Hungry For Discounts, Not Delicacies
Only the czech words on the yellow-and-orange special-offer signs tell you that the Hypernova store outside Prague isn't in Düsseldorf, a Paris suburb, or, for that matter, New Jersey. The aisles are wide, the floors freshly polished, and the refrigerator cases full of artfully arranged cheese, fish, and sausage. There is even an Internet café.
The question is whether the newest citizens of the European Union care about such Western shopping-mall ambience. For Royal Ahold and other Western European retailers including Tesco and Carrefour, there are ominous indicators that shoppers in Central and Eastern Europe would just as soon fish their merchandise out of a packing crate if the price were right. Lidl, the no-frills discounter that has already helped lay waste to the German retail scene, opened its first Czech store in November, 2003. A year and a half later it has more than 100 stores and nearly 5% of the $25.5 billion market. That puts Lidl in a virtual tie with Hypernova, which is owned by the Dutch Royal Ahold and has been in the Czech Republic since 1991. Lidl, a unit of Germany's secretive Schwarz Group, helped the discount segment in Central Europe surge 26% last year, to $6.8 billion. Compare that with 16% growth for supermarkets and neighborhood stores, which make up a $15 billion market, according to market watcher M+M Planet Retail.
WINNING THEM OVER
Lidl's phenomenal growth is doubly alarming considering that parent Schwarz Group already holds a commanding position in big box stores via Kaufland, a chain of stripped-down hypermarkets. Kaufland is the leading retailer in the Czech Republic, with 12.7% of the market. And now the company based in the south German city of Neckarsulm is targeting other new EU member countries, including Poland and Slovakia. Kaufland is still a minor player in Poland, which is dominated by Biedronka, a unit of Portugal's Jerónimo Martins Dystrubucja, and Britain's Tesco PLC. But it is quickly winning customers. "I often drop in on my way back from Warsaw," says Adam Stanek, a student, outside a Kaufland store in Jablonna, Poland, a suburb of the capital. He notes that a liter of apple juice is more than 15% cheaper at Kaufland than at other stores.
Western European retailers don't share his enthusiasm. They have been banking on fast-growth Central European countries to compensate for the stagnant Western European market. Ahold's 442 stores in Poland, the Czech Republic, and Hungary had sales of $2.2 billion in 2004, up 6% from a year earlier. That compares with a 3% decline in sales for the company as a whole. "These are the growth markets," says Tobias Schediwy, general manager for consumer tracking in Central and Eastern Europe at the Vienna office of market researcher GfK.
But Ahold's Central European business is still unprofitable, reporting an operating loss of $70 million last year. To stay in the game, Ahold and other traditional retailers have to offer superior service, ambience, and variety, as well as competitive prices. Lidl's vulnerability is its limited selection -- some 800 items per store, vs. 17,000 at a Hypernova.
This suggests Jacquot Boelen, CEO of Ahold Central Europe, is on the right track with the company's Czech stores, where shoppers can get a cappuccino or, outside, fill up the family Skoda with cheap gas. "We try to find the right balance between quality and price," Boelen says. He can only hope Central Europeans appreciate the effort.
By Jack Ewing in Prague, with Bogdan Turek in Warsaw