Four legs good

German group Fressnapf’s chain of Maxi Zoo pet shops entered the Polish market a year ago. So far it has made the owners of the three shopping centres the company has opened its stores in very happy. Those whom the company has promised to sign future leases with are also satisfied. Poland can feel special because among the CEE countries the firm has so far only entered Hungary. Maxi Zoo has been attracted to Poland by the potential and development possibilities of the country. Its entry is also a sign that a transformation is coming to this market over the next dozen or so years. What will this mean for shopping centres as they adapt themselves for such tenants?

A land of possibility
Before Fressnapf decided to open its first Maxi Zoo store in Poland it undertook a study of the Polish market in terms of its business potential and development possibilities. Ten years earlier, the company chose to expand into Hungary. Now it has 34 retail outlets in that country. Half are located in the Budapest area. In Poland its first shop opened in October 2012 in the Leclerc shopping centre on ul. Jutrzenki in Warsaw. The second in the Franowo retail park in Poznań and the third in Warsaw’s Sadyba Best Mall were opened more than a year later – in November 2013. Its plans for the future are also substantial. By the end of 2014 the company is planning to have a total of ten stores in Poland. Obviously the company has come to a positive conclusion about the potential of the Polish market. “Poland has one of the most enviable retail markets in the world. According to the research that I regularly look at, it is considered to be one of the most promising markets, along with Russia and Turkey. This is where most firms would like to expand their businesses to. Poland stands out with its positive macro-economic indexes while the market itself is in a healthy state. It is a very promising place for us,” claims Wojciech Kamiński, the managing director of Maxi Zoo Polska.
Operators such as Fressnapf consider opportunities for development to be a significant factor in their strategy, but the business potential is even more important for them. And this is substantial in the case of Poland – something that is appreciated not only by foreign companies but also by Polish operators. Apart from the spending power of pet owners, the number of pets per head of the population is crucial in this business. “In Poland there are more dogs and cats than in Germany, for example. According to research by Euromonitor, the pet population in the country will continue to grow. The percentage of animals that are fed with ready-made food is also low, at only 20 pct. In contrast, in Germany the ratio is as much as 80 pct and 60 pct in the Czech Republic. The global trend for what is called ‘animal humanisation’ or ‘premiumisation’ is also favourable for us – we are buying more and more top-shelf products for our animals and we want them to have all the best products,” remarks Wojciech Kamiński. Wojciech Filipczyk, the president of the board of Polish chain Kakadu, agrees: “The pet product market has great potential for two reasons. Firstly, shopping baskets have been gradually filling up with pet products, even though the market is only a quarter of the size of those in western countries, such as Germany or the UK. Secondly, Polish society is becoming more prosperous and more inclined to spend more on their pets,” he emphasises. These attitudes are being augmented by Poles’ growing awareness of animal treatment and care.

Maturing market
The Polish pet products market, despite holding much promise, is still at an early stage of development. There are only a few retailers with outlets in shopping centres, but they usually have a regional reach. The biggest is Kakadu, which operates 40 outlets in shopping centres. Apart from Maxi Zoo, there are only a handful of other brands active. “On the Polish market there is also Aquael, Leopardus and Zoo Karina. In towns with fewer than 100,000 inhabitants the pet shops located in malls are mostly run by local entrepreneurs,” explains Anna Hofman, a senior negotiator in the retail department at Cushman & Wakefield. The pet product market has a rather similar look in Romania. “In Romania the field is dominated by local companies. The main players are Animax, Pet Shop, Baby Shop and Zoomania, while in Croatia the major retailer is Pet Centar,” says Simina Niculita, an associate director in the retail department of Colliers International Romania. The pet product sector is similar in Hungary, too. “This market is not very competitive, particularly compared to some Western European countries. It is dominated by hypermarkets. Specialist pet stores only have a market share of around 25 pct. Our company is the only large chain operator in Hungary, accounting for around 45 pct of such stores. Due to the lack of professionalism, capital and competitiveness, the number of independent outlets offering products for pets has been decreasing. There are only a few local chains that include a few – that is, between five and ten – small format shops,” explains Peter Tamasi, the purchase and logistics director of Fressnapf in Hungary. Compared to other countries in the region, the situation in Poland is slowly moving towards greater professionalisation, which in effect means the development of large chains.
A representative of the Zoo Karina chain, the dominant player in Pomerania, hopes that the standards introduced by the growing number of modern pet stores will change the face of the industry. “For many years the pet shop market has not been treated seriously by the business environment. It is a common belief that this market stopped developing 20 years ago. This opinion was formed by the preponderance of market stalls where everything is sold by weight or per piece. But this has also been changing thanks to the development of a professional pet shop chain by Zoo Karina,” explains Małgorzata Kupla, who is responsible for marketing at Zoo Karina.

Catching up with the others
Nevertheless, the emerging pet businesses will not be changing the image of the segment overnight. “If I was to characterise the current situation on the pet shop market I would compare it to the FMCG or the cosmetics and chemist shop scene 15 years ago. The market is very fragmented and there is a lack of recognisable chain players that would have a countrywide reach. There are quite a lot of smaller local companies. In the next 10–12 years we will see some consolidation and the disappearance of individual stores. Companies will start creating purchase groups, as was the case in the FMCG market – or there will be three to four large chains, as with the cosmetics market. The wholesalers servicing the current fragmented market will start disappearing. Two to three strong distributors will appear and retailers will develop not only organically but also through comprehensive or product distribution franchising,” predicts Wojciech Filipczyk. The first signs of a maturing market can already be seen. Last year one company that was declared insolvent was the Zoo Natura chain, which had 13 stores in Poland in its heyday. The official receiver of the company knocked on the doors of a number of companies that might possibly have been interested in acquiring its locations. The president of Kakadu was one that was approached. “The official receiver put forward an offer that involved acquiring the stores, but he offered them in a package. He wanted a potential investor to take over all the locations. Out of ten of them only two were interesting for us. We have not ruled out takeovers and acquisitions in the future, but Kakadu mostly wants to develop organically and through agency outlets,” says Wojciech Filipczyk. Eventually the Leopardus chain decided to take over the shops. This is only a foretaste of what we could expect in the future. Maxi Zoo itself wants to make a large contribution to the professionalisation of the pet shop industry. “We have yet to reach the stage of takeovers, consolidation, mergers and bankruptcies. We want to actively participate in these changes. Our chain consists of 1,300 stores across Europe and this gives us an advantage. We want to be the market leader in Poland and to be the ones who decide what shape the market will take,” says the managing director of Maxi Zoo Polska. “The entry of Maxi Zoo into Poland is a good sign for the highly fragmented pet product market. The only large player is Kakadu but any ambitions it might have had for further growth have recently been limited. Maxi Zoo will not immediately alter the perception of such shops in Poland, because so far we have only been opening them in large cities. But if these stores are a success, then the opening of similar stores will certainly follow,” comments Grzegorz Pękalski of Libra Project, which is involved in the leasing of retail facilities.

Mall rats – and mice, hamsters, guinea pigs and gerbils
Pet shop chains now contribute to the tenant mix of almost every shopping centre. The owners of such malls are keen to secure a brand from this segment because they can see for themselves the traffic generated by a pet shop tenant. However, there is only one place in each centre for such a retailer. “There is substantial competition in this segment due to the fact that a shopping centre only needs one pet shop. Malls mainly choose chain stores due to the attractiveness of their offer and experience,” claims Anna Hofman. With the current trends on the pet shop market, such cooperation should be successful. Maxi Zoo Polska has signed four new contracts so far. However, it is planning to open in as many as eight new locations. There will certainly be two new stores in Warsaw, another in Poznań, and one more outlet in southern Poland. “There is no cap on the number of shops we could open next year. What limits us is the availability of suitable outlets. Nonetheless, we do have restrictions in terms of the size of the stores. We need a minimum of 500 sqm, but 700 sqm is the optimum size for our outlets. In addition to this we require special driveways in the delivery zone and direct access to the stores from the outside rather than just through the corridors. In addition, the goods we sell are very heavy and require rather a high load bearing capacity – a minimum of 1.5 tonnes,” Wojciech Kamiński stipulates. Meanwhile, his Hungarian colleague estimates that the potential of the market will allow Fressnapf to develop a chain of 50 outlets in Hungary. “We are planning to launch three to four new outlets in 2014 and a further 10–15 shops within five years,” adds Peter Tamasi. Kakadu has ambitious plans, but it has chosen a slightly different development route from that of Maxi Zoo. “Next year we want to open 10–20 new shops under the comprehensive franchising format located on high streets or in the centres of large estates. At this time we are not planning to open any new stores in shopping centres. With the margins that can be generated in this business we have to take into account that the rent levels in Polish retail facilities are at least twice as high as in German shopping centres. The owners of high street properties are much more flexible. We are planning to open in towns with more than 100,000 inhabitants, but we will not dismiss other proposals without consideration. Each is evaluated individually,” explains Wojciech Filipczyk. The company is not considering any other possibilities for expansion at this stage, however. “We are not planning expansion abroad. For the next five to six years we will be focusing on Poland, where there is still a lot to be done,” adds the president of the board at Kakadu. Meanwhile, Zoo Karina is planning to become a local captain of the industry. “We are currently focusing on strengthening our position in northern Poland,” declares Małgorzata Kulpa.