Entry into the EU by certain countries in Central Europe has led to a period of unprecedented growth and development. This is having a positive impact on its grocery retail market as foreign retailers target the region as an investment opportunity. Retailers are competing to gain market share through consolidation. In addition, the rapid expansion of the discounters in the region means that price competition is intense. Although traditional retail operators still have a large share of the market, modern store formats are becoming increasingly popular with consumers and the opportunity for growth through private label ranges is high.

Market size

Despite differences in the size, population and economic development in the individual countries that make up this region, overall there has been a steep rise in foreign investment and strong domestic demand which has led to a period of unprecedented growth and development. IGD estimated the size of the grocery retail market in the new member states to be around £82 billion in 2005 and it is forecast to reach £111 billion by 2015.

Consolidation

In the late 1990s international grocery retailers began to establish operations in Central Europe and, as in Western Europe, retailer consolidation has followed although at a much lower rate. In the last 15 months, consolidation has been particularly dynamic in the Czech Republic and Poland.

New store formats

Cash-and-carry formats remain popular in Central Europe as they serve both individual customers and traditional independent retailers, which still play a significant role.

Recently, however, there has been a shift towards more modern store formats with hypermarkets, compact hypermarkets and discount formats becoming more popular. The number of large, out-of-town hypermarkets has increased following relaxed legislation and planning restrictions. This has given retailers the opportunity to expand their store portfolio and increase logistics efficiencies. Increased wealth and car ownership has meant that these stores are more easily accessible. Retailers such as Tesco have been able to grow their consumer base and scale of operations in urban areas by introducing a compact hypermarket format which is typically a third of the size of a normal hypermarket and mainly focuses on food products with a limited non-food offer. Following the entry of the Schwarz Group’s Lidl fascia in 2003, the discount format has expanded rapidly in Central Europe, particularly in Hungary and Poland. It is typical for discount retailers to roll out stores quickly, opening multiple stores on the same day.

Private label

Private label sales are relatively underdeveloped in Central Europe but are expected to increase alongside the rapid growth of modern store formats and the influence of foreign retailers who have seen the success of private label in local Western markets. Private label is most developed in Hungary, Slovakia and the Czech Republic. The IGD estimates that private label sales could account for up to 17% of the total CE grocery market by 2010.