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The FMCG Market Has Been Stirred Up. Who Will Win in the End?

Players of the domestic FMCG market are heavily competing, yet the total number of stores is stagnating. Due to the inflation customers take home less goods for the same amount, that is, the chains are dividing the same slice of cake over and over again.

Turbulent decades in a nutshell

The first major changes hit the domestic FMCG market during the period following the political transition, of course, when the Hungarian supermarket chains were bought up by foreign owners. Later on hypermarkets appeared also: Cora opened its first store in Törökbálint in 1997; Auchan entered in 1998, and a little later Tesco set off, too. Based on data by the Magyar Bevásárlóközpontok Szövetsége (Association of Hungarian Shopping Centres) 165 hypermarkets opened between 1996 and 2012 with an area near 1.25 million sq m. In the meanwhile, CBA, Coop and Real from among the domestic companies slowly began to develop, too. Further competitors appeared later on the discount market, and in 2008 Spar bought up the Plus discount store chain. Tesco has introduced new types of stores in the past years (Express, Extra), and the competition increased in 2012, as CBA and Coop acquired the Match-Profi network, while Auchan integrated some Cora stores into its portfolio. Based on the volume of turnover the Hungarian FMCG market is currently lead by the Tesco – CBA – Coop trio.

Stagnation foreseen for next year

Goods worth almost HUF 3,500 billion change hands on the FMCG market every year. The amount decreased by 8.5 percent between 2007 and 2010 due to the crisis, while in 2011-2012 this tendency stopped and stagnation took over. Although customers have been spending more in the past two years than before 2011, they get less goods for their money due to the 6 to 7 % inflation prevailing on the foodstuffs market. There is very heavy competition on the market, and price is the key factor at present.

“The consumer market has narrowed down, no doubt, and the start of growth is a function of many domestic and international factors. Only afterwards can we talk about the domestic market trends” explains György Vámos, Secretary General of the Hungarian Trade Association. According to Otília Dörnyei, Client Service Director at GfK Hungária: “2013 is going to be a period of stagnation in terms of turnover, as we will be lacking the conditions for growth.”

Consolidation is on the way

György Vámos says: “Future changes of the market competition are almost impossible to foresee, as competition takes place in a constantly changing and shaping arena, but focusing on the hypermarket-supermarket-discount relation it is clear also that a store chain entering onto a new market will expand with a huge momentum in the first phase, to be followed later by a period of consolidation.” Otília Dörnyei agrees that the market stirred up by this year’s major changes will calm down. “2013 will be a year of consolidation; as a result of the transactions buyers will be integrating the new units into their portfolios, and this process may take several years.”

In any case, the buy-ups and the statistical figures analysing the turnover shares also show that the domestic market is becoming more and more concentrated, and the positions may stabilize for a long time.

Discount stores have gathered strength

Besides hypermarket and supermarket chains discount store networks are gaining momentum also, an eloquent testimony to which is that Lidl and Aldi have shared the highest rate of store network enlargement with Tesco during the past years. According to figures by GfK Hungária the discount store chains now account for a 560 billion HUF share of the entire retail turnover. The market position of stores in the 401 to 2,500 sq m range, including supermarkets and discount stores, has improved as well; their share in the domestic retail turnover of foodstuffs has reached 35 percent.

“We seek to secure and strengthen our market position by giving more and more ground to Hungarian products produced by domestic suppliers. The share of Hungarian products is over 50 % now and is steadily increasing” says Judit Tőzsér, PR Manager at Lidl Magyarország Kereskedelmi Bt.

How is competition developing?

“Although there may be minor changes in the turnover based list, the first three places are followed by a sharp break, as the others are still far behind the annual turnover of Tesco, CBA and Coop exceeding HUF 500 billion. Tesco, placed first, cannot be preceded in the foreseeable future, either” says Otília Dörnyei. Tesco’s success lies in its wide-ranging portfolio, including not only hypermarkets, but supermarket-type stores as well (such as Expressz), through which in can reach other target groups too. A change of places is a valid possibility in the case of the second and third place, however, as Coop may move upward to second place. Coop has taken over three of CBA’s twelve regional companies, along with more than 200 stores, and signed a strategic agreement with Gránit Bank, which can solve its financing difficulties. Among the major chains Auchan remains the specialist of hypermarkets, so its ranking is probably stabile. Having integrated seven Cora stores Auchan now has 717 shops to let on 78 thousand sq m.

Plaza stop

108 requests for exemption from the ‘plaza stop’ act had been received by the Ministry for National Economy by September 2012, of which exemption was granted in 41 cases. “It is indeed a partial plaza stop only, and years are yet to pass before it can be objectively evaluated” says György Vámos.
Different opinions have been formed of the plaza stop, driven by market interests, of course: smaller domestic businesses are in favour of it, while expanding big chains object to it. It is surely detrimental to the building industry, however, exemption is granted to projects on an individual basis; this is why we cannot talk about a full plaza stop. Other experts point out too that although the act sets back major investments to some extent, it does not cause any significant problems to traders, as the will to invest is much lower than before due to the crisis and the small purchasing power, and the number of stores is very high already.

The share of domestic products

Examination of the FMCG market arises one more interesting aspect, namely the market access of the products of Hungarian agriculture and food production. “Governments have always had the intention to help domestic products, although this support has to be provided in subtle ways because of the laws of the Union. Still, it is clear that domestic products need to be supported” says György Vámos. In connection with putting domestic products into the focus he explains, however, that we need to think in terms of products instead of chains. And for this we essentially need the Hungarian agriculture to produce high quality raw materials. The share of Hungarian products and those of domestic origin is 70 to 75 percent in the entire product range, which appears to be very good, adds György Vámos. This issue of shares arose sharply after our EU accession in 2004, and has been in focus ever since, as before 2004 import quotas determined the volumes of foreign products to be given access to the domestic market – imports amounted to about 8 to 10 % at that time due to the regulations in effect. Looking at the current figure of 70 to 75 % we have a circa 15 to 20 % difference.

  • source: Retail Yearbook 5.
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