Schwartz finally set for Bulgarian market entry

The latest move will see Schwartz begin construction of a new Kaufland store in the city of Montana, north western Bulgaria, due to open by the end of 2005, at a cost of €3.5 million.

The store is expected to cover 5,500 square metres and stock predominantly Bulgarian goods - indeed, some 70 per cent of the hypermarket's product range will consist of Bulgarian-made products, according to the Montana authorities.

It will also provide 70 jobs to a part of the country with one of the highest rates of unemployment - 25 per cent, according to local sources.

Schwartz is thought to be interested in opening 40 hypermarkets in more than 20 Bulgarian cities over the next few years, setting aside €300 million to achieve this aim.

But the rollout of the Kaufland banner in Bulgaria has been frequently delayed, according to analysts at M+M Planet Retail​.

The first stores in Bulgaria were expected to open their doors to the public in the capital, Sofia, and the Black Sea coastal town of Varna back in late 2002, with a third store, in the southern city of Plovdiv, expected by the end of 2004.

The Germany-based manager of the future Bulgarian stores, Dimitar Spasov, then announced in the middle of 2003 that the first five outlets would be opened by the spring of 2005, with other outlets planned in Yambol, south eastern Bulgaria, Haskovo in the south, Shoumen in the north east and Pleven in the north.

And back in August, the news surfaced that the company ahd delayed the rollout once again, and was now planning to open around 10 new stores simultaneously in 2005.

There are several reasons for the delays. Firstly, Kaufland is understandably cautious about committing funds to build stores in a country where the retail sector is underdeveloped. Only one major retail group has more than 5 per cent of the market, German cash & carry group Metro, which has around 15 per cent, and just two companies operate large-scale outlets - Turkey's Migros Turk and Germany's Dohle, operator of the HIT fascia.

Secondly, according to M+M Planet Retail, the Bulgarian economy remains weak, with consumer spending levels low - an estimated 40 per cent of the population have to live off less than €75 a month, not enough to support a family at local pricing levels.

As far as the existing retail structure is concerned, modern grocery retail sales are estimated at around US$2.77 billion in 2004, with the vast majority of this ($2.2 billion) coming from food sales. Yet with total food retail sales at $5.9 billion, according to M+M Planet Retail, the market is clearly still dominated by local stores (in part explaining the popularity of Metro, a cash & carry operator), prompting some companies to look to this particular sector for expansion.

The international buying group Spar, for example, is considering potential openings in Bulgaria, while Hungary's CBA Kereskedelmi has already joined forces with 24 local food producers and retailers to form CBA Bulgaria, operating 90 food stores across 18 cities.

As far as supermarkets are concerned, only Billa, a subsidiary of Germany's Rewe group, has anything approaching a modern network (with 10 outlets and vague plans for a further five to ten); local players Fantastiko and Oasis (now called Europe) have larger portfolios but the standard of the stores is well below that expected in the west.

Schwartz has been active throughout central and eastern Europe for several years, mainly rolling out its Lidl discount fascia to take advantage of relatively low levels of consumer spending power across much of the region. But discount retailing is unheard of in Bulgaria, according to M+M Planet Retail, and there are no plans by any of the international discount operators, including Lidl, to set up shop there at present.

But the situation does appear to be improving. The economy is slowly strengthening, and the Bulgarian authorities are doing more to attract international investors in terms of financial support, arguing that such investments help fuel the economy and create growth.

A new Investment Promotion Act came into force in early August, and the Bulgarian Investment Agency (BIA) has already received requests for support from 15 international investors (including Kaufland) who pledged about one billion leva for local investments. Importantly for the long-term development of the retail trade, a number of the requests for state support came from companies involved in the construction and modernisation of transport terminals and logistic facilities.