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Supermarket chains brace for more intense competition June 17, 2007

Posted by grhomeboy in Business & Economy, Shopping.
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Private-label products are becoming increasingly popular in Greek supermarkets and cash-and-carry chains. Turnover in the sector rose by about 6.5 percent last year, compared to 2005, to total 8.37 billion euros.

After a good year for their sector, supermarket chains have turned their attention to autonomous growth through investment to expand their networks, either wholly owned or with franchises, as well as the creation of logistics centers, according to a report by Hellastat. Data analysis shows that last year’s acquisitions involved only small and regional chains, but this does not rule out the possibility of a major deal in the future.

Sklavenitis and Masoutis have created a joint group for their supplies, following Metro’s example, in order to respond to escalating competition and to strengthen their position against their suppliers, due to the competition pressures from multinational groups in Greece such as Carrefour-Marinopoulos and AB Vassilopoulos, and discount stores such as Dia, Lidl and Plus. Private-label products remain a central pillar in the strategy of the main chains, in response to their cut-price rivals.

The dynamic expansion of discounters with an ever increasing number of stores and the presence of brand-name products on their shelves are putting further pressure on profit margins in the sector. Pressures will increase in 2008, when German chain Aldi is expected to enter the Greek market. Aldi has announced it will not stock any brand names, relying instead on its private label.

Another common practice in the sector is the creation of shop-in-shop spaces, as supermarket chains adopt foreign patterns in leasing out parts of their stores to third companies. This is aimed at strengthening the finances of the chains by securing regular income from rents, while supporting sales by offering consumers the opportunity for one-stop shopping. It is mainly the largest groups such as Carrefour-Marinopoulos, with 287 such leasing contracts, AB Vassilopoulos and Veropoulos that enter into such partnerships.

In the area of franchising, the market is eagerly awaiting the decision of the Competition Commission concerning the imposition of prices and profit margins by Dia on its franchise network, as the company may be breaking free competition rules. If Dia is found guilty, then other franchisees will have recourse to the Commission, changing the balance in this segment of the market.

Hellastat’s survey of financial reports in the sector showed that total turnover of supermarket and cash-and-carry companies reached 8.37 billion euros last year, which is 6.5 percent higher than the previous year. The positive year for the sector meant 56 of the 65 companies improved their sales against the previous year.

Even more positive is the picture for operating and net profits: Total operating figures came to 303.4 million euros against 279.5 million euros in 2005, a rise of 8.5 percent, while net pretax profits rebounded by 20.4 percent to 130.4 million euros after a decline in 2005.

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