Wholesale & Retail in Southeast Europe by Merar Investment Network

SEE INDUSTRY AT A GLANCE Wholesale & Retail in Southeast Europe

August 2009

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This industry overview is an integral part of SEE TOP 100, Edition 2009 – a comprehensive, in- depth guide to the transition economies of Southeast Europe, published be SeeNews. SEE TOP 100 is a unique ranking of the biggest companies in the region of Southeast Europe. This annual publication comprises: • SEE TOP 100 • SEE TOP 50 Banks • SEE Top 50 Per Capita • SEE Industrial • SEE IPOs • SEE Corporate Management • SEE TOP 100 CEOs List • SEE Country Profiles • SEE Best Employers • Analyses & Interviews If you are interested in obtaining a hard copy of the SEE TOP 100, Edition 2009, please e- mail us at consulting@seenews.com or call at +359 2 8012 610. The SEE TOP 100 ranking is also available on www.top100.seenews.com.

The ranking of the top 20 largest wholesale and retail companies in SEE was clearly dominated by 11 Romania-based chains. All large Western European chains were represented with Germany’s Metro Group having three entries – its Romanian and Croatian Cash&Carry chains, as well as its Romanian retail chain Real,- Hypermarket. However, the ranking was headed by one of the two Slovenian representatives – Mercator, which ended 2008 with total revenue of 1.84 billion euro and a net profit of 32.1 million euro. Outside Slovenia, Mercator is present in Serbia, Croatia, Montenegro and Bosnia. The company entered Bulgaria in 2009 and plans to expand to Albania, Macedonia and Kosovo. The aggregate revenue of the top 20 wholesale and retail companies was 13.4 billion euro in 2008, up from 11.8 billion euro in 2007.

Copyright All rights reserved. Downloads and print extracts of SeeNews – Research & Profiles content are allowed for personal and non-commercial use only. Republication or re -distribution of content, including by framing, is strictly prohibited without the prior written consent of SeeNews – Research & Profiles. SeeNews - Research & Profiles and its logo are registered trademarks of AII Data Processing Ltd. SeeNews 2009

Methodology SEE Industry at a Glance represents a series of sub-rankings of the 20 biggest companies by total revenue within the top five industries in SEE TOP 100: Petroleum/Natural Gas, Electricity, Wholesale/Retail, Telecommunications and Metals. In order to make the ranking more comprehensive, we have looked beyond the 100 companies in our flagship ranking and expanded the scope to the entire pool of over 1,000 enterprises.

Company name

Country

Total revenue 2008

Total revenue 2007

Net Profit/Loss 2008

Net Profit/Loss 2007

Slovenia

1,839.24

1,736.63

32.14

35.42

Croatia

1,741.78

1,485.96

59.19

40.65

Poslovni Sisitem Mercator d.d.

Konzum d.d.

Metro Cash and Carry SRL*

Romania

1,490.00

1,590.00

N/A

Carrefour Romania SA

Romania

972.82

738.69

18.59

22.82

Selgros Cash& Carry SRL

Romania

871.19

812.71

36.08

33.58

Kaufland Romania SC

Romania

726.98

598.49

3.44

14.57

real,- Hypermarket Romania SRL

Romania

689.06

385.25

-51.18

-43.86

Engrotus d.d.

Slovenia

673.93

599.57

8.07

18.34

Mediplus Exim SRL

Romania

495.21

432.39

2.85

6.53

Arabesque SRL

Romania

457.12

387.12

-1.56

7.60

Agrokor-Trgovina d.d.

Croatia

434.67

298.09

7.99

5.17

K and K Electronics OOD

Bulgaria

423.95

379.27

18.34

13.48

Romania Hypermarche SA

Romania

372.23

376.43

18.19

11.63

Mercator - H d.o.o.

Croatia

356.56

293.87

3.89

0.60

Metro Cash & Carry d.o.o.

Croatia

352.96

327.97

9.18

7.49

Pevec Zagreb d.o.o.

Croatia

317.73

272.27

3.01

10.68

M-Rodic DOO*

Serbia

303.64

267.04

9.35

4.75

Praktiker (Romania) SRL

Romania

299.49

259.56

8.01

13.33

Billa Romania SRL

Romania

299.13

297.72

9.54

9.73

Procter & Gamble Distribution SRL

Romania

296.65

309.19

5.08

3.00

in millions of euro (*) denotes net sales revenue

Retail trading is one of the fastest growing industries in Southeastern Europe (SEE).

The growth of the sector strongly depends on the purchasing power of the population. While the purchasing power of the customers in SEE is still lower than in Western Europe, thus hindering big investors from entering the market, at the same time it indicates good possibilities for future development. Albania, Serbia and Macedonia all reported very high levels of Purchasing Power Standard (PPS) in 2008, stemming from their low prices of consumer goods and services, according to data from the EU statistics office Eurostat. PPS in Bosnia and Herzegovina, Bulgaria and Slovenia is around the EU- 27 average, while the purchasing power of Montenegrin customers is almost twice lower than this average.

Purchasing power parities (PPPs) 2006-200 8

Country ? U-27 Switzerland Denmark Norway Albania Serbia FYR Macedonia Croatia Romania Bosnia and Herzegovina Bulgaria Slovenia

2006 1 11.1284 10.3112 10.6712 51.1501 34.3349 21.9373 4.67477 1.76183 0.877764 0.742858 0.745452

2007* 1.00 11.01 10.35 10.89 52.65 37.32 22.29 4.66 1.83 0.89 0.79 0.77

2008 n 1.00 11.24 10.63 11.21 53.71 40.58 23.85 4.95 2.04 0.95 0.86 0.81

* - preliminary data n - express data Source: Eurostat, New Cronos Database 20.07.2009

Purchasing Power Parity (PPP) is an indicator, which measures ratios of prices, expressed in national currencies and are used to convert the values of indicators to a common currency, called Purchasing Power Standard (PPS), which equalises the purchasing power of different national currencies and thus allows meaningful comparison.

Purchasing Power Parities (PPPs) 2008

M on te ne gr o

Sl ov en ia

Bo sn ia

an d

Bu lga ria

He ry ze go ...

Ro m an ia

Cr oa tia

M ac ed on ia

Se rb ia

FY R

Al ba ni a

No rw ay

De nm ar k

Sw itz er lan d

EU -2 7

60 50 40 30 20 10 0

Another indicator, measuring the development of retail industry, is the price level of consumer goods and services. Price levels varied widely across Europe in 2008: Danish consumer prices were 41% higher than the EU- 27 average, while in Macedonia prices were 53% lower. Bulgaria, with retail prices 49% lower than the EU- 27 average, was the cheapest country to go shopping in out of the 27 countries of the EU last year. Comparative price levels of final consumption by private households in SEE including indirect taxes

European Union (27 countries) Slovenia Croatia Turkey Romania Bulgaria Macedonia

2006 2007 2008 100 100 100 76.8 77.8 83 69.8 70.1 74.7 66.3 71.5 72.8 57.1 61.5 62.1 44.6 46.5 51 43.3 43.3 46.7 Source: Eurostat

The level of concentration and the presence of investors with large store formats are indicative of the level of market development. Slovenia holds the leading position among the SEE countries in terms of concentration, with five chains controlling a combined 80% share of the country’s market. Croatia and Serbia, with concentration rates of some 50% and 40% of their retail markets, respectively, come second and third. Market concentration is smallest in Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Moldova and Kosovo, where small corner shops, kiosks and open- air markets prevail. According to a survey conducted by German- based global market research company GfK, supermarkets account for about 30% of all retail sales in Croatia, 23% in Bosnia and Herzegovina, and 18- 19% in Serbia and Bulgaria. The process of consolidation of the retail market in SEE is still underway. Companies based in the countries of Southeastern Europe dominate the retail markets of these countries. Regional majors such as Slovenia’s Mercator, Croatia’s Agrokor and Serbia’s Delta Holding are well aware of the buying habits and preferences of SEE customers and invest expansively on the SEE retail market.

Major investors in wholesale and retail market in Southeastern Europe Investor Mercator Agrocor Delta Holding Dm Drogeriemarkt

Home country Slovenia Croatia Serbia Austria

Investment destinations in SEE Bulgaria, Serbia, Slovenia, Croatia, Montenegro, Bosnia and Herzegovina, Albania (to be opened in end-2009) Croatia, Montenegro, Bosnia and Herzegovina, Serbia Serbia, Bulgaria, Montenegro, Bosnia and Herzegovina Slovenia, Bulgaria, Romania, Bosnia and Herzegovina, Croatia, Serbia

The Netherlands

Slovenia, Romania, Serbia, Croatia

Metro Group

Germany

Serbia, Bulgaria, Romania, Croatia,

Lidl & Schwarz

Germany

Croatia, Bulgaria, Romania, Slovenia

Spar International

CBA

Hungary

Bulgaria, Romania, Serbia, Croatia

K and K Electronics OOD

Bulgaria Germany

Bulgaria, Romania, Serbia, Macedonia Bosnia and Herzegovina, Bulgaria, Romania, Slovenia

Intermarche

France

Serbia, Bosnia and Herzegovina, Romania

REWE

Austria

Croatia, Bulgaria, Romania

Slovenia

Slovenia, Macedonia

Veropoulos

Greece

Serbia, Macedonia

Carrefour

France

Romania, Bulgaria

Baumax

Austria

Romania, Bulgaria

Tengelmann

Tus

Merkur

Slovenia

Slovenia, Serbia

Maxima LT

Lithuania

Bulgaria, Romania Serbia, Bosnia and Herzegovina

Rodic E.Lecrerc

Serbia France

Aldi Ramstore

Germany Turkey

Slovenia Slovenia Macedonia

The fast development of the SEE retail market is reflected by the Global Retail Development Index (GRDI), an indicator compiled yearly by U.S. consultancy A.T. Kearney. The GRDI evaluates the development potential of the retail industries of 30 selected emerging countries. The GRDI 2009 ranking includes four countries from Southeastern Europe, of which only Slovenia is among the top 10 of the 30 emerging economies.

Global Retail Development Index (GRDI) in 2009

Country

Position in the ranking

Country Risk (25%)

Market Attractiveness (25%)

Market Saturation (25%)

Time Pressure (25%)

Slovenia Bulgaria Romania Croatia

9 21 23 24

100.00 44.00 49.00 54.00

64.00 41.00 41.00 58.00

12.00 48.00 33.00 13.00

33.00 54.00 58.00 46.00

GRDI score

Change in rank compared to 2008

52.00 47.00 46.00 43.00

14.00 -5.00 -1.00 N/A

SWOT Analysis of the Wholesale and Retail Market in SEE

Strengths * Customers with potential for rising incomes

* Low labour costs * SEE is an attractive tourist destination (Croatia, Montenegro and Bulgaria) * A good perspective for the HORECA segment Opportunities

Weaknesses * High levels of corruption and bureaucracy * Fragmented markets, a low level of concentration (except Slovenia), a good number of small stores and preferences for shopping in open-air markets * Concentration of big stores around big cities (Macedonia, BiH, Croatia) Threats

* SEE can reap economic benefits from lying at the crossroads of Western Europe, the Middle East and the Mediterranean

* Global economic crisis

* EU membership (Slovenia, Bulgaria and Romania) and candidate- members (Macedonia and Croatia)

* Rising unemployment

* Development of new outlet formats – entertainment, electronics and office retailing, DIY (do-it-yourself), and other specialised networks

* Shortage of big land plots for the construction of large outlets, distribution centres and warehouses

* Development of private labels and own brands * Mergers and acquisitions (both regional and foreign investors) * Offering of franchising and online retail trade

* Skilled labour force leaving SEE * Underdeveloped infrastructure