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Pia_a FMCG Regional Summit 7-9 May 2008, Eforie Nord

Looking at Bulgaria:
Modern retail vs. traditional retail; international channels vs. regional channels; the experience of a local retailer; the development strategy on a market invaded by large international retail groups.

Stefan Kossev

PICCADILLY TODAY
• 11 stores • 1800 employees • 2007 Turnover Euro 110 million

BULGARIAVidin Dobrich

Lovech

Pernik

Pazardjik

Sandanski

Population – 7.6 million. GDP – Euro 27.5 billion / Euro 3600 per capita Growth – 6.4 %

DELTA HOLDING

18.000 1.71 BN EUR
TURNOVER

EMPLOYEES

2007

Ukraine grupa Moldova

PLANNED REGIONAL IN BULGAR EXPANSION 2007 - 2012 Romania I A Croatia
Bosnia Herzegovina Montenegro Macedonia Albania Bulgaria

Bulgarianperspective

OVERVIEW
• What does Bulgarian Retail Market mean? • Do we know all about the Bulgarian business environment? • Is it a distorted view of the actual situation? • Significant renewal of interest - opportunity and potential. Still an emerging market. • Sustainable growth – commitment to structural reforms and sound macroeconomic policies. Rapid growth in private business activity • Atwhat stage are we now? • Should be optimistic?

Bulgarian Retail Industry Overview
• Relatively small and highly fragmented market • Steady GDP growth rate of more than 6 %. Property prices and rent levels growth • Major multinationals and foreign retailers are present and more are expected to enter, but still have limited market coverage • Level of retail saturation • Competition isintensifying. Pressure on margins • Store format diversity, new concepts, modern retailing (Shopping Malls, Retail parks and hypermarkets • Labour cost increase, shortage of unskilled workforce

Understanding the Local Business Environment
• Unreliable official data: unemployment, disposable income, etc. • Differences in business environment and development are probably greater than the similarities inthe region. Different starting points for transition. • Consumer preferences • Purchasing power parity • The importance of local knowledge and local partner • International retailers have exited some of the emerging markets, entering a new market with unsuitable format and lay out.

EU Membership
• Since Jan 1, 2007 • Local business was not ready for the EU accession (technology and managementissues). • Time pressure - no time for expansion and respective development, reaching critical mass and economy of scale • Positive impact on the economic environment, market liberalisation and investment activity • Increased competition and many local companies may not survive

Modern vs. Traditional Retail

Purchasing Patterns Of Bulgarian Households

• Local traditions and way of life,traditions, mentality – daily shopping prevailing • Changes in shopping patterns • Disposable income (official data) - 48 % of monthly family income spent on food only • Structure of consumer spending • Unemployment rate – critical low, immobility • Increasing spending power

DYNAMICS IN DISTRIBUTION CHANNELS IN BULGARIA
Base: FMCG measured categories

Share of outlet types value (%)Source: GfK Consumer Tracking

RETAILERS DISTRIBUTION IN BULGARIA
Number of outlets by Retailers (%) 1HY 2007 Top 10 Retailers

Source: GfK Consumer Tracking

Modern Retail

• • • • • •

Shopping Malls – 40 in the pipeline Retail Parks – 20 at planning stage Power centres - 5 Saturation will be reached in 2010 Over supply in 2011 Will local society “accept” the new formats? International vs. Local Retailers
(Food retailers perspective)

SOFIA Population – 1.3 m

International Retailers Advantages
• • • • • • • • • • Being International, synergy among the network Budgets big enough to sustain long-term losses Experience. Well established organisations Incentives for the big investors with governmental support. Donor financing Operational effectiveness and...
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