Żabka springs into new sectors

Tomasz Cudowski, ‘Eurobuild CEE’: Until recently, Żabka was only ever a tenant in logistics properties, but almost right in the middle of a global pandemic you decided to invest in building your own distribution centres. What prompted you take such a decision?

Andrzej Potyra, head of the Żabka Property Fund: For us, the development of our logistics infrastructure is an important part of running the entire business. We currently have seven distribution centres throughout Poland and indeed they are all leased. When the decision was taken to set up a new centre in Małopole near Radzymin on Warsaw’s outskirts, we commissioned developer 7R to build it. Our new approach to developing projects should ensure that we have a centre that fully meets our requirements while also providing us with extensive knowledge of all the ownership and permitting issues. It also gives us full control over the deadlines.

So to begin with you acquired a few hectares next to the S8 expressway on the boundary of Radzymin and Dąbrówka districts, to the northeast of Warsaw. Are there any other sites that you have in this area that are under development?

The purchase of the site was organised for us by the developer, 7R, who ensured that it met the requirements for our centre including the right local spatial plan, the right location, good access and the availability of utilities. The combined plots had several owners, which posed another operational challenge to buying it; but, in our opinion, the location was very attractive. That’s why we took every step to thoroughly examine it and perform the due diligence before signing the purchasing agreement.

Please tell me more about this centre, because you can clearly see it from the S8 and the construction looks a little other-worldly.

It’s going to be one of the most modern distribution centres in Poland. The building will have a high bay area with a height of 37m and a total area of around 60,000 sqm. As well as the warehousing space for dry goods, cold storage and freezer areas are planned as well as an office section. The warehouse centre is to be fully automated. Goods are to be moved and stacked on shelves by automated vehicles and robots. The warehouse has been BREEAM ‘Excellent’ certified at the design stage and is to undergo certification again before it is handed over for use. It is to be powered by environmentally-friendly sources, including solar panels and trigeneration installations. We are planning to begin initial operations in the middle of the year and full operations should be underway in January 2023.

Żabka is not only going to be a real estate investor but also a landlord. You’ve started buying up small shops for your franchisees.

We’ve been further developing the ways you can work with our firm and are interested in buying retail stores. For this we have put together a team of 40 experts, 20 of whom are only involved in acquisitions. The structure that’s been created is to standardise the property purchasing process and will allow us to acquire stores that are in operation as well as plan openings in both old and new residential projects. With our team’s experience, we are able to perform the due diligence extremely quickly. At the beginning of the year, we joined the Polish Association of Developers (PZFD), since we our plan is to speed up the construction of free-standing stores on the plots we’ve acquired and, as a result, we are going to be facing challenges that are typical in the development sector. Additionally, we want to work closely with every developer in Poland and become the first choice of company to approach when they want to sell the service units they have built. The locations of our stores are an important part of our strategy to build up our competitive advantage, so we examine each location in terms of the number of possible customers and the potential revenues. Artificial intelligence is used to help us in this research.

What advantages do you gain by working directly with developers? Don’t they simply sell their units to the person who offers the most?

One example is that we can show them the ideal spot for a Żabka store while planning the layout, and this is beneficial for the developer because they know straight away what services will be offered in their project; and it is also good for the local residents, since for them a Żabka in the vicinity is certainly a benefit. Developers want services to be close by, because this is more convenient for future residents – and our chain also provides services. Another advantage is that the technical features that are important to us are included in the plans, including suitable access and places for deliveries and our freezers. It is also an advantageous arrangement for the developers working with us, because they have a reliable and capable partner from the very earliest stage of the project and they can establish specific terms for the sales of the units. Working together directly is always good for both parties and certainly better than what often happens these days when an investor buys a unit only to sell it off again.

Do developers have any problems with designing estates to have stores?

To give an example, estates with circular road systems around them are becoming very common, but in effect, this doesn’t improved the access to the retail/service units inside them and makes deliveries very difficult. These problems can be solved if, just like Żabka, you have experience of hundreds of such projects across Poland. A developer sells Żabka a service unit and thus we acquire a well-designed and well-located store where we can install a franchisee, which is all to the delight of the residents, who can do their shopping near their homes. Everybody wins.

What kind of stores does Żabka like? And how much are you prepared to pay?

We are looking for units where we can open a standard Żabka store, which is usually 80–120 sqm. We judge the price of each store on an individual basis.

And to top all of this, Żabka is now planning to build its own shops.

We open stores wherever our customers expect us to do so. In the summer, we’ve been opening freestanding stores or so-called ‘seasonal stores’, which are mainly in pavilions in tourist locations – wherever the demand for our range of goods rises on a seasonal basis, such as at the seaside or in the mountains. We’ve also established a special team to work on constructing stores using modular techniques. Combining this with our experience allows us to standardise and simplify the entire development process.

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Żabka’s man for investments

Andrzej Potyra is the head of the Żabka Property Fund and is responsible for real estate investment at Żabka Group. Previously, he was an executive director of Santander Bank and managed the structured finance team in its global investment banking division. Andrzej has extensive experience of raising finance for commercial real estate projects and managing them, as well as leveraged buyouts and project finance. He has also advised businesses for M&A and ECM transactions. He started his career at E&Y and KPMG.