The list of hypermarkets, supermarkets, outlets, food and home appliances chains in Bulgaria is growing constantly. Petar Kostadinov examines the trends and the future of the market.

The main players in the retail market have ambitious plans for 2007 and beyond. Competition is fierce, and although Bulgaria has less than eight million inhabitants, the race for their money has started.

Electronic retailers
There are two major trends in this segment of the electronic retail market. The first is the arrival of foreign investors who prefer to buy stakes in already existing and profitable local companies. The second is the search for new opportunities for development, mainly aimed at expansion abroad into neighbouring countries or moving to another segment of the market.

The story of the current leader, Technomarket, is evidence that a good performance attracts foreign investors which, in turn, leads to plans to expand on both the domestic and foreign markets.

Technomarket was established in the early 1990s by the Bulgarian company K&K Electronics. A few weeks ago, Equest Balkan Properties, the real estate investment fund of UK-registered Equest Capital Management, bought a 51 per cent stake in Lynx Property, owner of Technomarket. The acquisition is valued at nearly 61 million euro. Technomarket currently operates 22 retail outlets across the country and holds about a  40 per cent share of the local market. The company has recently launched a joint-trade project with Equest in Serbia. Although this is not Technomarket’s first  project abroad, the joint project with Equest will add substantial power to the company’s performance  on the Balkans.

In 2005, Technomarket reported sales of 258 million euro, and for the first six months of 2006 the company reported sales of 144 million euro. Although the company has not yet revealed details of its development plans, the Serbia project suggests that Technomarket has reached its limit in Bulgaria and intends to pursue profits in neighbouring countries.

Technopolis Bulgaria is next in line. The company, set up in 2002, currently runs one of the leading specialty retail chains for consumer electronics, home office products, entertainment software, appliances and related services in Bulgaria. Technopolis is concentrating on heavily-populated locations in the country’s largest cities. As of October 2006, Technopolis, a joint venture by Bulgarian company Videolux and Germany’s Lindner, has 11 mega stores throughout Bulgaria: two in Sofia and the rest in Plovdiv, Varna, Rousse, Bourgas, Stara Zagora, Pleven, Vratsa, Shoumen and Sliven. The total amount of investment so far is 39 million euro, 7.8 million euro of which were invested in 2006. This November, the company showed an appetite for a bite into the “big cake” - hypermarkets. Technopolis appears poised for further expansion and reorganisation. It appears that, in the case of Technopolis, the limit in small-scale electronic retailing has been reached. Through its plans to invest in hypermarkets, the company wants to cover all segments of the retail market. Technopolis plans to invest 20 million leva in 2007 to build four hypermarkets across Bulgaria. The company also plans to build a large logistics centre near Sofia. Technopolis has also bought land for two more units, which suggests even further development. According to the company, its share of the white and brown goods markets was 30 per cent and between 15 per cent and 20 per cent for the IT segment. However, Technopolis is not staking everything on hypermarkets. It has plans for new outlets in the cities of Blagoevgrad, Dobrich, Haskovo and Pazardjik.

Another Bulgarian electronic retail chain, Zora, plans to open at least one electronics hypermarket by the end of 2006. Sofia is first priority, followed by one of the other major cities. According to Zora, sales for 2006 add up so far to 60 million euro. Its target for 2007 is to open at least five or six outlets, some in the larger shopping malls. Through this move, Zora has made it clear that will closely follow the two leaders, Technomarket and Technopolis.

Zora-M.M.S. was established in 1991, as a retail home appliances and consumer electronics chain. Last week, Zora’s economic director Galya Nikolova told a news conference that the company planned to invest up to 5.1 million euro in opening new stores next year. At present, Zora has 15 outlets in Sofia and 15 more in the rest of the country and claims to cover 25 per cent of the market. Evidence that Zora has high ambitions is its plan to enter a foreign market in the next two years. Nikolova said that this would not be neighbouring Macedonia, Serbia or Kosovo, which will mean that Technomarket will remain the only Bulgarian retail chain operating in Serbia.

At the end of the line is Technocenter Elite. Although it is too small to be compared with the three leaders in the sector, Technocenter Elite is emerging as the pretender from the little league. The company has four electronic stores outlets in Sofia, Plovdiv, Blagoevgrad and Rousse. Last month it was reported that Technocenter Elite will open a fifth outlet in the town of Targovishte, with the small town of Gotse Delchev on the “possible” list.

The company was established six years ago and its main distinction from the others is that it offers only products manufactured by Bulgarian electronic appliances firm Elite, which may be the reason why Technocenter Elite lags behind the three leaders.

The other pretender, local electronic retailer Densi, was established in 1993. Today it has three outlets under the name Technohit in Sofia. In early November, it was reported that Densi would join forces with Austria’s Billa to launch a hypermarket in Stara Zagora by the end of 2006. The company currently is taking part in the construction of the Central Mall of Veliko Turnovo. A hint of Densi’s serious investment plans was the announcement of the company’s intention to put 120 million euro into building three malls across the country.  Rousse, on the Danube, the Black Sea city of Varna and the northern town of Pleven are Densi’s targets. If achieved, this investment alone will place Densi among the leaders in the segment.

The big picture of trends in the electronic retail sector is that the leaders have reached the limit of their performance on the domestic market and have their eyes on neighbouring countries. To this end, the companies are using foreign investors to provide the funds required for such expansion. The other trend is that smaller retail chains in Bulgaria are following the footsteps of the three leaders by establishing a nationwide network. The construction of shopping malls in the biggest Bulgarian cities is an advantage to Technocenter Elite and Densi’s Technohit - an advantage that neither Technopolis, Technomarket or Zora had when they started developing their network 10 years ago. All of this suggests that 2007 might be the last year of significant expansion for the retail chains before the market settles.

Food retail chains
Since the year 2000, Austrian retail store chain Billa, a subsidiary of German giant Rewe Group, has been the leader on the Bulgarian market. By the autumn of 2006, Billa had opened 21 hypermarkets throughout the country. Although technically Billa’s stores can be categorised as hypermarkets, the company mainly offers food products. Practically unchallenged during its first years in Bulgaria, Billa has become a well-known and established trademark in the country. According to company information as of end-2005, Billa was the leader in the local supermarket sector with a market share of 18.5 per cent. Billa plans to expand its chain of hypermarkets in Bulgaria by opening eight outlets annually by 2008 in every town with a population of more than 40 000 people. This is a change of strategy, to target smaller towns as opposed to the established practice of having a Billa store in every regional centre city.

Although Billa has a lot to show in terms of successful development, the company has one weak spot. It is called the city of Varna and takes the shape of Billa’s main competitor on the market, Bulgarian food retail chain Piccadilly. Varna is the only big Bulgarian city without a Billa outlet. Billa’s loss seems even worse because Varna is one of the fastest growing Bulgarian cities whose more than 350 000 citizens and annual flow of thousands of tourists have remained outside Billa’s reach.

Until this year, Varna’s market had been the preserve of local food retail chain Piccadilly, owned by the Bolyari company. Word on the street in Varna is that the reason for Billa’s absence from the city is the strong support enjoyed by Piccadilly in the city council. Billa has tried several times to buy land in the city but the company’s attempts have met strong resistance from several councillors. This has led to the strange situation where towns with populations of less than 80 000 have Billa stores while prosperous Varna has none.

The comfort enjoyed by Piccadilly has certainly served the company well. Today Piccadilly’s stores are considered one of Varna’s symbols. The first Piccadilly supermarket was launched in 1995. In early 2004, Bolyari transferred the operational management of the Piccadilly supermarkets to its newly established subsidiary Piccadilly EAD with Bolyari remaining the owner of the store facilities and the adjacent real estate.

In July 2004, the European Bank for Reconstruction and Development lent 12 million euro to Bolyari to finance its supermarket expansion and placed a 2.5 million euro equity investment acquiring a 20 per cent stake in the company. This was Piccadilly’s go-ahead to start looking at other cities outside Varna. Today Bolyari owns 11 supermarkets in Bulgaria. Most are based in Varna (six) and towns near the Black Sea where there is still no Billa presence. Soon there will be a Piccadilly supermarket in the Mall of Veliko Turnovo as well. However, this year Bolyari decided to finally confront the great competitor in his stronghold. This summer Bolyari entered Sofia with two supermarkets in each of the capital city’s brand-new shopping malls.

By doing so, the company managed to save a lot of money. Instead of buying land and spending a lot of money on construction, Bolyari chose the malls as the place for their supermarkets. This smart move has opened the way to the wallets of more than a million and a half Sofia residents.  

Third on the Bulgarian supermarket battlefield is German discount retailer Kaufland. Since the beginning of 2006, Kaufland has opened seven stores in the country: Sofia, Plovdiv, Varna, Rousse, Sliven, Haskovo and Yambol. The opening of a second hypermarket in Sofia and another one in Vratsa is forthcoming. On November 21, the 5.2 million euro investment project was launched in the town of Montana. The company’s plans are to have outlets in every major Bulgarian city in the next two years. The group of the “big boys” in this field ends with Ramstore Bulgaria. The company is a wholly-owned subsidiary of Turkey’s leading supermarket chain, Migros Turk TAS. In 2001 the first Ramstore hypermarket opened for business in Sofia. Migros, controlled by Turkish conglomerate Koc Holding, invested 13.4 million euro in its development in Bulgaria. As of mid-2006, Migros Turk operated three Ramstore stores, all in Sofia, primarily engaged in retailing food.

Home improvement
The main competition in this part of the retail market is between two foreign companies: French retailer Mr Bricolage and Germany’s second-largest home improvement retailer Praktiker. Doverie Brico is the company operating Mr Bricolage outlets in Bulgaria. The first Mr Bricolage outlet opened in 2001 in Sofia. As of November 2006, Doverie Brico has two Mr Bricolage hypermarkets in Sofia, one in Plovdiv and a store in Varna under a franchising agreement. The company plans to raise the number of Mr Bricolage stores in Bulgaria to 10 by end-2006, through an investment of 22 million euro. The company also has the exclusive rights to open Mr Bricolage stores in Serbia and Montenegro as well as in Macedonia. However, on November 21, it was reported that Bulgarian real estate investment fund ADSIC had acquired the first outlet of the Mr Bricolage in Sofia for six million euro. ADSIC owns the outlet in Varna as well. How the new owners will manage their Mr Bricolage’s outlets in Bulgaria is still unclear. It is most certain, however, that the lack of one general owner of all Mr Bricolage’s outlets could cause difficulties in the development of the retail chain in the country.

This situation might be the big chance for Praktiker. The company entered Bulgaria three years after Mr Bricolage, and today has five stores in the country - two in Sofia, one in Plovdiv, one in Varna and one in Pleven. An outlet is being built in Veliko Turnovo. The company has revealed plans to build eight stores in Bulgaria as part of a 58 million euro investment programme. This most certainly will make Praktiker the leader on the home improvement retail market in Bulgaria.
The only Bulgarian competition faced by Mr Bricolage and Praktier so far has been the Euromarket Group, incorporated in 1992. The company’s profile is slightly different from the French and the German retail chains but it also targets the segment of tools for professional, industrial and consumer use. Euromarket has eight outlets nationwide and operates subsidiaries in Ukraine, Serbia, Croatia, Slovenia and Macedonia. The big news from Euromarket came a few weeks ago. The company said that it would by the end of the year start construction of a corporate centre on the Sofia ring road. Euromarket also plans to launch regional business centres in Plovdiv, Stara Zagora and Bourgas next year and invest 5.2 million euro.

Hypermarkets
The leader in this segment is Metro Cash & Carry Bulgaria, a unit of German retail giant Metro AG. The company opened its first two cash-and-carry stores in March 1999 and since then has been the leader in wholesale sales. In early 2004, Metro said it had invested close to 94.7 million euro in the country.

In addition, the company also invested 1.5 million euro in opening of fish and seafood departments at four of its seven stores. Metro’s eight stores in the country cover areas with an average population of one million people. According to reports in the Bulgarian-language media, Metro had a turnover of 357.3 million euro in 2005.
In contrast to other countries, Metro Cash & Carry is oriented towards both wholesale and retail clients.

The little league
In contrast to the grand development plans of all of the above retail chains, two local Bulgarian companies have placed their bets on smaller scale ventures. Although operating only in Sofia, Familia and Fantastico are a good example of the idea that the small corner shop still has a place.

The two companies are the main pretenders for the leading position on the market in Sofia. Familia, established in 1999, is principally engaged in the retail sale of food.
As of December 2005, the company owned and operated 28 retail food stores in Sofia and had plans to open a further 30 stores by the end of 2006. In June 2005, British-based mid-market investment firm Equest Partners acquired just more than 30 per cent in Familia via a 26 million euro capital hike designed to back the growth of the supermarket chain. However, the planned expansion to 30 stores proved a little bit too much for Familia, and by May this year the company was deeply in debt. The empty shelves were proof that Familia might have aimed too high. The saviour came in the shape of Equest, which bought full control of the supermarket chain for an undisclosed sum. The fund also vowed to invest 10 million euro in the next 18 months to pay Familia’s debts and complete the construction of 10 new stores.

Fantastico, on the other hand, has been enjoying growth since the day of its launch in 1991.

Today Fantastico has 27 supermarkets in Sofia covering all neighbourhoods. The latest is in the third Sofia shopping mall, Sky City. A sign of the company’s positive performance was the home improvement store opened last year and their plans for expansion outside Sofia.
 
Newcomers
In mid-November, it was reported that French retailer Carrefour would build a hypermarket in Sofia. The French company plans to invest nearly 34 million euro by the end of  2006 and a further 24 million euro over each of the next two years. Construction will start in the coming weeks.

Earlier this year, it was reported that Germany’s BauMax retail company plans to enter the market in Plovdivr.  German discount retailer Kaufland was set to launch its first store in Varna this autumn. Penny Market, another German retailer, has also announced it is looking for suitable store locations in Varna.

Problems
If there is something standing in the way of every retail chain in Bulgaria today, it is the lack of suitable land. A suitable location for an outlet means good logistics. In the big cities, such locations are already occupied, either by competitors or by companies waiting for the fattest and most expensive offer. This has led to competitors having to stand cheek-by-jowl. Such is the case in Varna, where Zora’s neighbours are Technomarket and Metro. Praktiker, on the other hand, shares a parking area with Piccadilly while a kilometre away, Mr Bricolage is next to another Piccadilly outlet. Given the plans by other foreign retail chains to enter the Bulgarian market, this problem will deepen and most certainly the price of land in areas around big cities will reach record levels.