A recent expansion of the Dutch company Ahold in the Czech Republic reflects the country’s changing retail market. Ahold, which bought 50 stores from the loss-making Austrian firm Spar, is now set to become market leader, a new situation for the fragmented Czech market. But analysts say more changes are in the pipeline, including customers’ move away from supermarkets to smaller speciality stores.
The Dutch-based firm Ahold is set to become the leader of the Czech retail market following its acquisition of the Czech branch of Spar, an Austrian supermarket chain. Ahold reportedly paid around 5.2 billion crowns for Spar’s 50 stores located across the Czech Republic, and will invest another 1.3 billion in the locations.
In comparison with other countries in the region, the Czech retail market is unusual for its fragmentation. There are several big players such as Kaufland, Tesco, Penny Market, Makro Cash and Carry, and others, with none of them exceeding 10 percent of market share.
But with some 320 stores, Ahold will have a 12.5-percent share, and around 53.7 billion crowns in annual revenues. The firm’s CEO, Dick Boer, said Ahold was hoping to make the loss-making Spar network profitable within the next two years. The Austrian retailer’s Czech operations were losing around half a billion crowns a year.
The transaction is yet to be approved by the Czech Republic’s anti-monopoly watchdog but analysts expect the Office for the Protection of Competition will smoothly approve the deal.
So what does the deal mean for the future of the Czech retail market? For their part, food producers believe the emergence of a strong market leader should ease tensions between retailers and suppliers. Miroslav Koberna is the director of programming and strategy for the Czech Republic’s Federation of Food and Drink Industries.
“I think I can say this is good news. We have too many retail chains in the Czech Republic; there are ten or twelve big ones here. When their number decreases, we can expect a less intense competition between them.”
If there is a dominant player, thought, will it not be worse for their suppliers?
“I don’t think so. Ahold’s position will be stronger but when we look at the composition of the retail sector here, we see that some brands owned by one company only. So it means Ahold will not be dominating the retail business.”
That was Miroslav Koberna from the Czech Federation of Food and Drink Industries. The news of Ahold buying up the unprofitable Spar operation surprised many analysts who pointed to Ahold’s decision last year to sell its stores in Slovakia.
But Michal Bareš, the director of auditing at the Czech branch of the KPMG consultancy says the move could well be anticipated.
“I don’t think it was a big surprise. It’s about international chains building up their strategic positions. You may look at the case of Billa in 2009 when they also left Poland. So I think that only the retail chains which are strongly positioned on the market will stay in the country.”
What changes do you think the acquisition reflects in the market? Is Ahold moving to a dominant position?
“I’m not sure. When you look at the positions of Kaufland and Tesco that are heading to lead the market as well, it will be interesting to see how they respond. But at the moment and over the short term, I don’t see any major acquisitions as the one of Spar.”
Why is the Czech retail market so fragmented?
“These are historic reasons. In the 1990s and even before that, local retailers were focusing mainly on getting things to sell, and did not know very much how to sell them. That was a great opportunity for international retailers to get to the market. The Czech Republic has a good potential because of its proximity to Germany and Austria which made the retailers’ entrance even easier.”
In an interview for Lidové noviny, you said you expected the retail market to grow by about 2 percent his year. You also noted that Czech customers were increasingly favouring speciality stores over supermarkets. Given the weak labour market and stagnating real wages, why do you think this is happening?
“I believe Europe is slowly recovering from the crisis. When you look at the prediction for Germany – 1.6 percent GDP growth this year – and given the fact that the Czech economy is export-dependent, I do believe we will grow and the retail sector will grow, too. So 2 percent is a realistic target.
“As for the move to specialized stores: there is something about the retailers’ differentiation that people looking for. They want fresh goods, they also want to have personal relations with the people in the store; they want them to be closer to their homes. That’s why I believe this is the future of retailers here.”
Czech supermarket chains have come under a lot of criticism recently for a number of reasons, one of them being the poor quality/price ratio. First of all, do you think the criticism is deserved?
“I think that in the end, it’s good for the consumer. All these researches and surveys help the entire sector, and the retailers are increasingly focusing on the quality and freshness of their products and also their origin.”
Is retailers’ bad reputation part of the reason why you think Czechs are now beginning to appreciate speciality stores more?
“Absolutely. This is one of the reasons and you can see people are willing to pay more because obviously, small retailers cannot afford the prices offered by international chains.”
You have also predicted that retailers will come up with new ways of reaching their clients, mainly with home deliveries. Only Tesco offers this service now while Ahold and others have been rather sceptical. Is this all about the economy picking up that is making them reconsider this?
“That’s one of the reasons. Another is a change in lifestyle when people are valuing their free time more and they want to save time. So I believe in the future of home deliveries. You might have noticed that Tesco expanded their delivery services in the Czech Republic and Slovakia.
“I also recently read that Amazon in Germany is planning to launch its own Amazon Fresh programme. So there are some signs that retailers see this as an opportunity. It’s also an opportunity for logistics providers to come up with some solutions.”
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