It is not big news to proclaim how retailing in Central and Eastern Europe (CEE) is less developed than in Western Europe.  However, it is also true that these markets are all following the footsteps of Western European countries. This article will focus on some of the most prominent trends which are now shaping CEE retailing landscape. The most important are the following three intertwined trends: 1) market consolidation, 2) growing popularity of chained convenience stores and 3) increasing share of discounters within store-based retailing.
 

Retailing markets in CEE countries started off as highly fragmented markets in the 1990s, but very soon consolidation has taken root. Chains emerged, small at first but growing rapidly, squeezing traditional grocery retailers out, especially once omnipresent and very popular independent small grocers. Simultaneously, large retail chains from Western Europe penetrated CEE markets one by one, modernizing them and increasing competition. Several important recent events that took place in 2013 show how this process is far from approaching its finalization. For example, Croatian Agrokor Group took over Slovenian Mercator in June 2013, making itself the undisputed leader in retailing across most of ex-Yugoslavian countries. Furthermore, we witnessed one interesting acquisition in Poland, where ever-expanding Żabka Polska purchased 43 stores of Spolem Zabrze chain.

The latter development is at the same time a good example of convenience stores’ ascending popularity, which also mostly comes on the expense of traditional grocery retailers. According to Euromonitor International, this channel posts 10% current value CAGR over the period 2008-2013 in CEE. In the same time span, share of convenience stores within overall store-based retailing in CEE as a whole has increased from 4% to nearly 6%, while independent small grocers lost almost 2 percentage points, going down from 14% to just above12%. One of the most extreme cases in this sense is the newest member of Eurozone, Latvia, where over the last five years share of convenience stores within store-based retailing increased from 25% to 28%, while share of independent small grocers went down from 8% to 5%.

Source: Euromonitor International

Discounters is also becoming more and more popular retailing format in CEE countries. Share of this channel is still quite low comparing to Western European markets, but it is growing quickly. For instance, share of discounters within overall store-based retailing in Eastern Europe in 2013 is just above 3% and in Western Europe this share is 7%. Some markets are extremely underdeveloped in this field. Good example is Macedonia, which has only one discounter – KAM Market. On the other side, neighboring Bulgaria has two of them, while Czech Republic has as much as four.

Source: Euromonitor International

There are also some other factors shaping the CEE retailing landscape. One of them is increase in private label share in all FMCG categories and another one can be identified in growth of internet retailing, which grew from 1% to 3% of overall retailing CEE in last five years. Furthermore, one can notice increasing number of large international retailing chains in all CEE markets. For example, in November 2013 French Casino has opened first of the seven planned outlets in Serbia. This country also awaits announced entrance of Lidl and Carrefour chains.
 

Euromonitor International forecasts further consolidation as well as growth in share of convenience stores and discounters. For example, convenience stores channel is expected to post 6% constant value CAGR by 2018 and discounters will grow by average 5% in next five years. With this in mind, it is clear that these relatively underdeveloped categories offer the best chance for growth and expansion for market players. Even though there are no evident threats to growth and the indicated development of CEE retailing markets, one can’t overlook the fact that economic crisis did slow this development down, especially in terms of large chains deciding to penetrate a new market. Another potential wave of the crisis might slacken the trends we explained here, but it is highly unlikely it will hinder their influence long-term.

By Elvio Andrade and Milan Cakić, Euromonitor International

*CEE is comprised of Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Romania, Bulgaria,  Slovenia, Croatia, Bosnia & Herzegovina, Serbia and Macedonia.