The Balkan retail big shot

The Slovenian-based retail developer Mercator has been busily opening supermarkets and shopping centres throughout Serbia, Croatia and Bosnia-Herzegovina. As a result, the company has arguably become the major retail player in the Western Balkans. That’s why ‘Eurobuild CEE’ decided to speak to company head, Ziga Debeljak

Colin Graham, ‘Eurobuild CEE’: Mercator has emerged as one of the major retailers and property developers in the countries of the former Yugoslavia. As a Slovenian company, you began in your own country but have now expanded your investment programme into neighbouring nations. What is your current position in the region at the moment?

Ziga Debeljak, president of the management board, Mercator Group: We are currently present in five countries in the Western Balkans: Slovenia, Croatia, Serbia, Bosnia-Herzegovina and Montenegro. In terms of revenue, Croatia and Serbia are equally important to us. We generate approximately 15 pct of the group’s consolidated revenue in each of them. We are also planning to enter Bulgaria, where we hope to open our first hypermarket next year, and we are also preparing to enter Macedonia.

The Bulgarian market will be slightly different to the rest because it is already a member of the European Union. How much easier is it for you as an EU company to start up in Bulgaria rather than the other countries mentioned?

The fact that Bulgaria is part of the EU and has a harmonized legal system with the union does make investment safer. On the other hand, however, retail operations, especially food retail, is a very local business; what you offer is very dependent on the needs of the consumers on the ground. So, the fact that Bulgaria is a member of the European Union will not play a crucial role in our development there.

So, how does the retail atmosphere differ in the individual countries you have invested in?

Each of the countries has their own tastes. And even in the different regions within the countries there are different expectations and attitudes. Therefore, we have to be very locally-orientated.

Do you think that that is perhaps something peculiar to the Western Balkans, in that it is perceived to have gained a habit of splitting up into increasingly smaller parts?

The root that connects the whole region is the Slavic mentality, and this is very familiar to us at Mercator, as we come from this environment ourselves and are very well-acquainted with this type of consumer.

How would you describe this mentality?

It’s very hard to say because we don’t really know much about other kinds of consumer, but we have been present in this region for 60 years. Knowledge about the consumer is the key competitive advantage of every retailer in the region. That’s why we are confident that we will develop in the future just as effectively as we have done in the past.

As I understand it, your focus is very much on the Western Balkans – so you wouldn’t consider venturing further afield?

We have our own strategic focus which is South-Eastern Europe, and this is where we want to establish a leading market position for the long-term. This is the place where we want to do our business.

How would you describe Mercator’s offer compared to other retailers?

We are definitely a retailer which has the highest quality of customer service in the region. Our second distinguishing feature is that we are a multi-format retailer, meaning that we operate everything from large hypermarkets of around 10,000 sqm to supermarkets, convenience stores and small shops of approximately 100 sqm. So, we know very well how to manage a broad portfolio of retail outlets and this is a major advantage for this region because of the segmentation of the market. The area is geographically challenging and as a result you have to offer a wide spectrum of formats to be able to serve all the needs of the different consumers.

In other parts of Eastern Europe there has been a recent tendency for the hypermarket-anchored shopping centre to evolve into more sophisticated models which are home to a greater diversity of retailers. How do you view the competition that you might face from the developers behind these in the future?

We see this as an opportunity and have entered some of these shopping malls as tenants because our core business is not only to be a retail developer but also to operate outlets and sell to consumers. We have already signed agreements to take up space in a number of the new centres being built all over the Western Balkans.

Could you shed some light on your intentions for Serbia, which you have said is the country you have the most ambitious plans for?

What we want to do is to adopt a balanced approach to the countries we are based in, but Serbia is at present the country where we have made the most money outside of Slovenia.

Why is that? When you think of the political instability that has affected Serbia more than other countries in the region, this fact might seem surprising.

The reason we were able to build our market share so quickly in Serbia is that it is a country that is developing very rapidly and the market there has a lot of potential. Also, the political situation is stabilizing quickly.

Will you be looking to employ the same strategy as you have in Serbia with Bulgaria, since the populations of both are of a similar size?

In terms of size and purchasing power there are similarities between the two countries, but in Serbia we are not just a food retailer, we also run electronic goods stores, clothes shops and sports outlets, and as far as the latter is concerned we work under the Intersport franchise. But in Bulgaria we have decided to begin with just food retail and to restrict ourselves to the hypermarket format.

Croatia looks almost certain to be the next country from the former Yugoslavia to join the European Union. Does this present more opportunities or does it mean that saturation is about to take place there as well?

Croatia is also a competitive market as there are a lot of foreign retailers present there, with many of them having arrived over the past year, but we remain the second biggest operator in this country.

And Bosnia-Herzegovina?

This year we will be opening a big shopping mall in Brčko and have already begun business with a number of smaller shops. There is also going to be a Mercator centre in Banja Luka – the capital of the Republika Srpska enclave in Bosnia-Herzegovina – at the beginning of 2009.

Two countries which would seem to be outside your remit are Kosovo and Albania. Any plans there?

Yes, in the long-term we fully intend to have a presence from the Adriatic to the Black Sea. The only market we have no plans for, however, is the Romanian market.

Is there a reason for that?

It is too big. We may be the largest retail company in this region, but our human capital and financial potential is not large enough to service a huge market such as Romania, whose population outnumbers the whole of the former Yugoslavia. To be successful, one needs a focused strategy in line with the capabilities of your company.

In general then, what do you see as the direction of development for retail in South-Eastern Europe?

The structure of retail formats will change, towards more modern models. The second thing is that discount retailers such as Aldi and Lidl will definitely take command of a larger part of the market and invest more aggressively. They are already in Slovenia and will become the fastest growing shopping outlets in the region. There will also be a consolidation of the retail sector in all the countries of the former Yugoslavia, with the exception of Slovenia, because the concentration of shopping centres is still quite low. This will have to happen in order to improve efficiency and competitiveness to guard against the newcomers from abroad. In retail, size is the key to success. ν