Challenges to the Bulgarian Retail Industry - Case Study Example

Challenges to the Bulgarian Retail Industry Content page: List of Appendices Figure Market share of the retail formats in Bulgaria Figure 2:Numberof changes of stores by format in Bulgaria Jan 2005 –Jan 2006 Figure 3:Structure of retail formats in 2005 in several Balkan countries Figure 4:Famous producer brands & private labels Figure 5:Dimensions of shopping Abstract Introduction Opportunities Risk of entry barriers Methodology Findings Recommendations Discussion &Conclusion Appendices Abstract: The purpose of this study was to examine the evolution of retail industry in Bulgaria and also the opportunities and risks in entering the retail industry in Bulgaria. Bearing risks is an intrinsic characteristic of any business and/or society. Innovations and globalization are opening new opportunities for growth of business value; however it brings more risks and complexities. Bulgaria is a small country and was experiencing a pre- accession boom like those of the nations that had entered the EU. The retail sector in Bulgaria has enjoyed a continuous growth over the past few years. There are many opportunities for entering in the retail sector in Bulgaria such as, development of tourism which helps in attracting foreign companies and so on, entitled to investment incentive. There is also the risk of entry such as licensing options, selling strategies. Retail store should concentrate on certain steps such as the locations of trade. In the business they may have to encounter international competition. Entrepreneurial retailers should take advantage of the environment by focusing on niches. Even as retailers select the best format for a new market they must also tailor it to local tastes and expectations. The fashion of investments in Bulgarian Retailing can be expressed with only one world “maxi” fashion of the malls’ building. The relative economic weakness of Bulgaria is expected to be offset by the benefits of membership in EU. The economic evidence indicates that Bulgaria has made considerable progress in satisfying Copenhagen criteria. The retail performance gap can be significantly reduced by innovations in retail formats in Bulgaria. Introduction: Bulgaria offers a sizeable market for the international retailers, suppliers and the sub suppliers to the retail sector. The entry into the European Union has been a very dynamic development in Bulgaria for retailing. As the pace of acquiring new markets increases, success in the retail race only goes to companies that make the right moves at the right time - timing is the name of the retail game. Bulgaria has been a destination for interesting expansion. Bulgaria is known for their strong political stability and had a strong growth. The retailers often appreciate the political stability. In Bulgaria, the retail sector consists of arrangement of different types of stores. It starts from small basement shops to a large hyper market. It provides an attractive place for the customers to visit and to develop an enjoyable shopping experience. Investments in hyper markets had contributed a lot in the development of the retail sector in Bulgaria. The Bulgarian population of over 6 million people offers a considerable market for the retailers. The retailers find Bulgaria as a huge opportunity to gain a large market share by investing in the retail sector. The international players took advantage of this opportunity and they started to enter the Bulgarian economy though the Bulgarian retail was underdeveloped and was highly fragmented. They could develop the market share through format diversification and greater regional expansion. Bulgaria’s entry into the EU has provided its economy with excellent shape of developing after its nine years of uninterrupted and speedy growth in the GDP. Bulgaria was experiencing a pre- accession boom like those of the nations that had entered into the EU.  The Bulgarian industry has to alter the practices in business for the purpose of reinforcing flexibility and also to face the intensifying competition they will have to encounter in future. They believe that entrepreneurial behaviour is essential for the survival and growth and also to ensure global competitiveness. They also focus on increasing the innovation capacity by developing new ideas from which they could grow in future. Most of the enterprises find it difficult to stay in the market during the period of rapid mutation and innovation. In order to make it comfortable for them, they will have to maintain the proficiency and competence of the entrepreneurs. For the Bulgarian retailing practices to yield maximum benefits in the market they have to strengthen the entrepreneurship with convergence to the EU standards. This was considered as the main objective of the retailing in Bulgaria during the period of transition. During this ever changing environment, the Bulgarian retail sector has to find ways in order to sustain in the market. They will have to increase their competence level in global environment. Many of the retail firms in Bulgaria do not have any capabilities and market power because of their small size. The success of retail format of the Bulgarian firm largely depends on the quality of the human capital and the implementation of competitive retail strategies. In order to enhance global competitiveness entrepreneurial potential has to be developed. They will have to explore new business opportunities that will serve as a major determinant of the establishment. The procedure for establishing a company in Bulgaria requires registration with the local district court. Registration documents generally include Application Certificate of Incorporation of the parent company By-laws of the parent company Minutes of meeting of the parent company at which the resolution for establishment of a subsidiary in Bulgaria is passed A founding act (by-laws) of the Bulgarian subsidiary A letter, issued by the Statistics Institute, confirming the uniqueness of the name of the Bulgarian subsidiary in the district covered by the respective registration court. Specimens of the signatures of the manager Declaration of the management Bank receipt attesting to authorized capital on deposit in a Bulgarian bank Receipt of paid state fees for registration and publication in the State Gazette. (Executive Report on Strategies in Bulgaria). Opportunities: Market indicators Investing in the retail sector: Investment incentive has made investment in the Bulgarian retail sector now much easier than in the past. This provides them with opportunities to increase their profitability. Bulgaria is ranked as number 12 according to Global Retail Development Index. Earlier they were placed in the 21st position. Large opportunities were found in the area of consumer electronics and apparel retailers which is specifically targeted at niche market segments. Opportunities were also found for the entry of newcomers in the market. But the timing of the entry was of great importance. Market trends Consumer expenditure: The Bulgarian consumer expenditure was found to be increasing at a steady rate and the average number of fast moving goods had increased by 10.3 per cent. This increase in the fast moving goods is mainly because of the increase in the income levels of the customers. This increase in the income level of the customers tends them to buy quality products and services. As a result of this, the shopping culture of Bulgaria started to change, and the consumer tastes started to vary. The company started to offer different retail options according to the preferences of the customers. This strengthened the position of the retailers in Bulgaria. Future developments: As a result of the development of the retail sector in Bulgaria, its tourism also showed a sign of development. There was an increase in the sale of high quality products and services. The sale of the imported products also increased to a certain level as the customers became more loyal towards imported products and brands. Market evaluation Opportunities for Danish retailers and sub-suppliers: The market share of Bulgaria started to increase as the potential for the retailers started to show development. The Danish retailers saw the opportunities for their growth in the Bulgarian market. The strategy formulated by the company was capable of surviving in the market and yielding best results thereby increasing their profitability. The sub suppliers of Bulgaria were offered huge opportunities for their growth. The possibilities for selling the products increased and improved food quality came to be potential market in Bulgaria. Alternative opportunities for success: Some of the alternative distribution channels that are considered for the success of the retail formats in Bulgaria included cash and carry, catering etc. Entry of the foreign firm in a saturated market like Bulgaria increased the chances of intense international competition. They have to choose the right entry mode that would provide them with large opportunities for their growth. Many of the Bulgarian food producer companies had entered into partnerships with Danish companies which helped them to create a strong foundation for the competition. This provided the Bulgarian retail sector with opportunities of growth. (The Retail Sector) Risk of entry barrier: The retail stores provide a large assortment of products and services. Huge amount of time and effort are required for creating a convenient and enjoyable shopping in Bulgaria. The customers in Bulgaria prefer to shop in small quantities. A high level quality of customer services is offered by the retailers in Bulgaria, which induces the customers to pay high prices for the services that are offered. The retail sector in Bulgaria is mainly dominated by private shops but there are also a considerable number of super markets. ”Bulgarian consumers do not appear to value the convenience of one-stop supermarket shopping and resist paying higher prices in exchange for better service or more attractive packaging. The principal reason is the low income of most consumers. A typical salary is under $100 a month, while prices of many foods (especially meat and processed foods) are close to those in the United States.” (Cochrane, and Reid, 5) Licensing options: The US Company will have to spend large amount of money in order to acquire the production license in order to manufacture American products in the Bulgarian market. Selling Strategies: For the market strategy to be successful, price should be given a major consideration. Majority of the customers in Bulgaria do not prefer to use the products or services that are manufactured inside the country. This is because they feels that the products are not of good quality and they spent large amount of money on imported products. For a retail store to be successful, it should be ensured that the needs and wants of the customer are fulfilled. Methodology: Secondary data collection Findings: “Bulgaria is still below the EU average for retail space per capita and a strong demand for well designed, well managed and professionally executed shopping centres across the country still remain.” (The Report Bulgaria 2008, 143) Bulgaria is a major destination for tourists, whereby it attracts foreign companies. The report says that the value of sales in retail in the year 2007 was about €11bn compared to 2006 when it was €9.8 bn. Figure 1 shows the market share of modern retail format in Bulgaria. It was observed that there is an increase in retail format in the last few years. This figure also shows that the trends are in a positive direction which indicates that there are more opportunities (free market place) for hypermarkets and discount stores. Figure 2 shows the market research of “ACNielsen- Bulgaria” about the changes of the retail formats in the last 2 years. Figure 3: shows that the structure of the retail formats in Bulgaria is not good. The small food stores dominate. A comparative analysis with other Balkans countries is depicted. Figure 4: shows the level of loyalty of the public towards producers’ brands and private labels. The retail brands become more famous. This is the world trend but does not happen in the Balkan countries. Figure 5 shows the results of recent survey (2006) that is from3, 7 - 3, 8 families purchase in hypermarkets at least once in the week. The comparative analysis between shopping in supermarkets and hypermarkets is made. Recommendations: The strategies adopted by the retail stores in Bulgaria in association with the EU accession are presented by the new formats in the markets. Along with developing highly efficient distribution channels, focus should be made on strengthening the base of the technology. The Bulgarian retail stores should also concentrate on the locations of trade and should also be prepared to face international competition. The major dimensions that are to be taken into consideration are frequency and loyalty. This shows the wants and wishes that the customer exhibits during the shopping The entrepreneurial retailers should take advantages of the environment by focusing on niches. Hence, irrespective of psychic distances they standardize their formats. They should adapt only when the environment forces them to adapt on account of new opportunities or a crisis situation. Retailing systems in emerging countries differ markedly from those in more developed systems on account of the large concentration of small neighbourhood stores. Retailing literature in the past has concentrated on the large format organized retailers. The classificatory schema provided in this study does not discriminate retailers on the basis of size. Hence, an opportunity has been provided for future researches in developing countries such as Bulgaria where retailers can be studied irrespective of their size and level of organization. The retailers need to have a good retail mix in an appropriate segment. Conclusion: Bulgaria is turning into a success story, hardly imaginable ten years ago, but achieved at the cost of particularly painful transformation reforms. In recent years Bulgaria experienced a pre-accession boom, similar to other EU entrants in the past. Report on retailing in Bulgaria offers insight into key trends and developments affecting the industry. Five strategic entry decisions: scale of entry, mode of entry, order of entry, the adaptation of the retail format to local market conditions and the familiarity of the store format to the parent company. Focus on the estimation of these decisions affects the long-run performance of a retail firms foreign operations. In addition, we account for the moderating impact of three sets of control variables: characteristics of the foreign operations retail mix, the parent firms resources and the host-markets characteristics. The report examines all retail channels to provide sector insight. Channels include department stores, food retailers, health and beauty retailers, clothing and footwear retailers, home furniture and household goods retailers, durable goods retailers, and leisure and personal goods retailers. There are profiles of leading retailers, with analysis of their performance and the challenges they face. The temporal problems of the market, however, were somewhat softened by the improving economic situation in Bulgaria especially the higher disposable income of the consumers, which is increasing the consumption levels. The rise in total employment during the past several years exceeded the reduction in the number of unemployed, suggesting an increasing economy-wide activity rate. The present market conditions also provide for an ideal investment opportunity within the retail property sector in Bulgaria. From this study we can conclude that Retailing in Bulgaria is expected to grow faster in the forecast period. Appendices: Figure 1: Market shares of the retail formats in Bulgaria Format 2003 2004 2005 2006 Hypermarkets - - 0,2% 0,3% Supermarkets 10% 13,9% 17,4% 18,4% Discount stores - - 0,1% 0,1% Cash & Carry Stores 3,5% 3,8% 3,9% 3,4% Neighbourhood Stores 61% 59,3% 60,8% 61,7% Forecourt 2,0% 1,6% 1,4% 1,3% …. … … … … Other Stores 23,6% 21,6% 16,2% 14,8% (Kostova) Figure 2: Number’s changes of stores by formats in Bulgaria Jan.2005 – Jul.2006 Size of the stores Change in % Supermarkets – over 300 m2 13,7 Stores (101-300 m2) 3,9 Stores (41-100 m2) 2,0 Middle stores 3,6% Little stores -4,9 Mixed Stores -20,9 Drugs 0,5 (Kostova) Figure 3 Structure of Retail formats in 2005 in several Balkan countries (in%) Retail formats Bulgaria Romania Serbia & MN Croatia Hypermarkets 0,6 2 2 3 Supermarkets 18,4 16 18 33 Discount stores 0 1 2 5 Cash& Carry 3 1 1 8 Food (little) 64 49 63 31 Drugs stores 1 0 0 4 Door-to-Door 0 4 3 2 Street vendors 1 1 5 4 Others 12% 16% 6% 10% (Kostova) Figure 4 The famous producer’s brands and private labels (structure in %) Countries Producer’s brands Private labels Austria 73% 23% Czech 83% 17% Poland 85% 15% Bulgaria 97% 3% Romania 99% 1% (Kostova) Figure 5 Dimensions of shopping Dimensions Hypermarkets Supermarkets Penetration (number from householders) 3,8 57,2 Frequency (visits in the shop during the period) 5,4 25,2 Loyalty (value share) 5,5 25,7 (Kostova) Works cited Cochrane, Nancy., and Reid Hamm. Bulgarian Retail Food Markets in Transition: Consumer Income. Global Market Food. 1996. 4 May. 2009. . Executive Report on Strategies in Bulgaria. ResearchandMarkets. 2009. 4 May. 2009. . Kostova, Septemvrina. European Challenges to the Bulgarian Retail Industry and Korea’s Experience in International Retailing: The Review of the Global Retail Market. 4 May. 2009. . Kostova, Septemvrina. European Challenges to the Bulgarian Retail Industry and Korea’s Experience in International Retailing: The Future Development of Bulgarian Retailing. 4 May. 2009. . The Report Bulgaria 2008.Oxford Business Group.143. The retail sector. Udenrigsministeriet: Ministry of Foreign Affairs of Denmark. 4 May. 2009. . Read More