Issue 2, 2013. April-May

   

SUPERSIZING THE SUPERMARKETS

Now that French retail giant Carrefour is easing into the market, the landscape of Georgian owned and operated grocery stores is changing. Will the European hypermarket have a super-sized impact on how Georgian supermarkets develop in the future?

The French Effect


When Carrefour opened its first store in the Caucasus, expectations were high. Prices were supposed to fall, the new competition was going to weed out weaker stores, and selection at supermarkets across the board would get better.

Fast forward six months and while no local chain has closed, the French giant is certainly making waves.

One of the first chains to buckle under the weight of the increased competition was Populi, one of Georgia's first local grocery stores. The owners sold 88 percent of the supermarket chain to Ioli, a competitor owned by two private, international equity funds -- Caucasus Growth Fund and the SEAF Fund - in February.

Competing with Carrefour is not easy, noted Jon Copestake, the Economist Intelligence Unit's chief retail & consumer goods analyst.

"Smaller stores try to compete with Carrefour by offering different products, different services. For instance, offering products Carrefour doesn't or offering more personal service," he said.

Carrefour's deep pockets - its ability to offer more goods at a lower price - is hard for smaller chains to match, Copestake said.

Local chains in Tbilisi are also stressing their niche, instead of taking on Carrefour head on.While Goodwill anticipated some initial loss in clientele when Carrefour opened last year, Natalia Darchiashvili stressed that today, the giant of Georgian hypermarkets is still going strong.

"We have learned all the demands that Georgian customers have. And we think we have this...Carrefour is a rather strong competitor because it is the second largest chain in the world and the largest in Europe...but we have chosen our strategy and we think that being orientated on quality and service [is key]," Darchiashvili, the marketing manger for Goodwill and Marshe, said.

Esben Emborg, the managing partner at the Caucasus Growth Fund, underscored that Populi's decision to sell is due to internal management issues, not pressure from the French retail giant.

"[T]he company has had different problems... it was criticized for being too expensive, criticized for being a bad payer...but nevertheless it has been a successful chain for many, many years," he said.

"We don't see them [Populi and Carrefour] in direct competition in that sense because [Populi] is a different format of stores, ...we are an around-the-corner convenience store which means we have a lot bigger network, much more shops... we believe that, even though there are new players on the market, there is still a lot of space to grow for everyone."

Goodwill also noted that, despite some earlier discussions about selling the chain before Carrefour entered the market, now the Georgian ownership is planning to stay.

"[We] have not seen such a strong competitor on the market where it became necessary to find a foreign investor," noted Darchiashvili.

$400 million and Growing

Despite rumors that Ioli and Populi were closing or going through bankruptcy, Emborg said the funds are optimistic the combined chains - after a bit of restructuring - will be primed for growth.

"SEAF has had experience with grocery stores in many other similar markets, similar types of chains [such as in] Serbia, Afghanistan, and Poland," he said. "They have been very good investments for us so we were quite interested in the prospect of having a good foothold in the Georgian retail market."

Carrefour is also confident that there is room in the Georgian market for growth.

"We started already in Georgia for several reasons... The first is the huge job that has been done concerning [eradicating corruption]. The second is quite a good climate for new businesses...third reason is there is no international retailer in this country until now," noted Jean Louis Clary, the Georgia District General Manager at MAF Carrefour Georgia.

"The GDP of the country is growing, it is starting low but growing...at least 80 percent of the business at this time is done on the street in local street bazaars. But we should not forget that in some other countries, especially Europe, a few decades ago it was the same. Things have been moving, things will move in Georgia also in the same direction."

The 80 to 20 split - supermarket and hypermarket chains estimate that 80 percent of the population still opts for the less convenient, but cheaper, minimarket/bazaar for their shopping needs - means that the potential for Georgia's supermarkets is largely untapped.

"Of course this market is fragmented at this stage...the dynamic is very good for us, for a chain," noted Darchiashvili.

Carrefour, Goodwill, and Smart are all planning to expand; Ioli and Populi - by far the largest chain in the country with 70 stores - does not plan to close stores although some outlets may be relocated.

More Services, Better Management

But future Georgian supermarkets and hypermarkets will have to stress better - and more sophisticated - management to survive, noted retail professionals.

Emborg stressed that "basic things" like how shelves are stocked, and how inventory is treated, have to be dealt with.

"There is a desire in the client to have a well assorted, round-the-corner store. There is a desire from the client not to have to go to the bazaar to buy their daily goods. But there is also a limited amount of purchasing power...so you still need to find what to offer - a reasonable quality at a reasonable price," he said.

"I think what supermarket chains in Georgia need is real professional management. I think it is attention to detail in the shops, so that is how the shop is run - the client satisfaction of being in one of your stores. Is the service okay? Are the goods stocked right?"

Smart, the supermarket chain owned by the Wissol Group, is betting that years of market research locally - plus consulting with foreign specialists - will give the chain an extra edge as the Georgian market transitions to its next stage of grocery shopping.

"We set ourselves the goal of creating a completely different kind of supermarket from what was previously available in the country," the press department wrote in an email interview with Investor.ge.

"Our goal was to create such a type of supermarket which would be distinguished by its design, retail inventory, technologies, service and assortment of goods."

Carrefour has lowered prices in the market, and - with services like a product return policy - it is pushing the Georgian market toward Western customer service practices.

"I think the first impact for everybody and especially for customers is that they will see in the country prices decrease. Because of our size, because of our policy, because of it is our duty to decrease the prices so it will push everybody to be more competitive on prices," noted Carrefour's Cleary.

"For example, at Carrefour, which is something new for the country, if you buy something and you are not satisfied with what you bought - according to some criteria of course - you can change it... this is our core business...we are working on this every day."