenia and 3.7% in Croatia, while in Serbia it’s only 0.4%). It is certain more discounters will appear soon; apart from international players, it is also expected regional (Agrokor, Mercator) and possibly local (Aman, DIS) players might try to step in the market with their own discounter outlets in the forthcoming period of time.

Private label presence is a good indicator of development level. PL’s market share is growing in many sectors and – as Euromonitor International’s data show – this goes for all ex-Yugoslavian countries. This process was further reinforced during the crisis period in the past three years, when consumers became extra sensitive to even the slightest price differences due to reduced purchasing power. Just like in the case of discounters, Slovenia and Croatia are far ahead from other countries in the region. Last year PLs’ share in Serbia didn’t exceed 2% in any given industry, but this year situation is different. Namely, PLs in 2012 make 4% of home care and tissue and hygiene sales and 2.2% in packaged food. Furthermore, in beauty and personal care PLs account for 0.62% and in non-alcoholic drinks for 0.25%. In any case, many categories still leave a lot of space for double-digit growth rates of PL products’ sales.

It’s interesting that Serbian consumers initially reacted very restrained when private label products were offered to them in outlets. In other words, brand loyalty and trust in quality of branded products prevailed over somewhat lower purchasing prices of PLs. However, as time passed by it was proven that private label products’ quality is very satisfying, as they are all produced by renowned domestic and regional manufacturers, which – accompanied by already mentioned lower prices – led to expected growth. Of course, not all PL products by default fall into economy segment, but in Serbia that is still the case. It is also interesting to mention that price differences between PL and branded products are still very low. This will certainly change in next several years and it will become one of important factors to drive PL popularity among Serbian consumers.

Finally, the last trend in evolution of retailing in Serbia is a process we conditionally called “demonopolization”. Even though it might look that above described consolidation on one side, and this process on the other are contradicting to each other, these two trends are expected to coexist in the forthcoming years. Namely, Serbia is dominated by regional and local players at the moment. The only international retailer present on the market is Delhaize Group. However, this is definitely going to change very soon as German Lidl, which registered branch office in Serbia in December 2010, announced it will soon open outlets in around 15 Serbian cities. That will have a massive impact on the Serbian market, before all on prices of numerous types of products, because other players on the market will be forced to change their price policies in order to stay competitive and keep consumers. However, even after Lidl enters the market presence of international chains will remain on a very low level. Carrefour, Billa, Tesco, and other chains that are already present in Bulgaria, Romania, Croatia and Slovenia, are still to show interest in Serbian market.

Slow Recovery of FMCG Market

One of the most important consequences of retailing sector’s evolution is the situation in which more and more products are available to ever larger number of consumers. Also, together with modernisation of retailing system consumers’ habits are changing (people visit large outlets more often, big weekly or monthly purchases become usual etc.) This kind of setting brings benefits to producers and importers in the country because it makes distribution and linking consumers to products easier. And that is exactly one of the causes for positive results in most FMCG categories in Serbia during 2012.

Generally speaking, the whole FMCG market saw increase of 6% in 2012. This growth is expressed in current terms and includes the following categories: alcoholic drinks, packaged food, consumer health, beauty and personal care, home care, tissue and hygiene, tobacco and soft drinks and hot drinks.

Of course, different categories posted different results. The best performers are products that fall into hot drinks sector, showing 11% growth. They are followed by packaged food, alcoholic drinks and consumer health with respective growth rates of 8%. A bit weaker results were seen by beauty and personal care and soft drinks, while tobacco product and tissue and hygiene posted only 1% growth. At the end, home care saw decrease in 2012 of around 0.5%

Now let’s take a look how concrete categories performed in 2012. Among subcategories that posted significant growth rate are: instant tea 70%, home care wipes more than 150%, RTD coffee 25%, dark beer 12%, non-alcoholic beer 13%, NRT gums 16%, olive oil 14%, frozen ready meals 14%, prepared salads 21% etc. On the other hand, some of the categories saw decrease: bleach declined 6%, hand dishwashing 5% and filterless cigarettes 35%.

Euromonitor International forecasts that almost all categories and subcategories of products that posted high growth rates in 2012 will stabilize in next five years and see lower growth rates, and the reason for that is maturation and saturation of the market. On the other hand, sectors that saw weak or negative results in 2012 are predominately less developed and fall into group of new product categories and they will start growing faster together with the recovery of economy and purchasing power. The reason why they posted poor results is as follows: consumers were forced to save and they did it by restraining to purchase novelties which are always in times of recession perceived as unnecessary luxury. This will, however, change in the forthcoming years.

According to Euromonitor International’s forecast, overall Serbian FMCG market will post a 3.3% CAGR over the forecast period, i.e. until 2017. CAGR indicator, however, doesn’t show variations in specific years and, maybe even more important for us, in different (sub)categories. Namely, there is handful of product categories which grow from a low base and give possibilities for double-digit growth rates. Some of them are: instant coffee, RTD coffee, fruit flavored beer with low alcohol content, as well as various types of prepared foods, food supplements and innovative products for home care and personal hygiene. Producers and importers should concentrate or redirect to these products, as well as to all products that are gaining on popularity due to convenience and health benefits.

Serbian retailing system will continue to develop in direction described in this article. Of course, that means independent merchants will be in ever worse position. One possible way out can be found in specialization but also in turning small independent store into a part of franchise. METRO Cash & Carry Srbija is implementing a project called “My store” (“Moja radnja” in Serbian) for couple of years already. This project offers logistic help and recognizable brand in which consumers have confidence to owners of small retailing stores, leaving them a lot of freedom when it comes to supplying their stores. We can expect more offers like this by other large retailing chains in the forthcoming years.

Milan Cakić,

Euromonitor International