Drugstore market (II.) and discount shops in Hungary

 

 

(Taken from HVG Hungary issue 28 January 2006)

 

In the competition with the MNC the Fotex has lost: the Azúr (owned by Fotex), hands over eight shops in February to the German discount drugstore-chain, Schlecker. The experts expect discount’s doubling share in the domestic market in the following years.

 

“Real killers” this is how a domestic trader marked the Schlecker, which will open it’s shops most probably in February. Europe’s number one perfumery discount has a very aggressive price policy. They are negotiating with domestic manufacturers together with Gulyás Általános Kereskedelmi Kft., whom attends seven thousand shops, so they can press the Hungarian companies’ low prices even lower. “The one buys more, can reach a bigger discount” points out the essence of the cooperation János Gulyás, the managing director of the wholesale. However the concurrency thinks it is a false step, that Schlecker enters trendy Budapest malls and in the city center – including Duna Plaza, MOM Park, Sugár and Petőfi street -, instead of the well-tried suburb and countryside greenfield investment, with it’s modest range of products (most of it it’s own brand), cheap, bazaar style shops.

 

“They only said that there will be a new owner soon” answered the employees of the most Azúr shops on HVG’s enquiry. In it’s golden years the Azúr operated 128 shops, however for years now it has deteriorating results – in 2004 they had 3 billion Forint, but 267 million Forint loss – similar to the closed Keravill Rt., also Fotex owned, they are the victims of the MNC chain’s aggressive price policy. After it’s internal funds fell under the two-third parts of the subscribed capital (the latter was decreased to it’s quarter, 195 million by the owner) and it has closed not less then during a year 30 shops. The Schlecker moves into to the Azúr shops as a lessee, four shops – just the main targets of other discounts, the suburb shops – now remains. Just like Azúr Rt., which “will be filled with content by the owner”, according to Zoltán Prokopy managing director.

 

The Schlecker will receive the employee also with drugstores, although it is an open secret, that the discount shop doesn’t provide big variety of products, so there won’t be needed same amount of employees. The Hungarian suppliers aren’t happy with the change, because the Schlecker provides mostly self products, which means that in the beginning for sure there won’t be need for the suppliers. Although it’s a fact that Schlecker opened only a few dozen shops in the first two or three years in other countries also, and then in the fourth and fifth year they became market leader.  According to Mariann Józsa, the vice president of DM-Drogerie Markt Kft., it’s not even clear yet if the Azúr-buyers go over to the tighter selection providing discount shops. The vice president hopes that in the Duna Plaza and in the MOM Park the buyers prefer the DM more.

 

It’s a sign also that DM, which has a 35 billion forint turnover, has 181 shops and plans to open 15 more in this year, doesn’t care about the Azúr anymore. “It wasn’t so relevant what’s happening with the 12 shops left.” said Józsa. On the drugstore market the hypermarkets are the firs ones, with some 35 % share. According to experts the domestic market is too small for a new participant.

 

Anyhow, the changeover of Azúr and Schlecker is a good sample for the discount shop’s victory with decreasing price. The shop type market’s share – thanks to the German Lidl – grew with 2 percentile, to 17 %. According to experts in one or two years it will reach the 20 %, and on long-term it can be even 30% for the discount shops. “The Hungarian buyer buys the price first of all, not the product.” speaks ironically one of the vice president. The Plus Élelmiszer Diszkont Kft. (Plus Food Discount Ltd.) has 165 discount shops, in it’s supply the self named so called Plus-brand grew from 20% to 50% since the EU accession. It’s consumer price decreased with 14%. – illustrated the trend Tibor Székács, the managing director.

 

In the same time, the food-discount market will narrow to four participants, although the Aldi, similar to Lidl, will open it’s first shops in Budapest suburb and in the countryside by the end of the year. From the Aldi, the Lidl, the Plus, the Penny Market and the Profi chains the experts expect the vanishing of the smallest shop number chain. Although the Profi Magyarország Kereskedelem Rt. (Profi Hungary Trade Ltd.) has a modest profit, but it’s a part of the group of companies which has also the Cora-chains. The Belgian Delhaize group which operates both chains wants to sell them, and it seems that the buyer will be the Wal-Mart.