Supermarket Market Summary

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Supermarket Market Summary

Key Takeaways

Introduction

The supermarket segment is highly consolidated across the Czech Republic, Hungary, Slovakia, and the Republic of Ireland, dominated by large international brands such as Tesco and Auchan. In all four markets, the industry is highly price-competitive, but quality is becoming more important. The industry across the four markets is being threatened by discount retailers, such as Lidl.

Czech Republic

  • According to Santander Trade, "the Czech Republic has one of the highest proportions of supermarkets and superstore space per capita in the whole of Europe," with most distribution centered around major economic areas such as Prague, Usti nad Labem, Plzen, Brno and Ostrava. In fact, rural stores are struggling so much so "that the Czech government is considering elevating grocery stores in underserved areas to public service status." As of 2019, supermarkets captured 17% of the market share, second only to hypermarkets, which captured 30%, and followed by discounters (24%), convenience (11%), specialists (5%) and others (13%). In recent years, smaller independent stores have faced heavy competition from larger, more modern retailers, especially foreign brands such as REWE Group with the brand Billa (supermarkets), Tesco Group with hypermarkets and supermarkets, and Ahold with the supermarkets and hypermarkets Albert.
  • In order to gain a competitive advantage over smaller supermarket chains, larger chains such as Billa, Ahold Czech Republic and Tesco Stores have been investing in modern point-of-sale systems. COVID-19 accelerated the adoption of credit card payments over cash and the implementation of self-service checkout via express checkouts and/or mobile application.
  • COVID-19 did not negatively impact the supermarket industry in the Czech Republic. In fact, the industry saw a 7.8% YoY revenue growth and a 0.8% YoY sales area growth, according to McKinsey. Another major area of growth for the industry has been online sales, which accelerated during COVID-19 according to Central European Tesco CEO Matt Simister. However, even prior to COVID-19, online grocery sales had been increasing, with a "70% increase year-on-year in 2019 for grocery online sales."
  • One major new entrant into the Czech supermarket segment is pure-play online and delivery supermarket Rohlik, which provides their own branded products and traditional supermarket offerings with those from local smaller businesses as well. When utilized, Czech consumers prefer online grocery orders to be delivered the same day.
  • Pre-COVID, one trend in the supermarket segment was toward "smaller store formats, including smaller supermarkets supplied with only the necessary grocery products." For example, Billa opened their 70th Billa Stop and Shop location in 2020 in conjunction with gas station brand Shell. According to their press release: "The unique concept of BILLA and Shell is very popular, especially among drivers. The wide range of quality BILLA products is available at Shell filling stations 24 hours a day, seven days a week, which saves a lot of time. According to Kantar research, this is the biggest benefit of such stores — the speed of shopping and the associated time savings."
  • Czech consumers are traditionally extremely price sensitive, which was reinforced by the COVID-19 pandemic. However, there has been an increasing interest in quality, such as organic products and locally-made products.
  • Czech supermarkets rely on customer loyalty to succeed, built on providing quality products, building trust with consumers, and offering competitive pricing and promotions.
  • Within the grocery segment as a whole, COVID-19 spurred "a clear trend towards greater market consolidation, enhanced speed in decision-making and alignment with modern trends in both technology and communication with customers and retailers."
  • Recent trends in the grocery segment in the Czech Republic include increased interest in home cooking as brought on by the COVID-19 pandemic, more diverse/ethnic meals, increased demand for ready-to-eat/take-and-bake meals, increased focus on eating for health/immunity, and an increased demand for foods that promote mindful eating, such as organic products.
  • Among grocery corporations, there is still a major focus on Corporate Social Responsibility efforts and overall brand image. These efforts are an important part of the increased targeted advertising, especially online, to the "responsible consumer segment".
  • One recent point of contention within the industry was around a proposed quota of local goods required to be sold in supermarkets, which was eventually rejected by lawmakers in early April.

Hungary

  • Traditionally, Hungary's grocery retail market was dominated by small, independent retailers, and these types of retailers exist still persist in rural parts of the country. However, in more densely populated areas, international chains are now dominant, such as Auchan, Tesco, Lidl, Aldi, DM, etc.
  • Supermarkets account for 17% of the retail grocery market, superseded by hypermarkets at 24% and discount stores at 21%. The leading supermarket chains in Hungary are Tesco, Coop Hungary, SPAR, and Auchan.
  • The small-format supermarket trend is prevalent in Hungary, with the majority of Coop Hungary stores and SPAR stores in the convenience format.
  • However, the sector also struggles with labor shortages and increasing wages, which can lead to stores closing.
  • E-commerce grocery has increased, but overall penetration remains low, with only 7% of Hungarians having purchased groceries online in 2019. However, due to the COVID-19 pandemic, more Hungarians considered ordering groceries online, with the majority utilizing Tesco stores to do so, followed by Auchan and Spar stores.
  • A recent development in the industry is that in "April 2020, during the COVID-19 pandemic, the national government issued a decree that levied sector-specific taxes on the banking and retail sectors to help finance a crisis response fund. The progressive tax on retail grocery outlets, however, was structured so that only foreign retail firms were large enough to qualify for the tax."
  • The majority of consumers in Hungary purchase groceries daily, while some purchase groceries every few days. Consumers dislike when they cannot find everything they need at one store and that grocery stores are always crowded.
  • Consumers are increasingly interested in organic and healthy products, as well as free-from products like gluten free, dairy free, etc.

Slovakia

  • The defining trend of the supermarket segment in Slovakia has been the entrance into the market of major international brands, which has caused consolidation in the market and forced out many smaller, independent competitors. Major hypermarket/supermarket brands in Slovakia are Tesco, Lidl, Kaufland, Billa, and Metro Cash & Carry. Important distribution centers/retail markets include Bratislava, Kosice, Trnava, Trencin, Zilina, Poprad, and Nitra.
  • In Slovakia, supermarkets are second only to hypermarkets in the mass retail landscape. However, due to low household income in the country, discount stores are increasing in popularity. According to Matt Simister, Central European Tesco CEO, even though consumers are price sensitive, they are equally interested in value, which includes quality, product range, and prices.
  • Online grocery is also increasing in popularity. The COVID-19 pandemic furthered this increase in popularity and forced many grocery retailers to invest in "logistical networks and online advertising structures." Online grocery is also expected to decrease foot traffic in some stores and thus "put pressure on stores that may struggle to pay overheads." However, the shift to online grocery is expected to be somewhat restrained in Slovakia due to only moderate levels of urbanization in the country.
  • The entrance and dominance of international brands in the marketplace has caused some controversy, as illustrated by the food retail tax proposed in Slovakia in 2019 which targeted these large international brands and was subsequently investigated by the European Commission (EC). EuroCommerce Director-General Christian Verschueren clearly illustrated the issue when he stated "International retail companies have invested billions of euros in offering Slovak consumers modern, competitive supermarkets with a wide range of quality products. Despite this, Slovak legislators consciously chose to focus on foreign-owned retailers and to exempt virtually all Slovak competitors, with the clear objective of deterring foreign investors. This deliberate move will unavoidably mean less choice and higher prices for Slovak consumers."
  • The small-format supermarket trend is also apparent in Slovakia, notably with brands Tesco (Tesco Express stores) and Billa.
  • Consumers in Slovakia are demanding sustainable products and are focused on health and wellness, which is affecting the grocery segment. Organic foods are growing in popularity within the country, including those with less plastic waste.

Republic of Ireland

  • The supermarket industry in Ireland is extremely consolidated. The major supermarket brands in Ireland are Dunnes Stores, Musgrave Group plc, Tesco plc, Aldi Stores Ltd and Lidl Ireland GmbH.
  • Shoppers in Ireland are value-conscious due to the high cost of food in the region. This has contributed to a rise in discount retails, and a threat to more traditional supermarkets. Therefore, the industry is extremely price-competitive. Additionally, retailers compete on quality, including by offering more domestically produced goods.
  • Online grocery drastically expanded during the COVID-19 pandemic, especially among the elderly as younger consumers in Ireland hold back from online grocery ordering so the elderly can benefit. Online grocery saw an increase of "€31.5 million spent year-on-year." Supermarkets had to hire additional delivery drivers and open "click and collect" locations. As online shopping leads to fewer in-store consumers, "the development of more intuitive and extensive brand apps linking personalized offers, loyalty rewards, click and collect, community initiatives and nutritional advice etc will be a priority for all brands to maintain customer engagement."
  • During the pandemic, shoppers in Ireland "treat[ed] themselves to branded products," especially local products from Ireland.
  • The industry is also feeling the impact of Brexit, which has led to supply chain disruptions and some shortages.

Research Strategy

The research team focused on identifying market characteristics for the supermarket segment from reputable sources like industry news and market reports in each country. For every market, sources focused specifically on supermarkets were not numerous enough to provide a robust report. Therefore, the research team also utilized market reports and industry news about the retail food industry/grocery industry in each country, consumer food/grocery trends in each country, and even looked for supporting information directly from leading supermarket chains in each country.
Sources
Sources