Internationally, wholesaler METRO Cash & Carry employs more than 90,000 people at 584 locations in 28 countries
Following a successful blitzkrieg expansion that captured a large share of Ukraine’s consumer goods wholesale market, Germany’s METRO Group is now looking to snap up a piece of the country’s booming retail business with the introduction of its hypermarket brand Real.
Dozens of brand new Western-style hypermarkets have popped up throughout the country in recent years, but growth potential remains large. Foreign giants such as METRO Group, a world retail and wholesale leader, are eyeing the market, but they still face significant hurdles, such as land acquisition.
Markus Jablonski, a spokesperson for METRO Group’s Real operations, said his company is currently “exploring the situation for Real hypermarkets in Ukraine.”
However, he added, “it is too early to talk about any investment amounts or dates of openings.”
“Afterwards, we will decide about potential numbers and locations where Real hypermarkets could come into existence,” he said.
Despite the cautious words, the likelihood of a swift expansion of Real onto Ukraine’s burgeoning retail market is being taken seriously by Ukrainian retailers. METRO Cash & Carry, the group’s wholesale arm, has expanded with lightning speed since entering Ukraine three years ago, pumping more than 250 million euros into 13 massive wholesale centers across the country.
Real has swiftly expanded throughout Europe and former Eastern Bloc countries in the past decade. The group operates nearly 300 hypermarkets in Germany, Poland, Turkey and Russia. Altogether, Real has 442 locations employing 43,000 employees in five countries and posted 9.9 billion euros in turnover in 2005.
Internationally, wholesaler METRO Cash & Carry employs more than 90,000 people at 584 locations in 28 countries. The company’s 2006 sales revenues totaled 28.1 billion euros. In Ukraine, METRO Cash & Carry employs more than 5,000 Ukrainians. Sales in Ukraine from last year are expected to have increased significantly from the 318 million euros generated in 2005, as several new METRO Cash & Carry stores were launched.
Now METRO Group looks set to start filling another niche in Ukraine – hypermarkets – which according to some estimates account for nearly 5 percent of the country’s retail sector, which surged last year by 25 percent, reaching $24.5 billion.
But German retailers won’t be the first foreign investors to take an interest in opening hypermarkets in Ukraine.
The Ukrainian business daily Kommersant reported on Feb. 16 that the Russian hypermarket chain O’Key intends to open four outlets in large Ukrainian cities by the end of 2007.
The first store could open its doors this fall in Kyiv, while others are planned for Kryvy Rih, Zaporizhya and Simferopol, the paper said.
Kommersant said O’Key plans to invest $150 million into 16 hypermarkets to be built throughout Ukraine within the next two years. O’key has a stronghold in the St. Petersburg region of Russia, where they operate 10 hypermarkets.
Since 2004, three Russian hypermarket operators, including Perekryostok, Pyatyorochka and Paterson, have announced aggressive expansion targeting Ukraine. Their achievements to date have been modest, however.
News broke last year that French retailer Auchan Group, which operates more than 300 hypermarkets in Europe, Asia and the Middle East, was seeking a window of opportunity in Ukraine’s hypermarket business.
Red tape and other bureaucratic barriers have stalled the plans by these and other retailers to establish a strong presence on the Ukrainian market.
Andriy Pyvovarsky, an analyst at Kyiv-based investment bank Dragon Capital, said there are several reasons why foreign chains fail to meet their targets in Ukraine.
Russian retailers have delayed expansion plans due to the smaller margins in Ukraine’s retail business compared to those seen in their home country.
“When announcing ambitious plans, the Russians probably did not take into account that the gross margin in Ukraine varies from 17 to 20 percent. In Russia, it is 25-30 percent,” Pyvovarsky said.
“[Another big challenge] for foreign retailers is infrastructure development and [bottlenecks in the procedures] for getting land to build a hypermarket,” said Hlib Vyshlinsky, a research director at the Kyiv branch of global market research firm GfK.
A hypermarket normally requires around 10,000 square meters of sales area. Land plots of this size in strategic locations are becoming increasingly difficult to find in Ukraine. A glut of bureaucratic procedures required for purchasing land can make acquiring such plots difficult.
Nevertheless, Ukraine’s hypermarket business still offers huge room for development, Vyshlinsky said.
“The share of retail sales made from hypermarkets is very low, compared to a 35 percent share in the Czech Republic and Hungary, and a 25 percent share in Poland,” Vyshlinsky said, adding that a large share of sales in Ukraine are still made at open markets, or Soviet-style bazaars, and other forms of “unorganized trade.”
“In Kyiv, almost 8 percent [of retail sales] are made in hypermarkets, while the average figure for Ukraine is even lower,” according to Vyshlinsky.
The biggest Ukrainian operator is the Donetsk-based Amstor chain, which has 11 hypermarkets in Donetsk, Mariupol and Zaporizhya. Dozens of Ukrainian-owned hypermarkets of various calibers operate under different brand names.
