Eastern European retail markets are in the midst of a shakeout causing multinational retailers and suppliers to look for new market strategies or consider abandoning the region altogether, according to a KPMG study.
Having imported the tools and techniques of modern retailing into countries across the region, multinationals are finding their profits squeezed by ferocious competition and limited opportunities to cut costs.
The KPMG International study reports that of the 64 consumer markets companies which took part in the survey, covering 11 countries, more than 50% reported pre-tax profit margins of 5% or less.
Around 25% said they were either breaking even or making losses.
Manufacturers are particularly feeling the squeeze, especially from local competitors, while the strongest retailers are taking the opportunity to consolidate and use their market power to improve margins and expand their reach.
This is in a region where, according to the Economist Intelligence Unit, the value of retail sales has grown from around $140bn (£75bn) in 2000 to an estimated $320bn (£171bn) in 2006.
Mark Walton, of KPMG’s Hungarian firm, predicts a fall-out in the number of international retailers operating in the region.
“In all likelihood, some markets are overheating,” said Walton who added that the much-used hypermarket format is starting to show signs of saturation.
“Indigenous companies have swiftly realised that competing purely on price is not the way forward for them,” he said.
“They are concentrating on providing a better experience for the consumer through improved service, new ideas and speed. And they are enjoying considerable success.”
The countries covered by “Consumer Markets at a Crossroads” were, Bulgaria, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Serbia-Montenegro, Slovakia and Slovenia.
References: EGi News 27/07/06
