Moving with the times

The first supermarkets and hypermarkets appeared in Poland in the nineties and signified the beginning of a revolution in retail. After nearly 20 years hypermarkets no longer cause a sensation. Now foreign chains have started to upgrade them, and they are also preparing for expansion onto the internet. Piotr Korek, vice-president of the management board at Tesco Polska, tells us about retail yesterday and today and about its future

Radosław Górecki, ?Eurobuild CEE': You are one the people who laid the foundations of modern retail in Poland. Has a lot changed since you built the first HIT supermarkets?

Piotr Korek, Tesco Polska: The difference between 1993, when I was starting to build supermarkets and hypermarkets, and the present day is more or less the same as the difference between 1983 and 1993. There is a difference in the quantity and quality. In 1983 the shops were empty. You could only buy vinegar and gherkins in them. The first foreign retail chains appeared in Poland at the beginning of the nineties. Interestingly, at the time we still thought that the majority of retail as Poland developed would remain in Polish hands.

It is hard to believe that now...
The thinking at that time resulted from the fact that none of the foreign retail chains had made any decisions about a serious expansion during the four years of transformation. At first we had three Billa supermarkets in Warsaw. But as early as 1993, HIT opened its first hypermarket on ul. Górczewska, then Auchan appeared on the scene and Géant was next. Makro - today's Metro - was the first to appear. At the time it was a completely new form of selling. Everybody agreed that this was what retail was supposed to look like. A new vocabulary was needed: ?cash & carry' and hypermarket. Most of us did not understand what the words meant, but the expressions were quickly adopted in everyday language. From today's perspective it is clear to see how much it has all changed.

What event from those days has particularly stuck in your memory?
For me the tender for land in Czeladź near Katowice was a historic moment. This is where the Metro group built M1. The price of this plot was close to the annual budget of the borough which sold it. This was when hypermarkets and malls started to capture people's imaginations. A signal was sent to the rest of Poland that cretail development had a great future, and that was when others arrived and the competition started to grow. Dutch and French companies entered the fray and around 1999 we had such brands as Lidl and Netto to rival Biedronka, which had been looking for a retail identity - a recipe for winning Polish customers - since the beginning of the 1990s. And this is also an interesting phenomenon, because at first Biedronka developed without having a foreign partner to draw experience from.

Exactly. What is Polish retail trade like? Almost since the beginning of the presence of hypermarkets people have complained about them killing off local shops... Do you consider yourself to be a murderer of Polish retail?
I still hear some people say that from the point of view of Polish entrepreneurship and national spirit that such views are justified. Particularly if we assess them in terms of the feelings of private entrepreneurs, who invested their own money without any real chance of setting up a chain. The analogy of the fight between Goliath and David with, however, a result that is different from the biblical one, provided a very vivid, appealing picture for people's imaginations.

And if we look at it without any emotion?
I suggest taking a look at the behaviour of our compatriots. At the beginning of the 1990s, they went to work in the morning and at 3 or 4 pm they were back home. This is how the early post-communist model of family life functioned. Nowadays, work - not only in corporations but also in private companies - lasts until 6 or sometimes 8 pm. Adopting today's model of living would not have been possible without a modern retail and service infrastructure adapted to the new conditions. Can you imagine living without, for example, a cash machine? I feel rather proud to have been someone who has been adjusting the retail and service infrastructure to the expectations of my customers, and furthermore I am partially responsible for co-creating new trends. The market is free for everyone. I admit that when it came to Polish capital, it was indeed hard to get a huge loan for building a chain of supermarkets at the beginning of 1990s. However, I also wonder whether those entrepreneurs were perhaps short of ideas. After all, opening a small shop and later on a small chain did not require great investment expenditure, but first of all an idea.

This is true, but customers chose HIT over small shops.
In my opinion Polish retail lacked a leader. Someone with a vision, who would have been able to unite them. Developing an association of private shop owners did not require great resources. If a skilful leader had appeared among those traders at that time, discount and hypermarket chains would have had a lot of competition. After all, these so-called "foreign" supermarkets were successful because they provided an offer for customers with growing aspirations and salaries. They simply satisfied the needs nobody else wanted to or could satisfy.

So hypermarkets entered a virgin market and occupied it without a fight. At the same time they enslaved suppliers. You probably remember articles about hypermarket owners' negotiations with suppliers: small rooms, often without windows, light from a skylight falling directly on their faces. Many small entrepreneurs have told us that these negotiations resembled an interrogation. They recall that it was a form of humiliation.
The same conditions you describe here would have been characterised entirely differently by someone who had signed a favourable contract.

How?
That they found themselves in a modestly furnished room, which contributed to the transparency of the negotiations, where both parties - and we are talking here about a huge scale, about filling retail chains with many thousands of goods - had good conditions for calm talks. We should be aware that such negotiations cannot be carried out by one person. For this scale there would be several negotiators and several dozen retailers present. For corporate reasons we have to have such conditions to make it possible to retain transparency during the negotiations and, on the other hand, to provide solid conditions for conducting the talks. The idea that such rooms had skylights which lit only the desk and some of the faces are the recollections of negotiators that did not succeed. Because not everyone did. It should also be remembered that we are not a law office, and we do not need sophisticated, richly furnished negotiation rooms. For sure the same negotiators would have remembered rooms with mahogany tables and leather armchairs equally as badly. They would have accused us of being big-headed due to the excess of money. I do not consider myself a murderer of Polish retail, because at the end of the day everyone, ourselves and the suppliers, is dependent on our customers. And this is not just highfalutin talk. When you analyse the motivation behind retail business, you are left with the bald statement: "We want customers to buy only our products." This is what suppliers want. And to this could be added: "We want customers to do their shopping only in our stores."

So we end up with a cliché: price is the most important thing.
Yes it is, but this is also changing. In the past it was actually the price which was the decisive factor. Later came the quality and now it has been joined by ecological awareness. Such a modern trinity. Customers want to buy cheap and good quality goods, which are sold in an environment built with the requirements of environmental protection in mind. In my opinion Tesco is the leader when it comes to such thinking.

So you give yourself a good write-up?
My colleagues in rival chains react in the same way. I have to put on an ironic face and listen to them murmur sceptically, when they ask: "What are you doing this for, why are you increasing your budget by so many percent? After all the customer doesn't care whether frozen food is kept in a traditional or an ecological fridge." And I patiently reply that more and more customers value such an approach. This is not an avalanche-like trend, but it is already perceptible. Customers can come to Tesco and feel that the money they spend contributes to environmental protection. Our success also results from the fact that despite investing in more expensive ecological technologies we are not putting up our retail prices.

Now this sounds like pure PR.
But I am speaking in all honesty.

Do you really believe that a Tesco customer wonders whether the hypermarket where they do their shopping is an ecological building?
I will answer this question by giving you an example. If I had put up a circus tent in 1993 and sold goods there at good prices, I would have been as successful as in a building which we had adapted at a cost of several million marks. Then I was also asked "what are you doing this for?" Yet that was us investing in the future. By the way, I saw such tents in 1992 in the former East Berlin, where one retail chain, now also present in Poland, was operating. This provides another example of our dedication to innovation

So how much money does Tesco spend on environmental protection?
About 5 pct of our total investment. The value of our current planned investment amounts to around PLN 1 bln. So we will spend about PLN 50 mln on ecological solutions in the near future.

In the Czech Republic Tesco has built an ecological supermarket made of wood. This is an atypical project for Tesco, and an interesting one from an architectural point of view...
Indeed, this supermarket looks nice, but our idea was not to build a designer store. This probably will not provide us with more customers. They come to markets in the same way as lovers of old movies - the old is familiar, comforting and well-liked. They need to gradually get accustomed to the new; so if there are any changes, they have to be well thought-out and long-lasting.

Are you trying to say that in order to attract customers Tesco needs to be ugly?
No, that is not what I said. You are trying to get me involved in a discussion about what looks pretty and what does not.

Hypermarkets in metal boxes are not among the most beautiful places, they do not create friendly spaces...
I totally agree. However, please show me such a metal hypermarket that has been built by us or our competition in the last few years. There are no such hypermarkets. The picture of the large-format hypermarket from the 1990s is stuck in our imaginations. Such buildings were being developed at the time because there were a lot of question marks in the equation that was called ?the Polish economy'. Investors did not start out with big shopping centres with door handles made of precious metal. I was a co-creator of those first ?hypers', but at the same time I have been in this business long enough to see the changes connected with customers' growing expectations. Thanks to that we have started converting these metal boxes into beautiful hypermarkets under the Extra brand since last year. I am happy that I can now change something that would have been an eyesore in the past...

Eyesores they certainly were.
But nobody said anything like that at the time. We used to say how excellent they were, modern and western-like. Compared to what we had had before it was a qualitative leap. We only started saying they were eyesores around the beginning of the 21st century. We are living in a different reality now and we are planning to modernise all of Tesco's hypermarkets - and this is an important part of our business plan for the next few years. Eight facilities underwent a complete renovation this year and another eight are to be converted next year. Each such project costs app. PLN 25 mln.

Meanwhile the world is hurtling forwards and customers are shifting away from outdoor shopping. Including Tesco customers...
There are 38 mln of us Poles. The majority still live and will live in Poland. Making the generalisation that customers are no longer visiting shops and are doing their shopping exclusively on the net is only partially true. Indeed, some of our compatriots are looking for the chance to do shopping with the maximum comfort. The whole generation that was raised in 1990s grew up in a world where modern shopping centres, mobile phones and satellite TV had become commonplace. These people want to do their shopping in the most convenient way, preferably without having to leave home. We know this, and we are also aware that if we do not adapt we will become shops for only one group of consumers, the number of whom will not grow, if only for demographic reasons.

And what is Tesco going to do about this?
We are introducing self-service cashiers and we are focusing on ecology in response to the sensitivities of the new generation. We are adjusting our retail offer as well as modernising the façades and interiors for the visual preferences of this generation. Modern financial and insurance services are also within the scope of our operations. But we won't forget about our customers who do their shopping in a traditional way, so we have finished the construction of our first warehouse for Tesco.com on ul. Połczyńska in Warsaw, where we will combine traditional and on-line retail in one building. Please note that what we consider these days to be the traditional model used to take people's breath away with its innovativeness and modernity! It is the beginning of a process because we have been adding warehouse sections to our existing hypermarkets almost throughout Poland. This will allow us to introduce internet-based sales and will be launched in selected cities in spring 2012. And this is only one part of our response to on-line living.

Is it not too late? Your on-line competition has already emerged. And it has been continually increasing.
We need to answer the question, whether we are interested in the volume or only in the race to enter the annals of Polish retail as those who were the first on-line. I can say today, Tesco in Poland is not and won't be the first retailer to start selling its products on-line. However, I can also say that Tesco in Poland will be the biggest and the best on-line operator on this market. This is our priority when it comes to customers of the generation that doesn't remember buying giblets on the pavement on Pl. Konstytucji square.

Hypermarket expert
Piotr Korek was a management board member of Grupa HIT Hipermarket in the period 1993-2002. He was responsible for expansion, investment and property management. In 2002 HIT was taken over by Tesco Poland. At the time Piotr Korek became the director of expansion. Now he is responsible for expansion, investment, property management and environmental solutions as the vice-president of the management board of Tesco Poland. He is a graduate of the Adam Mickiewicz University in Poland and completed postgraduate studies at the Warsaw School of Economics as well as a number of management, leadership and investment courses in Poland, Germany, Switzerland and the UK, among others.