Shopping in cheapside

<>A common theme of discount chains is low capital investment levels in small plain stores, as well as a minimum level of staffing. Goods are simply transferred to the shop floor, in their delivered state, with just the packaging cut open to allow shoppers to access the product. Staff overheads are reduced as shelf stacking and stock rotation isn't required. Since only a narrow range of items are stocked, this task becomes even simpler. The German firm Aldi, which was the pioneer of the business model, typically carries only 700 products in its stores compared with a hypermarket which is likely to have 20,000 - 40,000.

<>Winning the war

<>The rather down-at-heel appearance of the stores, and the dominance of processed goods gave rise to the idea that discounters could only ever attract a lower class of customer. It was also believed that they could not succeed in the Mediterannean countries which are known for their supposed preference for quality fresh foods. In its report 'Eat Sauerkraut or Surrender' (January 2004), Deutsche Bank disproves these theories, pointing out that the discounters have undermined the supermarkets' oligopolies in most Western European countries. For example, their market share has risen in France to 12 pct from a standing start ten years ago; whilst in Germany it has reached 38 pct.

<>Why the closed doors?

<>There are currently five such chains operating in Poland: Netto, Biedronka, Lidl, Plus Discount and Leader Price. Aldi, the largest player in Europe, is notable by its absence. Getting to know more about the discounters' Polish operations and plans for the future is difficult. Only two chains (Netto and Biedronka) responded to questions from Eurobuild. What do they have to hide? Nicolas Regnier, a retail analyst at Credit Suisse First Boston believes that there is nothing sinister behind this, "Since the aim of their business is to be as streamlined as possible, they consider that having a communications department is simply unnecessary." Netto Polska, the Polish branch of a Danish firm, is currently the 5th largest discounter in the country. Sławomir Nitek, the head of HR and company spokesman talked about their operations and ambitious expansion policy, "Our long term aim is simply to have as many shops as possible. We currently have 79, and will open another 6 by the end of the year. All being well we plan to open 20 - 30 per year for the foreseeable future." Netto has entered the market cautiously in that it is expanding regionally first of all, starting with the north and north-west of the country. It currently operates only one distribution centre, in Szczecin, which allows it to easily service all of its current stores. Sławomir Nitek explained, "We can make daily deliveries to all of our shops, whilst maintaining an efficient business model because our regional density permits one lorry to service up to four shops in a single trip," He continued, "We have now targeted the south-west of the country for expansion and have already opened stores there. Once the current supply chain has been stretched as far as it can, and not later than three years from now, we will open a new distribution centre near Wrocław."

<>Managing expansion

<>The other four discounters have stores throughout the country. The largest, with 691 stores, is Biedronka. Anna Sierpińska, the Marketing and Communication Manager, told us that a further 60 - 80 outlets are to open annually through to 2010 or a 50 pct expansion of their network. Though all chains are united by philosophies like 'keep it simple' and 'pile it high, sell it cheap', there isn't a unique format for stores. First of all expansion by franchise is heavily used by Leader Price, part of the Casino Group. In fact almost half of their stores are run by third-parties. Conversely Biedronka and Netto have no franchisees. Mr Nitek told us that this was to maintain quality.

<>Different strategies for real estate

<>Netto has a uniform approach to managing its real estate. "With the exception of around ten stores which have been opened within existing shopping centres, we own all our properties." He continued, "We buy empty plots of land, typically around 2,000 sqm, and we build new stores of 900 sqm, of which 350 sqm is occupied by independent food retailers such as a butcher or baker." Netto's favoured locations are close to the centre of larger towns (greater than 10,000 inhabitants), but in residential areas where there is a heavy footfall, for example near banks, or on prominent road intersections. Although Biedronka operates conventional stores in busy high streets, we revealed in our June edition that management had been looking to develop a concept of neighbourhood malls, anchored by a Biedronka store. However, Mrs. Sierpińska, only disclosed that whilst their current stores are around 500 sqm in size, future outlets might be up to twice as large.

<>How low can you go?

<>In the price-conscious Polish market where 40 pct of consumers purchase the cheapest food possible, according to a survey commissioned by the Rzeczpospolita newspaper, the sector seems set to thrive. With several hundred more stores forecast to open by 2010, it is perhaps time for the competition to revise their strategies . They say that talk is cheap, however cheap food certainly does seem to win hearts.

<>Steven Hitchen