The Polish Grocery Retail Market in 2010-2020 Proximity Supermarkets and Convenience Segments Will Benefit from Slower Growth of Discounters

Home , Auchan, Bi1, Biedronka, Carrefour, Carrefour Express, Carrefour Market

THE POLISH GROCERY RETAIL MARKET IN 2010-2020 PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS

November, 2016 2 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Contents

1 Grocery retail market 5

2 Customer trends 13

3 Regulations 15 3 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Foreword

We are happy to present the extended version of The Polish grocery retail market in 2010-2020 report published by Roland Berger in August 2016. The report gained noticeable market traction with number of articles in the most opinion shaping portals and newspapers. After thorough analysis and interviews with key market stakeholders we have decided to update and enrich the report with new conclusions. Major differences vs previous report are in market segmentation and forecast projection. We have distinguished soft franchise segment and divided supermarkets into large and proximity supermarkets. The reason for the change is different drivers behind those segments and therefore possible blurring of some market trends and dynamics. We have also updated the forecast as for major players in terms of LFL sales 2016 is much more lucrative than 2014 and 2015, inflationary perspective for Poland has changed and we have taken into account the impact of minimum wage. The results of the more detailed segmentation shine a new light on the market dynamics and the conclusions presented in the report describe deeper the perspectives for the future grocery market development. We encourage you to read the report carefully and wish you a pleasant lecture. 4 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Market expects convenience stores, proximity supermarkets and discounters to continue to be the fastest growing market segments.

Overall market growth of grocery in Poland was Market expects the overall grocery sales in Poland 3.4% on average annually since 2010. Traditional to grow by 3.7% annually on average till 2020 trade declined on average by over 7% annually while driven by disposable income growth resulting from modern formats increased their market share by GDP development and increase in minimal wages total of 15 pp. Consumer trends strongly favoured as well as 500+ program (especially in 2016 and both discounters (14.1% annual growth) and 2017). Growth of inflation is also expected to be a convenience stores (14% annual growth) – those contributing factor. Traditional trade is expected two segments combined increased their market to further decline (by 3.7% annually) to reach share by 13 pp (from 21% to 34%) enjoying growth 14% share in 2020 as supported by CEE and WE on LFL and by aggressive network expansion. benchmarks. Convenience stores are expected to Proximity supermarkets were the third fastest continue to be the fastest growing segment (12.5% growing segment (8.1% annually), benefiting from annually) followed by proximity supermarkets (8.2% favourable customer trends. Furthermore number annually) and discounters (decrease in growth rate of stores increased the fastest in this segment (by from 14.1% 2010-2015 to 6.6% annually in the over 13% annually). Soft franchise networks enjoyed forecast period due to visible slow down in network moderate growth at rates above overall market, expansion, especially by Biedronka). Soft franchise which enabled them to increase their market share is expected to grow at rates comparable to overall by 3 pp. Sales volume and number of stores both market while hypermarkets and large supermarkets in large supermarkets and hypermarkets segments will further lose ground to other modern trade stagnated – their combined market share declined formats (decline of combined market share by 4pp). by 3 pp. Six key customer trends impact the buying behaviour and customer preferences across all retail formats: busy lifestyle, new family model, demand for higher quality, health consciousness, increased sophistication and awareness of customers and regional development. Expected customer trends, buying behaviour and preferences (including fast shopping, convenience, proximity etc.) will further promote development of convenience formats, discounters as well as small proximity supermarkets over other modern (large supermarkets, hypermarkets and soft franchise) and traditional channels. 5 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

1 Grocery retail market

1.1 Historical development of grocery market

Historical development of grocery market and traditional and modern channel

Sales value, 2010-2015 [PLN bn] Number of stores, 2010-2015 ['000]

65% 69% 72% 75% 78% 80% CAGR 16% 18% 21% 24% 27% 30% CAGR

211 3.4% 166 -3.7% 205 198 156 192 151 184 27 145 178 141 29 137 32 34 38 41 7.8% 8.4% 169 116 128 139 149 160

138 127 119 111 103 97

62 56 53 -7.7% -6.9% 49 44 41

2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Modern Traditional XX Share of modern channel

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Grocery market growth was driven by increasing Share of traditional trade in 2015 approached 20%, disposable income and individual consumption but examples of both Eastern and Western European slowed down due to deflation in 2014 and 2015. countries show potential for further declines. Sales in traditional channel declined an estimated 7.7% annually, in line with historical trends and experiences of more mature markets, while modern trade formats grew over proportionately (7.8% annually on average). 6 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

1.2 Forecast of grocery market development

Forecast of traditional and modern grocery trade

Sales value, 2015-2020 [PLN bn] Number of shops, 2015-2020 ['000]

CAGR CAGR CAGR CAGR 80% 82% 84% 85% 86% 86% '10-'15 '15-'20 30% 32% 35% 38% 40% 42% '10-'15 '15-'20

252 3.4% 3.7% 137.4 -3.7% -0.6% 245 135.6 134.6 133.8 133.8 133.7 238 230 219 211 40.9 43.9 47.4 7.8% 5.3% 50.6 53.5 56.2 8.4% 6.6%

210 218 192 201 169 180

96.6 91.7 87.1 83.2 80.3 -7.7% -3.7% 77.5 -6.9% -4.3%

41 39 38 36 35 34

2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020

Modern Traditional XX Share of modern trade

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Overview of traditional trade market shares and their development

Traditional trade share, 2015 [%] Traditional trade share development, 2010-2015 [%]

p.p. change 55% '10-'15 50% 45% Greece 41% -11 40% Italy 26% -2 35% Spain -4 23% 30% Poland -15 20% 25% Austria 18% -3 20% Germany 15% -1 15% Portugal 15% -4 10% Slovakia 11% -6 0% Lithuania 11% -2 2010 2011 2012 2013 2014 2015 United Kingdom 11% -2 Greece Poland Slovakia Austria Latvia 9% -4 Spain Portugal Latvia

Source: Roland Berger, EMIS

It is expected that the traditional trade will further The rate of decline is expected to slow down decline, both in sales value (-3.7% annually) and as compared to historical figures, because as number of shops (-4.3% annually). traditional grocery shops join soft franchise chains or go out of market an increasing share of traditional Trend is corroborated by experience from both WE trade will come from specialized stores, which are and CEE markets, where traditional trade share still popular among Polish customers (e.g. butchers, stabilizes at levels between 11% and 15%. bakeries, alcohol shops, etc.). 7 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

1.3 Historical grocery market segments development

Historical development of Polish grocery market by segment

Sales value, 2010-2015 [PLN bn] Number of stores, 2010-2015 ['000]

CAGR CAGR

166 211 3.4% -3.7% 205 1 0 198 2 1 192 33 156 0 184 34 1.1% 9 4.1% 178 33 2 1 151 32 3 1 0 32 18 2 3.1% 32 17 2.3% 3 145 17 13 10 0 17 13 1 2 141 16 12 10 3 1 0 137 16 10 11 8.1% 2 13.2% 10 1 0 9 13 4 3 55 11 4 9.9% 41 47 51 14.1% 28 35 15 12 12 8 6.0% 10 11 12 15 16 14.0% 16 23 25 28 138 29 32 35 8.1% 19 127 9.8% 119 20 62 56 53 111 49 44 41 -7.7% 103 97 -6.9% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Hypermarkets Large supermarkets Proximity supermarkets Discounters Convenience Soft franchise Traditional

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Historical development of Polish grocery market by segment – market shares

Share in sales value, 2010-2015 [%] Share in # of stores, 2010-2015 [%]

145 141 178 184 192 198 205 211 166 156 151 0.3 0.3 137 0.7 0.2 0.3 0.3 0.8 0.8 0.9 0.3 1.0 1.2 1.4 1.6 17.8 17.6 16.9 16.8 16.4 15.9 0.8 1.4 1.7 0.7 0.7 1.8 2.0 2.3 2.6 2.7 5.6 8.5 8.3 8.4 6.2 8.8 8.8 8.8 6.8 5.9 6.2 7.6 4.9 5.2 5.4 5.6 8.5 9.0 15.8 7.8 18.9 21.2 23.6 24.9 26.0 8.6 4.7 9.9 5.3 5.7 6.2 11.1 13.2 7.2 7.6 13.5 14.4 13.4 14.6 14.9 15.6 16.4 83.5 81.5 34.7 30.7 79.1 27.6 24.6 76.5 21.7 19.6 72.8 70.3 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Hypermarkets Large supermarkets Proximity supermarkets Discounters Convenience Soft franchise Traditional

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Smart shopping trend started during economic crisis chains aggressively, capturing significant part of the strongly supported development of discounters. market. With a market share of 26% discounters Lidl and especially Biedronka expanded their established themselves as leading segment. 8 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Convenience stores benefited from changing lost ground to other formats (market share declines customer trends (especially busy lifestyle and new of 1 and 2 pp respectively). family model). Network expansion of Żabka drove Growth of soft franchise chains was fed by traditional the growth. Convenience stores managed to grow in shops seeking professional support on increasingly significance increasing their share by 3 pp. competitive market. Soft franchise chains increased Those same trends lead to increasing stagnation market share by 3 pp, fuelled by rebranding of of hypermarket sales as customers looked for traditional grocery stores. proximity and fast shopping. Traditional retail market shares dropped by almost Proximity supermarkets sales growth outpaced the 15 pp measured both by value and by number of growth of large supermarkets by almost a factor stores. of 4. Proximity supermarkets gained market share (1 pp), while large supermarkets and hypermarkets

1.4 Forecast of grocery market segments development

Forecast of grocery market segments development

Sales value, 2015-2020 [PLN bn] Number of stores, 2015-2020 ['000]

CAGR CAGR CAGR CAGR '10-'15 '15-'20 '10-'15 '15-'20

252 3.4% 3.7% 137 -3.7% -0.6% 245 136 238 1 135 134 134 134 0 0 1 4.1% 1.1% 230 33 1.1% -0.3% 3 0 1 0 1 1 219 33 4 3 3 1 1 2 211 33 4 3 4 4 3.1% 3.6% 33 19 2.3% 1.4% 4 4 33 19 4 4 13.2% 10.7% 33 19 19 12 18 18 8.1% 8.2% 13 18 17 14 9.9% 3.3% 18 16 14 15 14 16 13 6.0% 5.5% 71 75 14.1% 6.6% 68 20 58 64 55 22 25 26 29 14.0% 12.5% 27 16 18 21 23 28 29 9.8% 7.5% 35 38 40 42 42 43 8.1% 4.5% 97 92 87 83 41 39 38 36 35 34 -7.7% -3.7% 80 77 -6.9% -4.3% 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020

Hypermarkets Proximity supermarkets Convenience Traditional Large supermarkets Discounters Soft franchise

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews 9 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Forecast of grocery market segments development – market shares

Share in sales value, 2015-2020 [%] Share in # of stores, 2015-2020 [%]

211 219 230 238 245 252 137 136 136 135 134 134 0.3 0.4 0.4 1.1 0.4 1.1 0.4 1.1 0.4 1.8 2.1 2.3 15.9 15.2 14.5 14.0 13.5 13.0 0.9 1.0 1.1 2.6 2.8 3.1 2.7 2.9 3.0 3.1 3.2 3.3 7.6 7.5 8.4 8.2 8.0 7.8 9.0 7.1 7.4 7.6 9.6 6.2 6.5 6.8 10.2 10.8 11.4 12.1

26.0 26.7 27.7 28.5 29.2 29.8 14.9 16.5 18.4 7.6 8.3 9.1 19.9 9.8 10.6 11.5 21.1 22.0 16.4 17.1 17.5 17.5 17.3 17.0 70.3 67.6 64.7 19.6 18.0 62.2 60.0 16.5 15.3 14.4 13.5 58.0

2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020

Hypermarkets Large supermarkets Proximity supermarkets Discounters Convenience Soft franchise Traditional

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Convenience channel is expected to lead the growth Supermarket formats are expected to continue in modern trade formats (on average 12.5% annually) to develop at different rates, with proximity supported by favourable customer trends, gradually supermarkets sales expected to grow at 8.2% annually eating away on traditional and soft franchise (store # by over 10%) while large supermarkets are networks. Żabka is expected to lead the segment expected to stagnate. Proximity supermarkets are with continued aggressive network expansion. Also expected to gain 2 pp of market share while large sales in convenience stores are expected to increase supermarkets are expected to lose 1 pp. significantly enabling them to reach 11% share in Sales in soft franchise are expected to grow at levels the market. slightly higher than total market development (4.5% Market expects slowing down of discounters’ annually) due to lower than historical shop number growth. The number of stores opened in 2014 and growth and increasing competition with formalized 2015 was lower than in previous years, moreover convenience formats. Soft franchise stores are the main discount chain has announced much expected to maintain their current position. smaller plans of expansion due to reorganization of Sales in hypermarkets are expected to decrease their current stores. Increasing LFL sales will only on average 0.3% annually due to customer trends partially compensate revenues from reduced new clearly putting this format at a disadvantage. Both store openings. hypermarkets and traditional trade are expected to Discounters are expected to continue to have further decline reaching market shares of 13% and leading customer perception and fit well to the 14% respectively. smart shopping trend because they established themselves as shopping destinations also for less affluent people which should affect LFL and sales per store but not stores number development. Although discounters’ growth is expected to slow down as compared to previous 5 years, this format is expected to gain 4 pp of market share. 10 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

1.5 Top players historical development

Overview of top players in modern Polish grocery retail

Sales value, 2010-2015 [PLN bn]

Top 10 market 41% 45% 48% 52% 55% 57% share 211 205 198 192 184 178 28% 30% 25% 27% 20% 23%

6% 7% 8% 9% 9% 10% 15% 16% 15% 16% 17% 18% 9% 10% 3% 11% 12% 4% 4% 13% 12% 4% 4% 5% 46% 41% 37% 33% 29% 26%

2010 2011 2012 2013 2014 2015

TOP 3 TOP 4-5 TOP 6-10 TOP 11-20 TOP 21-30 Others

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Concentration of modern trade segment is from 26% to 40% (by 14 pp), whereas market share increasing – share of Top 10 retailers grew by 16 of top 10, top 20, and top 30 grew by 17, 20, and pp between 2010 and 2015. Top 3 players increased 22 pp respectively. Market share of smaller players their combined market share between 2010 and is decreasing. In 2010 they accounted for 46% of 2015 by 10 pp. Market share of top 5 chains grew market while in 2015 their share dropped to 26%.

Overview of TOP20 players in terms of sales in 2015 Sales value, 2015 [PLN bn]

Sales value and 19.2 6.1 10.1 5.2 5.7 8.0 6.3 6.8 2.8 2.9 2.6 1.8 2.5 0.5 1.1 2.9 1.7 1.6 1.5 n/a ranking, 2010 [PLN bn] 1 6 2 8 7 3 5 4 11 10 12 14 13 19 18 9 15 16 17 n/a

CAGR 10'-15' 15% 16% 2% 15% 12% 3% 7% 0% 19% 9% 11% 11% 2% 37% 18% -4% 5% 6% 7% n/a

Sales growth 9% 8% 0% 11% 10% 3% 15% 2% 11% 3% 6% 7% -1% 23% 6% -38% 5% 4% 6% n/a 2015/14 [%] 38.5 12.7 11.2 10.4 9.9 9.5 8.9 6.9 6.6 4.4 4.4 3.1 2.7 2.6 2.5 2.4 2.2 2.1 2.1 1.4 ) ) ) ) 2) 2 2) 1 2 2)3 2)4) Lidl Mila Dino Netto DC ABC Tesco Kaufland Żabka Auchan E.Leclerc Stokrotka Carrefour Groszek Biedronka Lewiatan Polomarket Intermarche Piotr i Paweł Top Market

Legend:5) Hypermarkets Large supermarkets Proximity supermarkets Discounters Convenience Soft franchise Traditional 1) Including Real 2) Estimated sales in stores 3) Żabka + Freshmarket 4) Delikatesy Centrum 5) Segment in which grocery chain had the most stores in 2015

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews 11 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Overview of TOP20 players in terms of stores number in 2015

Number of stores, 2015 [#]

Number of 3,990 2,431 2,730 1,649 1,102 561 610 335 400 150 638 111 371 212 178 n/a 300 274 161 61 stores and ranking, 2010 1 3 2 4 5 8 7 11 9 17 6 18 10 14 15 n/a 12 13 16 19

CAGR 10'-15' 14% 12% 2% 10% 5% 14% 9% 19% 8% 29% -4% 36% 3% 11% 13% n/a -1% -1% 7% 28%

# of stores growth 10% 9% 4% 3% 2% 7% -7% 18% 5% 10% 8% 25% -2% 6% 30% -18% -36% -7% 5% 11% 2015/14 [%] 7,685 4,360 2,955 2,667 1,415 1,076 920 813 577 525 514 511 440 354 327 287 282 256 231 207 ) 2) 3 1) Lidl Eko DC ABC RD Dino Spar Netto Tesco Małpka Żabka Groszek Lewiatan Stokrotka Carrefour Biedronka Euro Sklep Euro Top Market Polomarket Intermarche Legend:4) Hypermarkets Large supermarkets Proximity supermarkets Discounters Convenience Soft franchise Traditional 1) Żabka + Freshmarket 2) Delikatesy Centrum 3) Rabat Detal 4) Segment in which grocery chain had the most stores in 2015

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Overview of top players in market segments by sales, 2010-2015 [PLN bn]

Hypermarkets Large supermarkets Proximity supermarkets

58% 60% 62% 64% 70% 76% 58% 62% 62% 62% 62% 62% 61% 67% 71% 74% 76% 63%1)

31.7 32.5 32.5 33.3 33.6 33.4 16.2 16.9 16.8 17.1 17.6 12.0 13.2 15.7 10.4 11.1 5.7 6.0 7.1 8.3 9.0 9.9 3.6 4.0 4.3 4.3 4.3 4.4 8.8 9.5 3.1 3.3 6.3 6.5 6.0 2.6 2.9 6.1 7.7 8.9 2.9 3.4 3.8 3.9 4.3 4.4 1.9 2.3 1.7 2.1 2.6 6.5 7.0 6.8 6.9 0.5 0.8 1.2 2.4 6.9 6.8 2.6 2.6 2.6 2.2 2.1 2.2 2.9 3.3 3.6 3.8 3.9 13.2 13.0 12.5 12.0 10.0 7.9 6.6 6.2 6.2 6.4 6.4 6.6 3.4 3.2 3.0 2.9 2.9 4.9 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Kaufland Auchan Tesco Other Tesco Intermarche Carrefour Other Delikatesy Dino Polomarket Other Hypermarket Supermarkets Market Centrum Soft franchise Discounters Convenience

64% 65% 66% 67% 70% 69% 96% 95% 98% 98% 98% 99% 36% 40% 44% 47% 53% 55%

31.8 34.5 50.9 54.6 16.1 23.4 27.6 29.1 46.7 14.8 5.2 24.8 9.4 10.4 34.8 40.1 10.9 12.4 4.6 7.7 8.7 28.2 38.5 9.7 4.3 6.3 6.8 6.9 32.4 35.3 8.3 3.1 3.2 1.7 2.1 2.5 6.8 6.6 6.7 6.7 23.8 28.2 0.2 3.2 0.5 1.1 1.3 1.7 3.9 4.2 6.1 6.6 19.2 1.8 2.1 2.4 2.7 2.9 3.1 2.6 0.9 2.8 3.3 0.1 0.2 0.5 8.5 8.6 9.3 9.5 9.6 10.6 6.1 1.1 7.1 1.7 8.7 0.8 10.6 1.0 11.7 1.1 12.7 0.4 5.3 5.8 6.1 6.5 7.0 7.2 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 ABC Lewiatan GK Specjal Other Biedronka Lidl Netto Other Żabka Carrefour Freshmarket Other Express XX Top 3 market share in segment 1) Polomarket chain was split into Mila and Polomarket in 2015

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews 12 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Overview of top players in terms of historical growth

CAGR of sales value, 2010-2015 CAGR of # of stores, 2010-2015

Sales value and 0.2 0.5 0.3 0.2 2.8 1.1 6.1 19.2 5.2 5.7 # of stores and 59 111 150 61 26 50 3,990 561 178 2,431 TOP20 ranking, TOP20 ranking, 2010 [PLN bn] 3 19 >20 >20 11 18 6 1 8 7 2010 11 18 17 19 >20 >20 1 8 15 3

Sales value and 2.5 2.6 0.7 0.6 6.6 2.5 12.7 38.5 10.4 9.9 # of stores and 576 511 525 207 76 106 7,685 1,076 327 4,360 TOP20 ranking, TOP20 ranking, 2015 [PLN bn] 6 14 >20 >20 9 15 2 1 4 5 2015 8 12 10 20 >20 >20 1 6 15 2

# of stores Sales growth 19% 23% 15% 4% 11% 6% 8% 9% 11% 10% growth 2015/14 23% 25% 10% 11% -3% 13% 10% 7% 30% 9% 2015/14 [%] [%] 63% 58%

37% 36% 29% 28% 21% 24% 20% 19% 18% 16% 16% 15% 15% 12% 14% 14% 13% 12% 3) 3) 2) 1) 1) Lidl Aldi Aldi ABC ABC Dino Dino Spar Spar Żabka Żabka Centrum Kaufland Auchan Express Express Stokrotka Carrefour Carrefour Biedronka Delikatesy Top Market Top Market

Legend:4) Hypermarkets Large supermarkets Proximity supermarkets Discounters Convenience Soft franchise Traditional 1) Żabka + Freshmarket 2) Including acquired and merged Real hypermarkets in 2014 3) Ranking for the whole Carrefour 4) Segment in which the company had the most stores in 2015

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Overview of top players stores number evolution in supermarket formats, 2010-2015

Large supermarkets Proximity supermarkets

CAGR +3% CAGR +13% 1.3 2.5 1.2 2.3 1.1 1.1 1.1 1.1 2.0 0.6 0.4 1.8 0.6 0.3 0.3 0.4 0.4 0.4 1.5 0.5 0.2 1.3 0.4 0.4 0.5 0.2 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.2 0.2 0.2 0.1 0.1 0.2 0.4 0.4 0.1 0.3 0.3 0.4 0.5 1.1 0.4 0.4 0.4 0.4 0.4 0.6 0.7 0.7 0.8 0.9

2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Tesco Supermarkets Carrefour Market Delikatesy Centrum Polomarket1) Intermarche Other Dino Other

1) Polomarket chain was split into Mila and Polomarket in 2015, Mila was included in other segment

Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

Concentration is also growing in segments, especially Centrum. Dino jumped to 2nd position while 3rd in convenience – most concentrated segments are place was taken by Polomarket. Differences between discounters and hypermarkets. Concentration in the three largest chains in proximity supermarkets convenience increased by 19 pp. Supermarkets is are not significant and there is no clear leader as more stable segment with 6 pp change from 2010 to opposed to discounters and convenience segments. 2015. Concentration is also increasing in proximity In the large supermarkets segment concentration supermarkets and large supermarkets. Top 3 players has increased by 4 pp from 58% to 62%. Top 3 in proximity supermarkets increased their share players in this segment were Tesco Supermarkets, by 2 pp from 61% to 63%. The leader in proximity Intermarche and Carrefour Market, taking the first, supermarkets segment continued to be Delikatesy second and third position respectively. 13 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

The fastest growing retail chains from 2010-2015 slower growth pace than the leader. ABC, Delikatesy both in terms of sales value and number of stores Centrum and Żabka were the fastest developing were Carrefour Express and Dino. chains that in 2010 had already owned above of 500 stores. The fastest growing chain in terms of sales value was Carrefour Express with annual growth of 63% from The concentration is expected to increase most 2010 to 2015. 2nd and 3rd place was taken by Dino rapidly in convenience, proximity supermarkets and Spar with almost two and three times slower and large supermarkets segment because of the growth pace than the leader. LIDL, Biedronka and significant number of players in these segments and ABC were the fastest developing chains that in 2010 better fit of these segments to shifting consumer had already recorded sales value of above 5 PLN bn. trends. The fastest growing chain in terms of number of stores was Carrefour Express with annual growth of 58% from 2010 to 2015. 2nd and 3rd place was taken by Dino and Top Market with almost two times

2 Customer trends

Impact of selected consumer trends on store format development

Large Proximity Hypermarkets supermarkets supermarkets Discounters Convenience

Long shopping time due Long shopping time due Easy and fast shopping Extended shopping time Making shopping as Busy lifestyle to large store size and to large store due to close location due to limited space, quick and convenient as long queues, distant assortment and most and limited but sufficient crowded stores and possible, proximity location often distant location assortment longer queues (limited in-store employment)

New family model Rich offering of Rich offering of ready Already wide selection Selection of ready Potential to introduce multipacks and family meals, including salads of ready meals or pre- meals or pre- ready meals and serve packs but limited offer and frozen meals, assembled/ semiprepar- assembled/ semiprepar- food-to-go/hot drinks for singles and lack of however lack of ed products ed products getting confirmed by proximity proximity wider (e.g. grill sets) international examples

Demand for higher Wide assortment, of Wide assortment of high Wide assortment of Presence of high quality High quality of available high quality products, quality products, fresh products, with Private Labels, assortment with large quality, premium organic products organic products fresh charcuterie, less increasing focus on selection of ready meals products available available premium products than fresh food and availability of niche in large stores products

Wide assortment of Wide assortment of Fresh assortment with Increasing focus on Limited shelf space Increasing health- fresh, organic and fresh products and high quality of products fresh food but potential reducing the ability to consciousness regional products organic products but limited availability of limited by lower SKU offer eco/green products organic products numbers and reducing potential to offer fresh food

Increasing Prices comparable or Prices not much higher Prices of main SKUs Price levels difficult to High prices not awareness of slightly lower than in than in hypermarkets, slightly higher than in compete with due to compensated by the discounters, attractive attractive promotions, discounters, remaining simplified operating promotions customers promotions Private Labels potential SKUs at higher prices model, efficient than larger stores, logistics, large scale per limited promotions SKU and Private Labels

Regional No development Limited development Format preferred by Limited development High potential of potential in small and potential in small and small shopping malls potential in small and geographic penetration development mid-size cities mid-size cities outside large mid-size cities due to small store area agglomerations

Positive impact on format development Negative impact on format development

Source: Roland Berger analysis based on Nielsen, PMR, Industry expert interviews, industry press 14 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

List of buying behaviors/customer preferences impacted by customer trends

Buying behavior/ customer preferences A Increasing frequency of grocery shopping B Growing importance of location near work/ home

C Availability of extended opening hours

D Important convenient access and availability of parking places

E Increasingly important range of products not available elsewhere

F More popular healthy, organic and fresh products

G Increasing popularity of regional products

H Quality, freshness of available products I Continuously important promotions, attractive offers and loyalty programs

Source: Roland Berger analysis based on PMR, Industry expert interviews, industry press, GUS

Changing lifestyle and key consumer trends impact on shopping can easily buy necessary products buying behaviour and customer preferences in quickly i.e. on their way home from work because of Poland which further impact formats’ future the convenient localizations of stores and sufficient growth potential with proximity, discounters and parking area. Both formats also respond well in convenience being increasingly attractive. terms of delivering products at a reasonable price and good quality. Amongst the trends which have the most impact on convenience, proximity supermarkets and On the other hand wide selection of ready meals in discounters are busy lifestyle, new family model and proximity supermarkets and discounters attracts increasing awareness of consumers. Busy lifestyle is customers fitting in the new family model because a result of growing employment, increasing share of these customers are more often seeking ready or employees working at more than one job or longer semi-ready products with a good quality to price hours and more time spent on entertainment ratio. What is more, proximity supermarkets and activities. New family model is driven by growth discounters, due to their suitable size and logistics in number of single households and growing have big potential in regional development, awareness is mainly a result of increasing internet especially penetrating smaller cities, inhabitants access. of which are increasingly expecting same shopping experience as in bigger cities. Proximity, discounters and convenience stores are best fit to customers’ increasing frequency On one hand it is caused by smaller store area of shopping and closer locations. Proximity which enables reaching break even point with less supermarkets and large stores are the best fit to customers than bigger stores. On the other hand customers’ valuing healthy, fresh and regional it is caused accessibility to appropriate lots, lower products of good quality. CAPEX and effective logistics. Proximity supermarkets and discounters also fit well in changing consumer trends, especially busy lifestyle and new family model. On one hand customers who do not want to spend a lot of time 15 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

3 Regulations

3.1 The family 500+

Total impact of 500+ is estimated to contribute to Part of the growth may be explained by marginally 1.1% - 2.5% of additional sales growth in 2016-2017. positive food inflation but the rest of it is associated with increased consumption that linked to family In the first half of 2016 most of the grocery chains 500+. noted positive revenue trend YoY with positive LFL sales e.g. Biedronka announced YoY LFL sales growth of 8.8% (9.8% Q2 2016) and Stokrotka announced YoY LFL growth of 7,5% (6,6% Q2 2016).

3.2 Act on minimum hourly wage

Introduction of the minimum hourly wage act is On the other hand, increase of minimum hourly expected to affect not only the convenience format, wage to 13 PLN/hour may contribute to growth soft franchise and traditional stores in a negative in disposable income boosting individual manner but also to stimulate the market growth. On consumption. one hand in terms of higher employment costs, the minimum hourly wage can lead to smaller margins in the worst case, closing the store. 16 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

3.3 Act on counteracting the unfair use of contractual advantage in the trade in agricultural and food products

The act aims to eliminate unfair commercial • Diverting supply to large intermediaries in order practices between buyers, especially large retail to reduce the risk of being accused of unfair use chains, and producers of agricultural products of bargaining power against small, fragmented throughout the supply chain. This is to be achieved suppliers by prohibiting the unfair use of bargaining power in • Diverting supply to foreign suppliers to whom contracts in a way which is: the Polish law does not apply • against other similar practices (also not specified • Difficulty to conduct marketing activities by the act) through e.g. temporary price reductions, shelf • threatens or violates a substantial interest of the placement marketing and trade marketing producer, by abusing a situation wherein the producer lacks the ability to sell the agricultural or food products to a different buyer, and there is a substantial imbalance in the economic potential in favour of the buyer (and vice versa) The act is likely to affect all players in the retail supply chain, including retailers, food processing companies and agricultural producers. Effects on retail chains and food processing companies, based on market experience: • If the act is successful as a measure to combat downward price pressure on suppliers, thus increasing the prices of supplied goods, retail chains will likely increase prices in order to secure margins leading to inflationary pressures 17 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

Notes

Differences in comparison with the previous report We have implemented several changes in comparison with the previous regarding the proximity supermarkets segments. The new division has report. Changes appeared mainly in the past market value estimation, led to reassignment of top players amongst the new segments which forecasted market value, defined segments, scope of top players and then led to slightly different distribution of market shares and growth trend-segment fit assessment. of each segment. Furthermore we have excluded soft franchise segment from the convenience and shown it separately. Past market value in 2010-2015 has been adjusted due to the increased detail level of analysis, whereas the projected market value has been This report also includes the extended top players scope (from 10 to updated, mainly due to the recent inflation prognosis which turned out 30 players). The extension of the bottom up assessment was necessary to be favourable for the retail market, recent high like-for-like results of for forecasting the market value with more accuracy and for detailed top retail chains on the polish market and additional expert interviews estimation of newly assigned segments. and industry report results. Minor changes have also been implemented in the trends section in In the above report we also identified new division of segments as the best-fit assessment of segments to the most recent trends. Changes a result of breaking down supermarkets segment into proximity were implemented after consulting with the industry expert and using supermarkets and large supermarkets. Breaking down the segment has additional sources (industry reports, financial reports of the extended been consulted with the industry expert and made it available to forecast scope companies) with intent to more accurately picture the present the market more accurately basing on the new assumptions especially and future market dynamics.

Methodology notes Our analysis is performed on retail grocery market. Grocery sales We have modelled key historical operating parameters of approximately includes the total value of products sold in grocery stores encompassing 40 largest retail players based on their performance in segments fresh food, fast moving consumer goods, and other products (including (including: E.Leclerc Hypermarkets, Auchan, BI1, Kaufland, Tesco non-food, such as clothing, footwear, home appliances, consumer Hypermarket, Carrefour Hypermarket, Real, Biedronka, Lidl, Netto, electronics and digital media, home furnishings, toys) sold in grocery Aldi, Tesco Supermarket, E.Leclerc Supermarkets, Carrefour Market, stores. Market assessment includes also food sales in specialist shops Simply Market, Intermarche, Piotr i Paweł, Alma, Stokrotka, Mila, (e.g. butchers, bakeries, alcohol stores, fishmongers, green groceries). Polomarket, Dino, Spar, Eko, Delikatesy Centrum, Freshmarket, Żabka, Carrefour Express, Chata Polska, Top Market, Groszek, GK Specjal, Euro We have segmented the market into 6 segments – Hypermarkets, Sklep, Rabat Detal, Lewiatan, ABC). Supermarkets (further sub segmented into Large, Proximity) Discounters, Convenience (chain and hard franchise), Soft franchise, Traditional trade.

Overview of grocery market segments and players clustering

Format Description Key players Hypermarket > Mixed stores (food and non-food products) with an area of over 2,500 m², offering around 30,000-50,000 products, of which grocery products comprise at least 50%. Typical location outskirts of large cities Discounter > General grocery stores with an area of around 1,000 m², offering with limited SKU, mainly typical food products, many under white label. Prices typically lower by 15-30% than the market average. Typical location large and medium cities both close to residential areas and city centers Large supermarket > Mixed stores (food and non-food products) or general grocery stores with an area of 500-2,500 m², offering around 5,000-10,000 SKUs, of which around 70% are typical food products. Typical location outside residential areas in large and medium cities > Mainly general grocery stores with an area of 200-500 m², operated in hard franchise or

Modern Proximity supermarket own chain model, offering of around 4000-8000 SKUs, of which typically 90% are food products. Typical location close to residential areas in large, medium and small cities Convenience > Chain or hard franchise, self-service small format stores (on average sales area (incl. hard franchise) accounts for around 60 sqm) opened at least 11 hours a day offering basic range of groceries comprising food, alcohol, cigarettes and press. Also includes petrol stations. Typical location city centers and residential areas in large, medium and small cities Soft franchise > Soft franchise, predominantly self service small and medium format stores with a sales area of 50-300 m2. Typical location city centers and residential areas in large, medium and small cities - Traditional not > Not organized, individual grocery stores. Typical location small cities and rural areas tional Tradi organized trade

1) Stokrotka shops under 500 m2 selling surface assigned to proximity supermarkets 2) DC, Freshmarket and Eko shops over 200 m2 selling surface assigned to proximity supermarkets Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews 18 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

ABOUT US Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 36 countries, we have successful operations in all major international markets. Our 50 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 220 Partners. Roland Berger has been present in Poland since 1995 with a Warsaw office operating since 2000. We work for the biggest Polish and international companies from all sectors.