Getting Real

Aneta Cichla, ‘Eurobuild CEE’: It’s been two years since you signed the contract with Metro Group to buy 57 Real hypermarkets in Poland. The Office of Competition and Consumer Protection [UOKiK] obliged the company to sell eight of the acquired locations in Poland. There were negotiations on the sale of the entire package to one buyer. What does the process look like right now?

François Colombié, president of the supervisory board of Auchan in Poland and Ukraine: We have to sell the assets by the end of this year. Negotiations are still in progress. There are parties interested in the entire package of eight Real shops as well as offers for individual locations. The process is being supervised by the UOKiK. I think that we will know much more at the end of June or in early July. It’s clear that the buyer will be a hypermarket operator. The transaction is rather complicated because it also involves the funds to which Metro Group earlier sold its real properties. These are tripartite negotiations and are subject to approval from the market regulators.

And what about the other hypermarkets? So far only 13 out of 49 have been given their new logos...

When we talk about this we need to remember the situation Real was in before it was purchased by Auchan. The financial situation of the company was very poor. For ten years the company accumulated losses amounting to PLN 1.35 bln. Apart from an almost 60 pct decrease in turnover over eight years, one of the main reasons for this state of affairs involved high rents in the facilities where Real operated. These currently exceed market levels two- or threefold. Auchan cannot agree to this because it would make it impossible for the company to operate a discount model. Our price policy envisages low prices for the customer. We are at the top of the ranking in this respect. Because of this, for Auchan to operate in conditions similar to those contracted with Real would be unprofitable, particularly given the fact that the majority of the locations need quite high investment expenditure to make them competitive. We will not be changing the logos in locations that do not possess any development prospects. Rebranding will only take place if rents are lowered to match the current market levels. We have managed to sign such contracts – and these hypermarkets will be adapted to Auchan’s standards soon. However, we need further negotiations with facility owners and this, as you can guess, is not easy. Please also consider the huge amount of work carried out by us last year: the integration of the logistics, accounting and IT. In this respect we could change the logos today. But for now, the conditions offered to us by facility owners do not correspond with the state of play on the market or the situation of grocery operators.

Is the company considering giving up on some of the locations?

Our priority is to put up a fight for an agreement with the owners because it is of great importance for our employees, who are by the way very dedicated to the company. We operate all over Poland so in the case of bad scenario, we will have possibilities to offer our employees to move in other stores within the regions where they are working. However, I have not ruled out some locations being rejected unless we reach an agreement. We will try very hard for that not to happen.

Are you thinking about reducing the size of your stores?

We are a hypermarket chain, not a convenience one. I believe that an operator like us needs a suitably large area to display its goods, which is very extensive in the case of Auchan, and as a result is of great importance for the economy. There is no such possibility with smaller stores. There is no space for all the suppliers, either. There are some producers who do not deliver products to discount shops and yet they have a chance to do that with us. I think that there is room on the market for the hypermarket and it constitutes an important element of the economy.

You will be buying the centres where Real used to operate in Romania. Will this also be the case in Poland?

Everything depends on the price. If it is at a suitable level compared to the value of a given property, we are open to this possibility.

What was the recently announced transaction between Auchan and Schiever? According to the UOKiK, it involves the purchase of four facilities you own in joint ventures. They are shopping centres in Legnica, Racibórz, Wałbrzych and Zielona Góra.

I can’t comment on this issue before the UOKiK has made its decision, since it is responsible for the final transaction. Schiever is a French family company with a solid financial basis. The transaction forms one element of the internal reorganisation of the company. Schiever wants to develop independently on the international market. It is a signal for me that Schiever is taking a step forward in its growth.

What are the biggest obstacles in the way of hypermarket operators developing their business at the moment?

Firstly, there is the growth of discount stores. I believe that this started around the time of the drafting the first act on large-format retail facilities [WOH]. It was believed at the time that blocking the construction of large facilities would protect small-scale retail. Nothing could have been further from the truth. Large operators started to develop smaller formats and in this way were able to eliminate the local players. There is also the fact that hypermarket operators have a lot of work to do when it comes to the preparation of projects. The legal regulations require many permits, licences and a large number of other administrative tasks: zoning plans, local plans and environmental reports. All of this is very time-consuming. There are no such restrictions when it comes to discount stores.

And how is Auchan planning to expand in Poland?

After the completion of the transaction with Real we want to return to organic growth at Auchan. We are currently preparing two large projects: the extension of our Piaseczno shopping centre and the construction of a new one in Góraszka, which we will carry out together with Zbigniew Niemczycki [with a retail area of 150,000 sqm – editorial note]. A local zoning plan exists for the area and we are currently waiting for the environmental permits. We are a partner in the Wilanów Park project in Warsaw, which is being developed by Morelia Investments. Auchan will own the supermarket there. In addition to this there is also the modernisation and renovation of existing hypermarkets in the chain.

Wilanów Park – what kind of project will it be?

Our conception of Wilanów Park involves first of all a shopping centre that respects the district and its residents. It is being developed at the local junction with the future southern ring road of Warsaw. The delivery zones will face out onto these roads so that residents are impacted by the functioning of the centre to the smallest degree possible. We want the centre’s design to meet all the expectations of the inhabitants of Wilanów, because we understand that what counts for them is not necessarily another large mall with a regional reach but a local, more integrated centre with a 3 ha park.

Are you thinking about opening stores in the latest projects by other developers?

So far we have not signed any contracts of this nature, which is why I cannot mention any specific locations. I will only say that we like to cooperate with our partners on projects from the very start, such as, for example, Wola Park in Warsaw or the Bonarka shopping centre in Kraków.

What about the online sales channel? How is Auchan Direct coping?

In spite of the fact that the turnover dynamics are increasing at a similar speed to the entire e-commerce sector, we are far away from reaching our capacity in this regard. What counts most is the profitability. Without this there can be no progress towards developing the business in any area. Auchan Direct acts as a kind of laboratory in which we can test out the functioning of a particular business model. In Poland we are looking for the right growth path to strengthen our results. Online trade is the future, which is why we are trying to combine the development of virtual retail with our traditional model. ν

Family giant

The Auchan group is a retail company that was founded in France by Gérard Mulliez over 50 years ago. The first Auchan hypermarket in Poland was opened in 1996 in Piaseczno on the southern outskirts of Warsaw. At the end of 2015, after the completion of its integration with Real Polska, Auchan in Poland will be employing over 20,000 people in 80 stores. The Auchan group is not stock exchange listed. The owners are still the Mulliez family, who hold 88 pct of the capital, as well as employees of the company, who own 12 pct under an employee share ownership scheme.

Specialist on Eastern Europe

François Colombié has worked for Auchan Group for 35 years. For 16 years he has been responsible for the expansion of Auchan in Eastern European countries, particularly Poland, Russia and Ukraine. He is currently the president of the supervisory board of Auchan in Poland and Ukraine