Guiding Lines: Hyper-Problems of Hyper-Formats

Currently in retail the problems with liquidity are affecting companies developing the format of hypermarkets and supermarkets. Consumer streams are gradually moving to discounters.

Psychologists explain this migration by the uncertainty of consumers in tomorrow. Even if they have money they are not spending it. Buyers have also started to pay more attention to the price of goods they buy and try to only buy goods that are of prime necessity: food, medicines.

The decrease in consumer activity has been felt in the incomes of all shops, confirms Irina Kanunnikova, director of the Union of Independent Russian Chains. According to research by Romir-Monitoring, the O’Kei chain (St. Petersburg) in the last several months has lost 7% of buyers who have moved to competitors, and gained the same amount of new customers. Through losing consumers the chain has lost 5% in monetary terms, while the new consumers have brought only 2%. Because of the migration of consumers O’Kei has lost 3% of its income.

The migration of buyers between chains has always existed. In Moscow these fluctuations are insignificant - 13-15%. But now buyers are moving to discounters. The premium and business class price segments will not disappear, considers Kanunnikova, but they may well fade.

The problem with large-format trade is not only in the prices of products sold, analysts consider: such networks too strongly depend on crediting. A decrease in the growth rate of retail turnover under conditions of limited opportunities of attracting funds leads to the deterioration of the position of the majority of chains, Irina Strizhkova, director of marketing and sales at Liedel Investments Limited is assured. Problems arise for those companies for who it is time to pay back or refinance loans. And a stable stream of buyers here could play an important supporting role.

Buyers have gone to discounters, market participants insist. They are the most mobile in reacting to changes in the market. Because they have such small margins, they can attentively follow the situation and efficiently look for new ways to preserve their pricing policy. Discounters give the lowest prices for the most vital category of goods at the moment – food products. While in supermarkets and hypermarkets there is also a wide range of non-food products, demand for which is falling.

A decrease in the consumption of more expensive and not first necessity goods is the usual tendency in the conditions of a crisis, says Alexander Osipov, head of the consulting department at Astera. In such a situation the turnover from a square meter in a hypermarket will decrease.

It is not only large formats that have borrowed lots of money that can suffer problems with financing, but also discount chains and non-chain stores that have greater debt loading, emphasizes Osipov. It would be wrong to say the hypermarket format will cease to be relevant during crisis.

Oleg Yefremov, a consultant in the real estate department at Cushman & Wakefield/Stiles & Riabokobylko does not agree with his counterparts and says that it is too early to talk about the unequivocal displacement of consumer streams. People, having got used to going to a certain grocery store will still go there. If we consider the discounters Atak, Kopeika or Pyatorochka, and the hypermarkets Auchan and Karusel, then, in his opinion, the prices of the majority of goods are practically identical, and therefore a person will more likely choose to shop at the place that is more convenient in terms of location and assortment of goods. The range of goods in shops measuring 500 sq.m and 7,000 sq.m greatly differs.

In his opinion, consumers first of all reconsider unnecessary expenses, for example the purchase or updating of digital and home appliances, cars, etc. The consumption of products is one of the last elements of the economy. Of course, this concerns the more successful Moscow, where the chunk of the population that spends 30-40% of their monthly income on food products is small, the expert adds. "Hypermarkets are threatened by problems with suppliers, the receipt of credit for operational activities, and also the threat of margin calls, as with refinancing there is now a difficult situation. Not many can work on operational proceeds, and under the conditions of falling average spends, the picture looks bleak, says Yefremov, assessing the situation. However the crisis and falling consumer demand is relevant for hypermarkets in the future in any case, he summarizes.

Problems with financing and refinancing and a reduction in demand may threaten to reduce the profit of hypermarkets, make them bankruptcy and force them to leave the market, predicts Strizhkova. A reasonable alternative to this may become mergers and acquisitions. How many such transactions will take place in 2009 is unequivocally difficult to say. Chains that have free money can currently buy bankrupted shops for practically nothing. In connection to this, analysts believe that mergers and acquisitions in retail will grow quite significantly. But few companies can allow this at the moment, and to obtain extra funds to purchase a business is almost impossible, sums up Strizhkova.