Supermarkets and Hyper Markets in Bulgaria - FINAL REPORT - 2008

Supermarkets & Hypermarkets in Bulgaria
Table of Contents
1
Executive Summary ...................................................................................................5

1.1 1.2 1.3 Demand ................................................................................................................ 5 Supply.................................................................................................................... 5 The Market ............................................................................................................ 6
Introduction..................................................................................................................7
2.1 2.2 Objectives............................................................................................................. 7 Methodology ........................................................................................................ 7
PEST Analysis ................................................................................................................9

3.1 3.2 3.3 3.4 Basic Country Information ................................................................................... 9 Political, Legal and Regulatory Factors .............................................................. 9 Economic Factors .............................................................................................. 12 Social and Demographic Factors..................................................................... 19
General Characteristic of the Food Retail Sector..............................................23

4.1 4.2 4.3 Food Retail Store Types ...................................................................................... 23 General Data on the Food Retail Sector in Bulgaria ....................................... 24 Legal Framework for the Establishment of a Supermarket ............................. 26
Demand ......................................................................................................................29
5.1 5.2 5.3 5.4 Household Budgets for the 2003 2007 period............................................... .29 Household Consumption of Main Foods and Beverages ............................... 31 Bulgarian Consumers Shopping Habits ........................................................... 31 Purchasing Decision Factors ............................................................................ .33
Supply .........................................................................................................................35
6.1 6.2 6.3 6.4 6.5 6.6 6.7 Presentation of Major Sector Representatives................................................. 35 Key Sector Representatives Sales and Stores Development......................... 45 Key Players Number of Stores Development ................................................... 48 Key Players Financial Analysis .......................................................................... 51 Key Players Departments Data....................................................................... 60 Terms and Conditions of the Collaboration with Suppliers ............................. 60 Sales Promotion Methods .................................................................................. 62 1
ICAP Bulgaria 6.8 6.9 Logistics and Distribution.................................................................................... 64 Private Label Products ....................................................................................... 64
6.10 Advertising Channels ......................................................................................... 66 7 8 9
Market Size .................................................................................................................67 International Retail Market Data ...........................................................................73 Future Development ................................................................................................79
9.1 9.2 Future Development of Present Market Players .............................................. 79 New Entrants ....................................................................................................... 80
10 Conclusions ...............................................................................................................81 10.1 Present situation in the Bulgarian Food Retail Market ..................................... 81 10.2 SWOT Analysis ..................................................................................................... 82
List of Charts
Chart 3.1: Chart 3.2: Chart 3.3: Chart 4.1: Chart 4.2: Chart 5.1: Chart 5.2: Chart 5.3: Chart 5.4: Chart 5.5: Chart 5.6: Chart 6.1: Chart 6.2: Chart 6.3: Chart 6.4: Chart 6.5: Chart 7.1: Administrative-territorial regions of Bulgaria Business Conjuncture 2004 2007 Business Climate in Retail Trade 1997- 2008 Retail Sector Representatives Development, 2004 2007 Total Number of Hypermarkets and Supermarkets in Bulgaria by Region Monetary Income of Households by Sources of Income (2007) Monetary Expenditure of Households by Expenditure Groups, 2007 Main Shopping Places for Food and Beverages Car Usage for Shopping in Bulgaria Shopping Frequency of Bulgarians Particular day for shopping Total Sales Development, 2004 2007 Key Representatives Average Sales per Store Development, 2004 -2007 Key Players Number of Stores Development, 2004 05.2008 Profitability Average Ratios per 11 Companies, 2004-2007 Liquidity Average Ratios per 11 Companies, 2004-2007 The Total Market Size of Food, Beverages, Tobacco and Non food Products Sold in Specialized and Non Specialized Retail Stores in Billion EUR, 2004 - 2007 Market Share of Key Players for 2007
Chart 7.2:
List of Tables
Table 3.1: Table 3.2: Table 3.3: Table 3.4: Table 3.5: Table 3.6: Table 6.1: Distribution of Social Security Contributions for the 2007 2010 period Snapshot of the Macro Environment Trade, Exchange Rate and Current Account Bank Groups Harmonized Index of Consumer Prices by Months, January 1997 May 2008 (YEAR 2005 = 100) Snapshot of students allocation by University programs Key Sector Representatives Total Revenue Development in Million EUR, 2004 2007
ICAP Bulgaria Table 6.2: Table 6.3: Table 6.4: Table 6.5: Table 6.6: Table 6.7: Table 6.8: Table 6.9: Table 6.10: Table 6.11: Table 6.12: Table 6.13: Table 7.1: Table 8.1: Table 10.1: Key Representatives Average Sales per Store Development in Million EUR, 2004 2007 Key Players Presence in Bigger Towns In Bulgaria (by 05.2008) Total Number of Stores Presence in Major Towns In Bulgaria (by 05.2008) Key Players Operating Margin (2004 2007) Key Players EBITDA Margin (2004 2007) Key Players Net Profit Margin (2004 2007) Key Players Return on Shareholders Equity (2004 2007) Key Players Current Ratio (2004 2007) Key Players Cash Ratio (2004 2007) Key Players Quick Ratio (2004 2007) Key Players Total Debt Equity Ratio (2004-2007) Key Players Activity Ratios (2004 2007) Key Representatives Market Shares Development in %, 2005-2007 Top 10 European Retailers, 2006 Supermarkets Retail Sector in Bulgaria SWOT Annalysis
Appenidces
Appendix 3.1: Appendix 4.1: Appendix 5.1: Appendix 5.2: Appendix 5.3: Appendix 5.4: Appendix 5.5: Appendix 6.1: Appendix 6.2: Appendix 6.3: Bulgarias regions data Store Development by Format, 2004 May 2008 Monetary Income of Households by Sources of Income 2003 2007 Total Income of Households by Sources of Income 2003 2007 Monetary Expenditures of Households by Expenditure Groups, 20032007 Total Expenditure of Households by Expenditure Groups, 2003 2007 Household Consumption of Main Foods and Beverages Profitability ratios of Key Players, 2004 2007 Liquidity ratios of Key Players, 2004 2007 Structure Ratios of Key Players, 2004 2007
1 EXECUTIVE SUMMARY
The supermarkets and hypermarkets retail sector in Bulgaria has enjoyed a considerable growth over the past few years as total sales were increasing and large international retailers entered the market.
shopping centers. The move to shopping malls is a result of the lack of available town centre retail space as well as the high cost of greenfield investments.
1.2 Supply
Apart from other Western European Countries the retail market in Bulgaria is very fragmented, dominated by specialized and non specialized stores offering food and non food products. According to data provided by the Regional Inspectorates for Prevention and Control of the Public Health (RIPCPH), supermarkets and hypermarkets hold approximately 1% of the total retail stores . It is observed that their total share has increased in the last few years. Mostly they are situated in the larger towns of the country: Sofia, Plovdiv, Varna, Burgas, Russe, Veliko Turnovo. The market is dominated by the global international retailers Metro Cash and Carry, Schwarz Group, REWE Group, the Surbian Picadilly and the Hungarian Bulgarian CBA. The biggest Bulgarian owned retail chain is Fantastiko. Other Bulgarian chains are Familia, Magazini Evropa. It could be observed that domestic retailers are concentrated in Sofia region in the formats of convenience stores and supermarkets. The principal supermarket chains in Bulgaria at the moment are Metro Cash & Carry, Kaufland Bulgaria (Schwarz Group), Billa Bulgaria (REWE Group), Piccadilly (Delta Maxi), trade alliance CBA Bulgaria, Fantastiko. The top three distinguished market leaders Metro, Kaufland and Billa account to approximately 15% of the whole sector sales. Key retail chains analyzed in the report hold approximately 20% of the 5
1.1 Demand
Key factors for the development of the sector are the stable growth of the economy, the improved business climate resulting in foreign direct investments growth, the development of the middle class, the increase in the purchasing power, and the fragmentation of the sector. Still the majority of the population among the country shops in local small stores and markets. The situation is a bit different in the capital Sofia and some regional centres, where most of the retail chains concentrate their stores and where population density and purchasing power are higher. There supermarkets are preferred shopping location by customers mainly because this is the most developed form of retail. Another tendency observed in the recent years is that Bulgarians have started to spend more resources for purchasing luxury products rather than basic commodities and the analysts believe this trend will continue. According to different surveys main determining factors for consumer choice appear to be price, location and quality. Another aspect of the growth has been the increase in demand within retail property development, with demand increasing for city and towncentre retail properties as well as for
ICAP Bulgaria total market. The remainder is taken up by the other specialized and non specialized stores, open markets and stands. In comparison top five retailers in Poland form approximately 25% and around 70% in most mature Western European markets. It is observed that Metro and Kaufland have much larger stores in terms of size than the other representatives. The other players (expect HIT Hypermarket) have much less retail space per store but some managed to develop greater country coverage. That is especially true for the CBA Bulgaria trade union gathering approximately 200 stores in different regions throughout the country. Most supermarket and hypermarket representatives had a positive sales development for the 2004 2007 period. As mentioned Metro Cash & Carry is the national leader with almost EUR 476 Million total revenue for 2007 followed by Billa Bulgaria and Kaufland Bulgaria respectively with almost EUR 171Million and EUR 131 Million turnover To large extent the development in total sales has resulted from the expansion strategies of the sector representatives. That especially applies for CBA Bulgaria, Billa Bulgaria, Kaufland Bulgaria, and Piccadilly as all companies expanded to the regions. By May 2008 Metro Cash & Carry operates 9 stores, Kaufland Bulgaria 18, Billa Bulgaria 32, Piccadilly 12, the trade alliance CBA Bulgaria about 200, Fantastiko 31 locations. All the key players are presented in the capital Sofia. Some representatives have more regional concentration but also expand to other regions. Such are mostly the key local chains (presence only in Sofia), the Serbian Piccadilly concentrated mostly in Varna, and CBA Bulgaria with stores in the North Central Region of the country.
1.3 The Market

Using National Statistic Institute data as well as experts and industry players estimates the market size of food, beverages, tobacco and non food products sold in specialized and non specialized stores accounts to approximately EUR 5.6 Billion in 2007. According to the analyzed data the market has increased with average17% on annual basis for the 2004 2007 periods. It is observed that the role of the key analyzed representatives in the retail sector as well as their market share is increasing from 16.5% in 2005 to almost 20% in 2007. As previously mentioned Metro Cash & Carry is the market leader with approximately 9% of the total share followed by Billa Bulgaria with almost 3% and Kaufland Bulgaria with 2,4%. Key domestic retail chains form approximately 3% of the total market with key representative Fantastiko with almost 1.8%. Both present and new entrants release information about future regional expansion strategies. A robust development is observed by Kaufland and CBA Bulgaria. New entries are expected to increase the competition n the market. They are mostly concentrated in the hypermarket, supermarket and discounter formats. Such are the French hypermarket leader Carrefour (with first stores in Sofia, Burgas and Varna), the Slovenian Mercator, and several discounters such as Lidl, Plus Market and Penny Market.
2 INTRODUCTION
2.1 Objectives
The objective of the study is to provide detailed information about the development of the supermarkets and hypermarkets food and beverages retail sector in Bulgaria. The factors and the components, which affect the market considering the economical processes on international, regional and domestic level are closely examined. The analysis also represents the general political, economic, social and technology aspects of the country development including data about the basic country data, macroeconomic and trade indicators, legal highlights, demographic development. Another goal of the study is to analyze the markets demand. A survey on households budgets development for the 2000 2007 period as well as the major shopping habits and purchasing decision factors of the consumers are presented. The market supply characteristics and the different types of food retail stores development are also examined. Furhermore the sector is described by determining its key players and their development in terms of stores and total revenue through the years. An important role is given to the key players financial analysis. Information regarding the logistic and distribution, sales promotion methods, advertising channels, terms and conditions of the collaboration with suppliers, and private label products development, as well as geographic concentration is provided. A key objective of the sector study is also to establish the market size of food, beverages and non food products sold in specialized and non specialized retail sotres in Bulgaria for the 2004 2007 period and to determine the market shares of the major representatives on the basis of their total sales data. The international retail market data is presented examining the global and regional retail trends. Finally the research informs about the future development and concludes the major opportunities and threats of the sector on the basis of SWOT analysis.
2.2 Methodology
The report is compiled using information from public sources, officially released data, comments from key players representatives, and experts estimates. The overall PEST analysis chapter is based on information provided by official government institutions concerning the country information, political, administrative and basic regulatory framework, macroeconomic, trade, demographic and technological factors. Sources include: Bulgarian National Bank (BNB), National Statistic Institute (NSI), Agency for Economic Analysis and Forecasting (AEAF), InvestBulgaria Agency (BIA). Experts analysis regarding the data presented is provided.
ICAP Bulgaria The 28 Regional Inspectorates for Prevention and Control of the Public Health (RIPCPH) throughout the country are responsible for the registration and administration of different food store formats. The general characteristic of the food retail sector in terms of number of stores development for the 2004 May 2008 in Bulgaria is provided. The data is derived from the RIPCPH and Ministry of Healthcare database. The Demand chapter is based on the National Statistic Institute (NSI) regular surveys on household budgets for the 2003 2007 period. Data about the households consumption of main foods and beverages is also provided. Information regarding the shopping habits and major purchasing decision factors is based on the sector representatives comments as well as publicly released analysis carried out by consultancy companies specialized in the consumer panel monitoring on a local and international level. These include GFKs Shopping Monitor, AC Nielsen, and Market Test. The key sector representatives are determined using information from the industry comments, and Bulgarian Industrial Association (BIA) data. The total sales data development and financial analysis for the 2004 2007 period are based on the the officially published balance sheets and profit and loss statements. Some key representatives total sales data is hard to be accurately provided for the examined period. Such is the case with CBA Bulgaria as they represent a trade union rapidly developing through the years and total revenue is hard to be established. The comments of CBA Asset Management (a shareholder in CBA Bulgaria) that the company represents approximately 40% of the total turnover for the alliance in 2007 are implemented. The average sales per store are calculated by using the total turnover of a certain company and the number of stores operating during the calendar year. The key players sales per department as well as the terms and collaboration with suppliers, private label products, logistic and distribution, advertising channels, and strategic moves information encompasses data derived from industry players comments, released data and experts analysis. The total food retail sector in Bulgaria market size is estimated using official information from the National Statistic Institute regarding the total sales of food and beverages for the 2004 2006, industry players comments, and experts estimates. For the calculation of the non food sales, also offered by the sector representatives, the general ratio of food to non food department sales is used. Judging from industry players comments the total sales of food to nonfood products ratio is approximately 70% to 30% and such is applied when estimating the total market size. It has to be mentioned that cash and carry stores, hypermarkets and larger supermarkets have larger share of non food items in comparison to the other store formats. International data representation is based on global researches provided by the international consultancy companies A.T. Kearney regarding the Global Retail Development Index, and Deloitte Touche on Global Power of Retailing.
3 PEST ANALYSIS
3.1 Basic Country Information
Area: Population: Real GDP growth rate: Economy (GVA, 2007): University degrees: Native language: Foreign languages: Religion: Government: Currency: Affiliations: 110,910 sq. km. / 42,822 square miles 7.718.750 ( 3 743 327 - males / 3 975 423 - females ) 6.2% (2007) 61.5% services, 32.3% industry and 6.2% agriculture 22% of population Bulgarian English, German, French, Spanish, Russian and etc. 83% Eastern Orthodox Parliamentary democracy BGN pegged to EUR at 1.95583:1 European Union, NATO, World Trade Organization
3.2 Political, Legal and Regulatory Framework

3.2.1 Political status The Republic of Bulgaria is a parliament democracy with a unicameral parliament of 240 deputies elected for a four year term by a popular vote. The last elections took place in June 2005. Key Parliaments responsibilities include enactment of laws, the approval of the country budget, the scheduling of presidential elections, the appointment and discharge of the Prime Minister as well as other ministers, the declaration of war, the deployment of troops outside of Bulgaria and the ratification of international treaties and agreements. The current Prime Minister since 2005 is Mr. Sergey Stanishev and the current President is Mr. Georgi Purvanov re - elected on October, 2006 for a five year term. The Prime Minister is elected by the largest parliament group. The Council of Ministers represents the Executive branch and currently consists of 21 ministers. Bulgaria joined NATO on March 29, 2004 and the European Union on January 1, 2007. The country has been a member of the United Nations since 1955 and is a founding member of OSCE. The Bulgarian judicial system is represented by regional, district and appeal courts, as well as a Supreme Court of Cassation. There is also a supreme Administrative court and a system of military courts. The Presidents of the Supreme Court of Cassation, the Supreme Administrative Court and the Prosecutor General are elected by a qualified majority of two thirds of all the members of the Supreme Judicial Council and are appointed by the President of the Republic.
ICAP Bulgaria The administrative territory of Bulgaria is divided into regions and municipalities. Bulgaria has 278 municipalities and 28 regions (See Appendix 3.1). Mayors of the municipalities and municipal councils are elected through direct local elections every 4 years. The municipal council is the local government authority, which sets forth the development policy of the city. The municipal council consists of the directly elected municipal councilors. The executive power body in the municipality is the mayor. The regions are administrative-territorial units executing the regional policy of the central government. The regional government is an autocracy body of the executive power in the region, serving as the state government in the region and ensuring compliance with national and local interests when executing the regional policy. Chart 3.1: Administrative-territorial regions of Bulgaria
Source: InvestBulgaria Agency
3.2.2 Regulations Tax Policy The National Revenue Agency is responsible for the collection and maintenance of the corporate tax, personal income tax, VAT, patents, as well as the social security payments. Corporate Income Tax All companies and partnerships doing business in Bulgaria are subject to a 10% corporate income tax under the Corporate Income Tax Act (CITA). Companies registered in Bulgaria are considered as tax residents while companies that operate in the country via a branch, office, agency, etc., are subject to tax on the profits generated by their Bulgarian establishment. The annual Profit and Loss Statement is declared no later than 31st March of the following taxable year.
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Supermarkets & Hypermarkets in Bulgaria Manufacturing companies are allowed to exemption of the corporate income tax and tax credits for investment in depressed regions, in case they meet several conditions described in CITA. As defined by CITA, depressed regions are municipalities with an unemployment rate of 35% above the country average and are included in a list of such companies which is annually reviewed and approved by the Minister of Finance. Personal income tax The personal income tax is 10% flat. According to the Personal Income Tax Act (PITA) tax liable persons are individuals - residents and non-residents, and corporate entities explicitly enumerated therein. Residents are considered individuals who reside in Bulgaria longer than 183 days for each 365 days period. Residents are liable for their world-wide income. Non-residents are liable only for their income derived from Bulgarian sources. Value Added Tax The Value Added Tax (VAT) in Bulgaria is currently 20%. There are exempts of VAT that are discussed in the Value Added Tax Act (VATA) including the supply of buildings or part of buildings that are not new, the supply of agricultural and forestry land, non profit supplies, and others. Employment Issues The relationship between employers and employees in Bulgaria is regulated mainly by the Labor Code. It determines the following components: Working hours: five-day working weeks and 40 working hours. Annual leave: not less than 20 days. Retirement age: minimum of 63 for men and 58 (2006) for women. Minimum monthly gross salary: EUR 112,5 (BGN 220) (2008)
Table 3.1: Distribution of Social Security Contributions for the 2007 2010 period Year 2007 2008 2009 2010 and thereafter
Source: Bulgarian Investmen Agency
Distribution of social security contributions Employer 65% 60% 55% 50% Employee 35% 40% 45% 50%
Foreign Investors Policy The new Encouragement of Investment Act regulates the terms and procedures for investing in Bulgaria. The law equally applies to Bulgarian and foreign investors. The Minister of Economy is the leading executive authority that shall perform the state 11
ICAP Bulgaria policy in the investment field. The Encouragement of Investment Act sets forth preferential treatment measures for investment, meeting certain criteria. The measures are differentiated according to the class of the investment grouped in three classes, depending on the investment project value as follows: first class - investment over BGN 70 million. second class - investment from BGN 40 million to BGN 70 million, and third class - investment from BGN 10 million to 40 million;
General preference applied to all classes of investment is shortening the time limits for provision of administrative services to certified investors, for realization of their investment plans. On presentation of a certificate for investment class, central and territorial executive authorities, and local self-government authorities shall provide administrative services within time limits by one third shorter than the ones provided for in the legislation. The measures, however, do not apply to investment in banks, non-banking financial institutions, insurance companies, investment companies and companies with special investment purposes, managing companies, pension funds, health insurance companies, gambling companies and investment made under privatization agreements.
3.3 Economic Factors

3.3.1 Macro Environment Table 3.2: Snapshot of the Macro Environment
2002 GDP (EUR bn) GDP (annual real growth rate %) GDP per capita (EUR) Population (M) Unemployment ( %) Average monthly gross wage (avg. EUR) Export FOB (EUR m) Import FOB (EUR m) FDI (EUR m) FDI (% of GDP) Inflation (avg, %) Government debt (% of GDP) 16.6 4.5 2,105 7.8 16.3 132 6,063 7,941 980 5.9 5.8 48.1 2003 17.7 5.0 2,263 7.8 13.5 140 6 ,668 9,094 1,851 10.5 2.3 39.8 2004 19.8 6.6 2,551 7.7 12.2 150 7,985 10,938 2,736 13.8 6.1 33.2 2005 21.9 6.2 2,827 7.7 10.7 166 9,466 13,876 3,103 14.4 5.0 23.6 2006 25.1 6.3 3,260 7.7 9.1 178 11,983 17,373 4,104 23.6 7.3 17.9 2007 28.9 6.2 3,771 7.6 6.9 220 13,473 20,831 6,109 21.1 8.4 20.35
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2002 EUR/BGN exchange rate pegged at 1.95583 Base Interest Rate (avg %) 1.96 3.96 2003 1.96 2.68 2004 1.96 2.61 2005 1.96 2.04 2006 1.96 2.69 2007 1.96 3.93
Source: National StatisticalInstitute, BNB
The major macroeconomic factors indicate a very good dynamics in industry and services and to a smaller extent in agriculture for the 2002 2007 periods. The 2007 real GDP growth stands at 6.2 % against 4.5 % in 2002. On the supply side, 2007 growth on the previous year is formed by decrease of value added in agriculture almost twice accelerated growth in industry and a persisting level of growth in services. On the demand side, GDP dynamics is depended on high growth in internal demand, which in 2007 was denoted by an accelerated growth in investments and delayed growth in household consumption. In 2007 real growth in investment moves up to 21.1% against 14.4 % in 2005. In 2008, more moderate growth is expected in internal demand and persisting high growth in supply. Economic growth may be boosted also by better performance of agriculture as compared to 2007. For the first three months of 2008 the real GDP growth reaches 7%. Major factors for the development are the internal demand as well as the net export as the export growth is estimated to 9, 2%. The high economic dynamics in 2006 is accompanied by accelerated growth in employment, decreasing unemployment and higher economic activity of the people. Sustainable decrease of unemployment continued in 2007. NSIs labor force survey and Employment Agency (EA) data reflect identical positive trends. The unemployment coefficient calculated according to the labor force survey methodology is down to 6.9 % in 2007. In the first quarter of 1997 an agreement was signed with the International Monetary Fund by virtue of which a Currency Board, as well as many rigid measures for economic reforms, where introduced. The selected reserve currency was the German mark and the fixed rate of exchange was BGL 1.000/DEM 1. Apart from the considerable slow-down of inflation, the Currency Board has helped towards national currency stabilization, and credit interest rate reduction. The Bulgarian BGN (Lev) is pegged to the Euro, at an exchange rate of 1.95583. It is generally expected that this fixed rate is going to remain in place until Bulgaria adopts the Euro as its national currency, which is likely to happen no earlier than January 2013. The exchange rate of the Bulgarian lev to American Dollar fluctuates during the years, but as a whole shows appreciation of the BG lev against the US dollar.
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ICAP Bulgaria 3.3.2 Business Climate The business climate in Bulgaria remains favorable and its dynamics continues upward. The ESTAT Index of Business Climate is the highest in absolute terms (by May 2008) in the whole Index history. National Statistical Institute business survey confirms the favorable business environment in Bulgaria registering a high sector economic activity in industry, construction and services. Still in July 2008 a decrease in all sectors is observed. A major factor pointed out is the economic uncertainty due to the negative political and economic comments provided by the European Commission regarding the accumulation of European funds from the PHARE, SAPARD, ISPA pre accession programs. Chart 3.2: Business Conjuncture 2004 - 2007
Source: Agency for Economic Analysis and Forecasting
3.3.3 International Trade Table 3.3: Trade, Exchange Rate and Current Account
Indicator Current account Trade balance (EUR m) Exports, FOB Exports, FOB ( year over year percentage change) Imports, FOB Imports, FOB ( year over year percentage change) Current account (% GDP) 2002 -402.5 -1,878.0 6,062.9 6.1 7,940.9 6.0 -2.4 2003 -972.3 -2,425.6 6,668.2 10.0 9,093.8 14.5 -5.5 2004 -1 306.9 -2 953.5 7,984.9 19.7 10,938.4 20.3 -6.6 2005 -2 705.7 -4 409.7 9,466.3 18.6 13,876.1 26.9 -12.4 2006 -4 490.4 -5 562.1 12,011.9 26.9 17,574.1 26.7 -17.8 2007 - 6 219.9 - 7 357 13 473.6 12.2 20,830.6 18.5 -21.5
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Indicator Trade balance (% GDP) Exports, FOB (% GDP) Imports, FOB (% GDP) USD/BGN exchange rate (at the end of cor. period)
Source: Bulgarian National Bank
2002 -11.3 36.6 47.9 1.88
2003 -13.7 37.7 51.4 1.55
2004 -14.9 40.2 55.1 1.44
2005 -20.2 43.3 63.4 1.66
2006 -22 47.7 69.6 1.49
2007 -25.5 46.6 72.1 1.33
In 2007, there was a negative foreign trade balance of goods and services. Real growth in exports of goods and services accelerated on a year-over-year basis. However, growth in imports is higher, but the increase of current account deficit shows higher domestic demand. Accelerated growth, decreasing unemployment and increasing consumption of Bulgarias major trade partners the EU Member States promote foreign trade development. The degree of integration of the Bulgarian economy into global economy is improving. The factors contributing to growth in exports include: (1) the sustainable economic growth of Bulgaria, which allows better planning and higher security of investments, and (2) renovated production capacities providing a basis for production of increasingly higher volume of goods for export. Anticipations of sustainable inflow of foreign direct investments are based on a couple of factors. First is the upward trend of investments in the construction of new production capacities and in the expansion and reconstruction of existing capacities planned by some foreign investors. Second is the start of some of the largest investment projects in Bulgaria (e.g. Belene, Maritsa-Iztok 1). Third are the developments registered in privatization, e.g. the sale of District Heating Company Varna, the advertising for sale of Bulgaria Air and the district heating companies, as well as the progress achieved on the concessions for major highways. In order to realize the potential to attract more foreign investments, there is a need of intensive and well-directed efforts towards building the necessary infrastructure, training and educating the necessary labor force and maintaining a stable economic and financial environment. The analysis of Bulgarian export shows strong trend of increase from 6, 1 % in 2002 reaching 26, 6 % in 2006 and 12, 2 % in 2007. The trade balance is negative as both import and export are marked with a considerable growth. This shows improvement of economical and trade international relations of Bulgaria. Bulgaria, together with Romania and Croatia experienced sufficient increase of its current account deficit, according to a research of rating agency Fitch Ratings. According to Fitch Ratings, the increase of current account deficit shows higher domestic demand rather than competitiveness crisis in these countries. Bulgaria's current account deficit reached 21, 5% of the country's GDP in 2007.
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ICAP Bulgaria Bulgaria is funding their deficits through direct foreign investment. Yet their Gross Foreign Debt (GFD) keeps increasing in relation to the GDP. The FDI/Current Account ratio reaches 132, 7% in 2006 and 98, 2% in 2007. 3.3.4 Banking System The creditworthiness of the Bulgarian banking system has improved greatly in the past few years, according to a report of Standard & Poor's (foreign currency, BBB/Positive/A-3; local currency, BBB+/Stable/A-2). It is driven by good economic activity and structural reforms stimulated by the Republic of Bulgaria's accession into the EU in 2007, as well as privatization, restructuring, and modernization of the economy. The BNB Banking Supervision Department groups the commercial banks in view of outlining the dynamics of processes in the banking system. This grouping does not entail any rating element, and should not be interpreted as rating of their financial position. Arranging banks into groups is done based on the amount of their assets and is changed as of each particular period. The first group consists of 5 banks, the second group comprises all the remaining banks, and the third group comprises the branches of foreign banks in Bulgaria. Table 3.4: Bank Groups
I Group II Group III Group
Unicredit DSK Bank United Bulgarian Bank Raiffeisenbank (Bulgaria) Eurobank E F G Bulgaria
First Investment Bank Pireus Bank Bulgaria Societe General Expressbank Stopanska and Investment Bank Corporate Commercial Bank Allianz Bulgaria Central Cooperative Bank MKB Unionbank Municipal Bank Investbank Procredit Bank Bulgarian American Credit Bank International Asset Bank Tokuda Bank Emporiki Bank Commercial Bank D Encouragement Bank Texim Private Entrepreneurial Bank
Alpha Bank S.A. - Sofia Branch BNP Paribas S.A. - Sofia Branch Citi Bank N.A. - Sofia Branch ING Bank N.V. - Sofia Branch T.C. Ziraat Bankasi - Sofia Branch
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3.3.5 Credit Rating The leading credit rating agencies recognized worldwide assign domestic and external ratings at the borrowers request through fixed scales. Standard & Poors agencys founding principle is the investor has the right to know. The company provided independent financial analysis and information worldwide. Scale: D-AAA Moodys Investor Service: A leading global credit rating, research and risk analysis firm that publishes credit opinions, research and ratings on fixed-income securities, issuers of securities and other credit obligations. Scale: C-Aaa Fitch Ratings Agency provides credit ratings to corporate, municipal bonds, preferred stocks, commercial paper, and to non-commercial organizations. Scale: DAAA Standard & Poors: Bulgarias improved creditworthiness is supported by its high growth potential, prudent fiscal policies, and European integration. It is driven by good economic activity and structural reforms stimulated by the Republic of Bulgaria's (foreign currency, BBB/Positive/A-3; local currency, BBB+/Stable/A-2) impending accession into the EU, as well as privatization, restructuring, and modernization. Moodys Investors Service also raised the outlook on the Government of Bulgarias Baa3 long-term foreign and local currency bond ratings to positive from stable. The alterations in outlook was due to the governments strong fiscal position, robust economic growth and expected Euro zone membership. Economic growth has been robust and macroeconomic volatility has declined. The outlooks on Bulgarias A1 foreign currency bond ceiling, Baa3 foreign currency deposit ceiling and Baa1 local currency deposit ceiling were also changed to positive from stable. Bulgarias sovereign credit fundamentals are underpinned by sound fiscal policy and falling government debt, large foreign direct investment inflows, as well as rapid and sustainable growth. They are also supported by the good prospects for economic policy continuity with the government that has emerged from the June elections, says Nick Eisinger, Fitch Analyst for Bulgaria. Fitch raised the countrys credit rating to BBB, the long term local currency rating to BBB+, and the country ceiling rating to A-. 3.3.6 Macro factors concerning the Retail Sector in Bulgaria
The retail sector is marked with a considerable development especially during the mid 2006 mid 2007 period. With respect to the selling prices, retailers assessments and expectations have grown up. Sales expectations are marked with increase in volumes as well as product prices. According to National Statistical Institute (NSI) the greatest weight among the reasons limiting the activity of enterprises continued to 17
ICAP Bulgaria be the competition in the branch, the insufficient demand and the uncertain economic environment, which were denoted by 36.4%, 34.7% and 29.6% of the enterprises respectively. Chart 3.3: Business Climate in Retail Trade 1997- 2008
Source: Agency for Economic Analysis and Forecasting
In early 2008, higher monthly growth of consumer prices as compared to the first quarters of 2004 2007 period is a result of continuing increase of consumer food prices. Foods account for the highest share (36.7%) in the consumer basket. Major drivers of the increase in food prices, observed since mid-2007 are the rising prices of plant-growing products (mostly grain and oil-bearing products) on the international markets and the internal market situation.
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Table 3.5: Harmonized Index of Consumer Prices by Months, January 1997 May 2008 (YEAR 2005 = 100)
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 Months I II III IV V VI VII VIII IX X XI XII 66.63 67.71 72.42 80.58 84.46 87.68 92.63 96.31 103.43 109.72 122.42
15.32 52.45 56.52 56.30 57.35 58.17 59.61 62.89 65.31 65.82 66.47 68.04 68.89 68.99 69.30 68.14 65.74 65.27 65.46 67.57 67.79 67.43 69.30 68.85 68.17 67.75 67.14 66.53 68.79 69.29 70.34 71.14 71.46 74.17 74.98 74.74 73.97 74.07 74.26 74.71 76.93 78.67 79.62 80.23 81.07 81.35 81.39 81.23 81.29 81.22 81.07 81.32 82.35 83.76 83.95 86.74 88.15 88.84 88.73 86.89 85.43 85.51 84.95 85.63 86.47 86.61 88.25 88.36 88.70 88.96 88.41 86.49 87.26 87.92 88.74 89.36 91.01 93.90 94.23 94.15 94.42 94.45 92.78 93.91 93.49 94.37 94.52 95.11 96.93 97.77 98.25 99.40 99.24 98.81 99.58 100.24 101.43 102.23 102.69
2006 104.29 106.96 107.20 107.87 108.13 107.07 107.32 107.28 106.86 107.58 108.73 2007 111.33 111.91 111.94 112.61 112.98 112.74 114.66 117.22 118.63 119.02 121.14 2008 124.31 125.60 126.76 127.68 128.77
Source: NSI
3.4 Social and Demographic Factors

Demography According to the 2001 census, Bulgarias population is mainly ethnic Bulgarian (83.9%), with two sizable minorities, Turks (9.4 %) and Roma (4.7%). Of the remaining 2.0 %, 0.9 % is distributed among some 40 smaller minorities, the most numerous of which are the Russians, Armenians, Vlachs, Jews, Crimean Tatars and Karakachans. 1.1 % did not declare their ethnicity. Bulgarian is the mother tongue of 84.8 % of the population; it is a member of the Slavic languages. This is the only official language, but other languages such as Turkish and Romany, are spoken corresponding closely to ethnic breakdown. Most of the Bulgarians (82.6 %) are, at least nominally, members of the Bulgarian Orthodox Church, the national Eastern Orthodox Church. Other religious denominations include Islam (12.2 %), various Protestant denominations (0.8 %), Roman Catholicism (0.5%), with other denominations, atheists and undeclared numbering are 4.1 %. 19
ICAP Bulgaria Bulgaria has negative population growth since the early 1990s, due to the economic collapse and high emigration. In the 1988 the population was 8 859 000 people, and in 2007 is 7, 767, 290. Education There is a tendency that educated young people move from the towns in the country to some of the four big cities (Sofia, Varna, Plovdiv, and Bourgas) or emigrate overseas. That is why the main part of the population in the capital consists of highly educated people, who enjoy relatively high remuneration compared to the Bulgarian standards. Their average income is rising much faster than the total average salary for the Country. As a result, the life style of Sofia city citizens has improved significantly during the last few years. This in turn accelerates the labor costs for the businesses in Sofia and keeps the labor cost in the country at low levels. In addition, the disposable income for the people living in the big cities in Bulgaria is much higher compared to the average level for the Country. Table 3.6: Snapshot of students allocation by University programs
Business Studies University Programs
Finance Accounting Business Administration International Business Relations Economics Marketing Total &
Technical Sciences Graduates

5.881 1.929
Students Enrolled
17.078 12.095
University Programs
Computer Systems and Technologies Communication Systems Technologies Electrical Engineering Informatics Machine Building Automation EngineeringCombined Programs Electronics Total &
Students Enrolled
6.564 4.822
Graduates
833 966
4.606 12.445 4.805 51.029
1.402 3.576 1.441 14.229
4.016 5.465 4.737 2.757 1.916 2.297 32.574
559 1.218 779 513 479 343 5.690
Source: National Statistical Institute, Jan. 2007
Technological Factors According to the latest e-Bulgaria Report the e-Bulgaria Index illustrates a stable improvement in Bulgarias readiness to utilize the capacity of new ICTs for its sustained and social development.
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Supermarkets & Hypermarkets in Bulgaria In terms of network access a significant growth in international Internet connectivity both via terrestrial and satellite lines is observed. Leaders in households internet provisions are the cable operators (having approximately 40% of the consumers), and LAN providers with 30%. Bulgaria is lagging behind with respect to the television digitalization that is used by less than 1% of the households. Still the level of PCs and Internet penetration in households continues to be low, compared to the other Central and East European countries. Approximately 65% of the households have cable television and about 25% of them have at least one computer. Economy and business experienced the fastest growth over the last years, compared to the weaker performance of the public administration, society, and especially the education system. Approximately 90% of the enterprises have at least one computer, 75-80% internet access, and about one quarter of them websites. Bulgaria has good conditions for high-tech and telecommunication industries and services with its strategic location, qualified workforce, macroeconomic stability, growing domestic market and good education. This is why some multinational companies choose Bulgaria to build their regional offices and headquarters even before Bulgaria joined the EU. The most notable is Hewlett Packard, which built its Global Service Center for Europe, the Middle East and Africa in Sofia. Telecommunications may be the fastest growing industry in the country. Currently there are three mobile operators on the market Globul, Mtel, and Vivatel which provide almost 100 % coverage. A tender for issuing a forth mobile operator license is in process. More than 5, 500, 000 Bulgarians own a mobile cellular phone. Every town and many villages have a fast Internet connection. There are around 100, 000 Internet hosts. According to IDC: ICT Economic Impact Model on country development, Bulgarias Presence is as follows: Software spending today represents 16% of the total IT Spending market in Bulgaria and is growing by more than 12% annually. More than 42% of all IT employees in Bulgaria are engaged in creating, distributing, or servicing software for external customers or internal corporate users and half of all IT tax revenues come from the software-related sector. More than half of 2004 IT employment and tax revenues stemmed from the vast Microsoft ecosystem. For every dollar of Microsoft revenue in Bulgaria in 2004 another $8.24 were generated by other companies selling hardware or software that works on Microsoft operating systems or servicing that software. In Bulgaria, the IT market is growing at a rate of 12.4% and will reach $552M by 2009. Overall IT market in South East Europe will grow at 10.4% CAGR. By 2009, the software market will account for 16% of the total IT market in Bulgaria and is growing at 12.2% while SEE software market is growing by 12.8%. 21
ICAP Bulgaria In Bulgaria, software related employment currently accounts for above 42% of all IT employment and will grow to almost 48% by 2009, while software represents only 16% of total IT spending. General IT employment opportunity will increase from 27,837 jobs today to more than 35,700 jobs in 2009, which means almost 7.900 new IT employees in next 5 years. IT employment in Bulgaria grows at 5.1% CAGR by 2009, while South East Europe IT employment is growing by 4.9%.
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4 GENERAL CHARACTERISTIC OF THE FOOD RETAIL SECTOR

4.1 Food retail store types
Currently in Bulgaria there are no regulations establishing the different formats of food and beverages retail stores. The Regional Inspectorates for Prevention and Control of the Public Health (RIPCPH) determines the ratail stores type but the differentiation of the objects examined in the study is too general (Supermarkets and Hypermarkets, Specialized and Non specialized stores). Still several key factors could be pointed out that determine the retail food stores type. These include: 1) total trading area, 2) products assortment, 3) turnover 4) number of cash registers, and 5) targeted clients. Some international definitions of retail stores include the following: Small local stores they are located in districts with a large number of inhabitants. Usually the average trading area is less than 20 sq. m., and the store has one cash register. The products offered are of limited assortment, mostly goods of common usage. The targeted clients are people that shop frequently in small amounts. Superette (mini market) these are stores that often service persons in low density suburbs. They have larger trading area than the small local stores and, in most cases, offer a closer alternative (in terms of distance) for purchasing grocery items than supermarkets but at a slightly higher price. On most occasions one would only use a Superette for small purchases. Convenience stores - they are often located alongside busy roads, located in densely-populated urban neighborhoods with a trading area of approximately 200 sq.m. The products assortment is about 2 500 3 500 goods, in many times including products like alcohol beverages, cigarettes, prepackaged foods, etc. Although larger, convenience stores selection is still limited compared to supermarkets and in many stores only 1 or 2 choices are available. Prices are typically higher than supermarket or mass merchandise store. In some countries most convenience stores have longer shopping hours, some being open 24 hours. Supermarkets the traditional supermarket occupies a large floor space usually ranging between 1 000 sq.m and 3 500 sq.m on a single level and is situated near a residential area in order to be convenient for consumers. It is internationally accepted that in order to be classified as a supermarket, it is necessary to have sales of at least EUR 1, 25 Million ($2 million). Its basic appeal is the availability of a broad selection of goods under a single roof at relatively low prices. Other advantages include ease of parking and, frequently, the convenience of shopping hours. Supermarkets usually make massive outlays for newspapers and other advertising and often present elaborate in-store displays of products. The supermarket typically comprises meat, produce, dairy, and baked goods departments along with shelf space reserved for canned and packaged goods as well as for various nonfood items such as household cleaners, pharmacy products, and pet supplies. Most 23
ICAP Bulgaria supermarkets also sell a variety of other household products that are consumed regularly, such as alcohol (where permitted), household cleaning products, medicine, clothes, and some sell a much wider range of non-food products. Supermarkets are often part of a chain that owns or controls (sometimes by franchise) other supermarkets located in the same or other towns; this increases the opportunities for economies of scale. In order to maintain profit, supermarkets attempt to make up for the low margins with a high overall volume of sales, and with sales of higher-margin items. Hypermarkets these are store variation of a supermarket that offer a variety of food as well as nonfood items, such as appliances, clothing, and services, in a vast space much larger than a regular supermarket, usually over 6 000 sq.m.. Hypermarkets typically have business models focusing on high-volume, low-margin sales. Because of their large footprints many hypermarkets are located in suburban or out-of-town locations that are easily accessible by automobile. When they are planned, constructed, and executed correctly, a consumer can ideally satisfy all of his or her routine weekly shopping needs in one trip. The hypermarkets carry an enormous range of products under one roof, including full lines of groceries and general merchandise of more than 30 000 food and non food articles. Usually the non food articles hold a significant share of the total goods offered reaching 50% and above. Discounters usually discount stores are divided into two groups: hard and soft discounters. They are characterized with a large trading area. Discount stores sell products at prices lower than those asked by traditional retail outlets. Most discount department stores offer wide assortments of goods; others specialize in such merchandise as jewelry, electronic equipment, or electrical appliances. Discount stores differ because they sell branded goods and prices vary widely between different products. Economies of scale are achieved by: 1)Limited number of employees, 2) Limited costs for maintenance and equipment, 3) Optimization of logistics and distribution costs, 4) Wide range of products including private labels. Cash & Carry Stores these retail stores are characterized with a vast trade area of approximately 7 000 to 9 000 sq.m located in suburban or out-of-town locations that are easily accessible by automobile. The stores offer food as well as non food articles. The products range is higher than the ones offered in hypermarkets. Cash & carry customers are mostly retailers, professional users, caterers, institutional buyers, etc. Though wholesalers buy primarily from manufacturers and sell mostly to retailers, industrial users and other wholesalers, Cash & Carry stores also perform many value added functions, including selling and promoting, buying and assortment building, bulk-breaking, warehousing, transporting, financing, risk-bearing, supplying market information, and providing management services.
4.2 General data on the food retail sector in Bulgaria

The Regional Inspectorates for Prevention and Control of the Public Health (RIPCPH) keep a constant record of the registred food and beverage retail representatives. Currently there are 28 Regional Inspectorates operating throughout the country. According to the RIPCPH data by May 2008 there are 54 627 food and beverage 24
Supermarkets & Hypermarkets in Bulgaria retail representatives in Bulgaria. Their number has rapidly developed for the 2004 May 2008 period with an average 10% annual growth although that trend is slowing down. The majority of retail representatives (almost 70%) are nonspecialized stores offering food, beverages and tobacco, as well as stores offering food and non-food goods. All other stores are marked with a decrease in development. That proves the overall tendency of supermarkets and hypermarkets to attract more customers. Currently there are approximately 500 supermarkets and hypermarkets operating in Bulgaria holding approximately 1% total share of all the retail representatives. Their total number has increased by 18 % compounded annual growth rate for the period of 2004 2007. The different stores development could be observed in Appendix 4.1. Chart 4.1: Retail Sector Representatives Development, 2004 - 2007
Source: RIPCPH
Regional disparity in the presence of supermarkets and hypermarkets is quite big. As observed in Chart 4.2, supermarkets and hypermarkets are predominantly located in the bigger towns of Bulgaria. The capital Sofia has the highest concentration of supermarkets and hypermarkets with 105 in total. Varna comes second with 83 in total followed by Plovdiv with 43 and Burgas with 34. The differences are partially explained by the size of the population and higher income level. The retail chains are growing faster than the whole industry sector, which means that the chains are gaining market share. The chains are growing faster than the purchasing power of consumers and thus they are acquiring the market share from the so-called open markets as well as from specialized and non specialized stores. The retail chains possess obvious competitive advantages to off-store vending. The 25
ICAP Bulgaria stores provide more comfort and a wide range of services for the customers. They guarantee that the goods are properly certified and respond to client complains, thus ensuring a higher level of customer service. Stores provide also card based loyalty schemes and as a result there are high customer switching costs, thus ensuring long term client loyalty. Chart 4.2: Total Number of Hypermarkets and Supermarkets in Bulgaria by Region
Source: RIPCPH
4.3 Legal Framework Supermarket
for
the
establishment
of
The legal framework regarding the sector is described in the Law of Public Health, Law of Foods, Law of Spatial Planning, and other ordinances, permissions and certificates issued by the authorized public sector organizations. The sector representatives do not report about any significant regulatory issues that affect the sector development. Some of the steps for the establishment of a supermarket include:
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Requirements regarding the Law of Spatial Planning a) Visa for architecture project issued by the chief architect of the municipality. b) Evaluation and approval of the investment project carried out by the chief architect as well as the administration and independent licensed consultants. c) Permission for construction issued by the chief architect of the municipality or in some cases by the city council, or the chief architect of the district. d) Permission for usage issued by the National Construction Control Directorate Requirements regarding the Law of Public Health a) Hygiene approval regarding the project documentation issued by the Regional Inspectorates for Prevention and Control of the Public Health (RIPCPH). b) Sanitary permission for exploiting the construction object issued by RIPCPH. c) Hygiene requirements and sanitary rules for the construction and exploitation of the construction object according to Ordinance N7 since 08.04.2002. (hygiene requirements regarding the enterprises that produce or trade with foods) Other requirements a) Certificate for fire safety b) Registration of the trading object (issued by the major of the region according to the Ordinance for the Trade Activity) c) Registration of the object as one for production and trading with foods issued by RIPCPH according to the Law of Foods. d) Permission for trading with tobacco products (issued by the major). e) Sanitary permission regarding the keeping and realization of chemical household products (issued by the Ministry of Health according to Ordinance N35 since 01.09.1995). f) General requirements regarding the labeling and packaging of foods (according to the Law for protection of consumers and trade regulations, Law of Foods, Ordinance for requirements regarding the foods labeling). g) General requirements regarding the storage of foods (Ordinance N7 since 08.04.2002). h) Specific requirements regarding the naming, labeling, packaging and storage of different product groups.
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5 DEMAND
The countrys economic development, the decrease in unemployment and the expansion of bank consumer loans during the past few years are considered as key drivers for the increase in the purchasing power of the Buglarians. However, in 2007, significant prices increase, after the acceptance of Bulgaria into European Union, has slowed down the consumption. However market players consider these factors only as temporary and suggest that the retail sector will gather strength again after the entrance of new players increasing the competitiveness of the sector.
5.1 Household Budgets for the 2003 2007 period

5.1.1 Household Income The National Statistic Institute provides monthly reports about the households budgets development. Appendix 5.1 presents data concerning household income for the period 2003 2007 by sources in EUR and average per capita and the total incomes per household and per capita including the loans and interests incomes, loans repaid, etc. Compounded Average Growth Rate (CAGR) is callculated to describe the growth in hosehold income over the period of 2003-2007. The studies show that the monetary income of households has grown at an average rate of 13.16 % for the last five years (2003-2007) as for the last year 2007 the growth is 21.61 % compared to 2006. The change is almost 64 % in 2007 as compared to 2003. This is due to increase in wages and salaries with more than 67 % in 2007 compared to 2003 as the specific gravity of the wages and salaries is 52.4% of the total monetary income. CAGR (2003 2007) shows growth of wages and salaries of 13.69 %. Pensions represent 24.2 % of the monetary income of households. The Pension from retirement increased at a rate of10.60 % for the period 2003-2007. Chart 5.1: Monetary Income of Households by Sources of Income (2007)
SOURCE: NSI, 2008
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ICAP Bulgaria Examining the total income of households in 2007 leads to the conclusion that approximately 7 % of the total income is generated by credit, loans, interest income and loan repaid to the households. Property sale and property income increased on average at 35.84 % and 24.14, % for the mentioned period but their contribution to the total household income is only 1.8 % and 1.1 % (2007) respectiviely. Monetary incomes from other social benefits have also increased significantly with an average of 34.76 % for the last five years, but they contribute only 2.6 % (2007) to the total household income. 5.1.2 Household Expenditures Household expenditures have increased during the years and in 2007 the monetary expenditure marked growth of more than 63 % compared to 2003 (see Appendix 5.3). The higher consumption expenditure is a result of the significant growth in the price of some major food groups. Monetary expenditure increased with average 13.13 % during the last five years. Consumer monetary expenditure has increased at an average of 12.80 % (2003-2007) as its components Foods and non-alcoholic beverages increased on average by12.47 %, Alcoholic beverages and tobacco with 18.54 %, Clothing and footwear with 11.85 %, Housing, water, electricity, gas and other fuels increased on average by 8.75 %, Furnishing and maintenance of the house with 16.04 %, Health with 14.31 %, Transport expenditure marked significant increase with average 18.37 %, Communication with 11,86 %, Recreation, culture and education with 12.45 %, Miscellaneous goods and services with 13.48 %, Taxes increased with average 10.95 %, Household plot 4.90 %, and Other expenditures with 19.59 % for the period 2003-2007. Chart 5.2: Monetary Expenditure of Households by Expenditure Groups, 2007
SOURCE: NSI, 2008
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Supermarkets & Hypermarkets in Bulgaria In 2007 foods and non-alcoholic beverages cover 34,6 % from the total monetary expenditure in 2007, followed by expenditure for housing, water, electricity, gas and other fuels with 13,1 %, Other expenditure - 10,6 %, Transport - 7 %, Health 14,16 %, Communication 11,86%, Alcoholic beverages and tobacco - 4,6 %, Furnishing and maintenance of the house 4 %, etc. The monetary expenditure for food and non alcoholic beverages increased with 60 % in 2007 compare to 2003.
5.2 Household Consumption of Main Foods and Beverages

It could be observed that there arent any significant changes in the consumption volume of foods and beverages during the last five years (see Appendix 5.5). The consumption of bread and paste products during the period 2003-2007 decreased with small average percentage -2.66 %, flour with 8.15 %, while the consumption of other bakery products increased on average by 6.90 %. The meat consumption as a whole increased with 2.52 % as well as the consumption of lamb, Mutton and goat, Other kinds of meat decreased respectively with 5.74 %, 8.07%, and 6.94%, as in favour of the increased consumption of pork meat with 2.61 %, Beef and veal with 2.41 %, Minced meat with 5.83 %, Poultry meat with 3.06 %, Edible offals 2.59%. From the group Meat products Ready-to-cook products marked a growth of average 18.92 %, followed by Non-perishable sausages and dry meat with 10.67%. The consumption of fish and fish products marked a light increase of 3.14 %, while the litres consumed of milk decreased with average - 6.82 % for the last five years. The consumer decrease the consumption of Fresh and frozen fruits with average 1.55 %, and Fresh and frozen vegetables only with 0.16 %. Juices, syrups and nectars (litres) are consumed more with average 13.62%, the same trend is observed with other type of non alcoholic beverages with 15.65 % and Alcoholic beverages 3.76 %, while the number of Tobacco products consumed decrease with small average 3.32 % for the period of 2003 - 2007.
5.3 Bulgarian Consumers Shopping Habits

The Bulgarian retail network is still not sufficiently developed in all regions of the country and the convenient location influences the consumer choice the most. Kiosk-style food shops are the preferred shopping place for 45% of Bulgarians when buying food. In a study regaring the Bulgarian consumers purchasing behaviour, about 30% indicated small supermarkets to be the most convenient shopping place for buying food and only 3% prefer to go to the hypermarkets. 14% preferred superettes (supermarkets) and 8% other types of stores (Source: Shopping monitor CEE 06/07; GKF, + INCOMA, Research 2007).
31
ICAP Bulgaria Chart 5.3: Main Shopping Places for Food and Beverages
Source: GKF, + INCOMA, Research 2007
Most of the retail chains concentrated their stores in the capital Sofia and some regional centres, where population density and purchasing power are higher.This makes the supermarkets a preferred shopping location by customers. In the capital, Sofia, 65% of the population said they prefer to buy food from supermarkets mainly because this is the most developed form of retail in this location. It is also observed that Buglarians are not very mobile in comparison to other SEE countries consumers but that trend is developing. That is a significant factor for the large supermarkets and hypermarkets situated mostly in the suburbs of towns and where the volumes of purchases are higher. Chart 5.4: Car Usage for Shopping in Bulgaria
Source: GKF, + INCOMA, Research 2007
32
5.4 Purchasing Decision Factors

There are a few purchasing decision factors that influence the choice of consumers. Bulgarians reveal that locations as well as price are the key decision factors. It is observed that the consumption is shifting towards better quality products as wide range and quality of products are also reported as important factors. Labeling of the goods also has an impact over the consumers choice of store while using debit and credit cards is of less importance. However, it is believed that this perception is a subject to change and this factor will become more decisive. Such also are considered the helpfulness of staff, opening hours, past experience, loyalty schemes, parking. Promotion brochures also influence the consumer choice as they develop the brand of the store or chain. About 28 % of the population receives and reads shopping brochures. In the capital where the concentration of chains is higher, over 57 % of the population regularly receive brochures by mail and read the available discounts and bargains for products. Almost 65% of Bulgarians do their shopping at least once a week and more than 77 % of Bulgarian people have not designated a particular day as their shopping day. However, Saturday is considered to be the preferred day for shopping, followed by Friday with almost 7 % of the interviewed (Source: TGI Market Test Bulgaria 05). The habits of consumers regarding the purchasing frequency seem to have changed during the year of 2007 and 2008. The regular, everyday shopping has been replaced with less frequent and higher-volume shopping in one preferred location. Chart 5.5: Shopping Frequency of Bulgarians
Source: Urban population, TGI Market Test Bulgaria
33
ICAP Bulgaria Chart 5.6: Particular day for shopping
Source: Urban population, TGI Market Test Bulgaria
Another tendency observed in the recent years is that Bulgarians have started to spend more resources for purchasing luxury products rather than basic commodities, pointed a research of ACNielsen for sales of perishable goods in 2007. The experts attribute these results to the increased solvency of the Bulgarians. This trend is widely observed among the highest income social stratum, which is about 5-8 % of the population. The middle class has also increased its demand for luxurary brands, which contributes for the registered peaks in demand of premium brands, especially around holidays like Christmas, New Years, and Easter. The beginning of the summer period is also denoted by such a trend. The same trend is observed for non-food goods. In the categories of detergents, facecare cosmetics, soap powders, safety-razors, perfumes, hair conditioner and shampoos, the consumers now tend to prefer more expensive products rather than the products that they used to buy before. Still the relatively low purchasing power of consumers has to be kept in mind.
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6 SUPPLY
The increasing demand and still the relatively fragmented sector are the main reasons for the robust growth of the retail sector in Bulgaria. Currently there are approximately 55 000 food and beverage retail representatives (specialized and non specialized stores, food stands, open markets, supermarkets and hypermarkets) of which less than 1% are supermarkets and hypermarkets. The market is dominated by the small retailers. The key players are international companies that have positioned well in the market. Some of the global famous companies are present in Bulgaria. Such are Metro Cash & Carry, Kaufland (Schwarz Group), and Billa (REWE). These companies have made a solid presence in the Bulgarian market via the operation of supermarkets and hypermarkets. In addition to the large international players there also exist Bulgarian companies that manage to keep their competitiveness under the rival pressure. Recently one Bulgarian supermarket chain, Piccadilly, after its successful positioning in the market and sound operations, became a good target for acquisition and was bought by the Serbian Delta Maxi. The Bulgarian competitors that form a sizable share of the market developed supermarkets and convenient food stores structure of operations. Such are Fantastiko, Familia, Magazini Evropa, 345.
6.1 Presentation of Key Sector Representatives

Chain name: Metro Cash & Carry Address of the head office: 1784 Sofia, Bulgaria 7-11 km Tzarigradsko Shousse blvd. Web site: www.metro.bg Total number of stores ( by 05.2008) Number of stores in Sofia (05.2008) Average sq. m. per store Capital (EUR) Number of employees Total Turnover 2007 (EUR) Profit 2007 (EUR) Year of 9 2 9,000 sq.m EUR 38 Million 2,385 (2006) EUR 476.4 Million EUR 39 Million 1998
35
ICAP Bulgaria Chain name: Metro Cash & Carry Establishment Ownership Store Format: General Information Metro Cash & Carry Bulgaria EOOD Cash & Carry The assortment of Metro Cash & Carry includes approximately 15 Thousand food and beverages products and more the 25 Thousand non food articles.
Chain name: Billa Bulgaria Address of the head office: 1404 Sofia, Bulgaria 55 Bulgaria blvd. Tel: 02/8188100 , 8188139,8188111 Fax: 02/818 81 46, 818 81 48 E-mail: info@bg.billa.co.at Web site: http://www.billa.bg Total number of stores ( by 05. 2008) Number of stores in Sofia ( by 05. 2008): Average sq. m. per store Capital Number of employees Total Turnover 2007 Profit 2007 Year of Establishment Ownership Store Format: 32 7 Wide range of supermarket store formats ranging from 4 000 to 1 200 store area (average 2000 sq.m.) and from 800 to 2 000 trading area (average 1000 sq.m). EUR 4,6 Million 2,821 (2007)
EUR 171.3 Million EUR 10 Million 1999 EURO - Billa Holding (Austria) Supermarket
36
Chain name: Kaufland Bulgaria Address of the head office: Sofia 1345, Bulgaria 1 Kuskush Str., Zaharna Fabrika District Web site: www.kaufland.bg Total number of stores (by 05. 2008) Number of stores in Sofia ( by 05. 2008) Average sq. m. per store Capital Number of employees Total Turnover 2007 Profit 2007 (EUR) Year of Establishment Ownership Type of store: General Information 18 4 4,500 sq. m. EUR 250 Thousand (2008) 2,322 (January 2008) EUR 131 Million Loss EUR 8.8 Million 2004 Kaufland Bulgarien Warenhandel GMBH - Germany Discounter About 14 - 18 Thousand products are displayed depending on the size of the supermarkets.
Chain name: HIT Hypermarket Address of the head office: Sofia,1000 75 Alexander Malinov Str. Tel: (+359) 2 81 75 117 E-mail: hit-info@hit-hypermarket.bg Web site: http://hit-hypermarket.bg/ Total number of stores (by 05. 2008) Number of stores in Sofia (by 05. 2008): 2 2
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ICAP Bulgaria Chain name: HIT Hypermarket Average sq. m. per store Capital Number of employees 2007 Total Turnover 2007 Profit 2007 Year of Establishment Ownership Store Format General Information 7, 000 sq. m. EUR 9, 142 Million 295 (2006) EUR 21.6 Million Loss EUR 0.9 Million 2003 HIT Bulgarien GMBH - Germany 100% Hypermarket Approximately 27 thousand products are offered.
Chain name: Piccadilly JSC Address of the head office: Varna 9000, Bulgaria 1a Bitolya Street, Tel.: +359 52 663 434, 663 433 Fax: +359 52 663 456 E-mail: centre@piccadilly.bg Web site: www.piccadilly-bg.com Total number of stores (by 05. 2008) Total number of stores ( by 05. 2008) Number of stores (2008) in Sofia: Average sq. m. per store Number of employees Total Turnover 2007 Profit 2007 Year of 38 12 12 2 3,000 sq.m 2,200 EUR 85 Million Loss EUR 95 Thousand 1994
Supermarkets & Hypermarkets in Bulgaria Chain name: Piccadilly JSC Establishment Ownership Delta Maxi 85% - EUR 217,500 Bolyari PJSC Varna 15% - EUR 38,500 Store Format General Information Supermarket Supermarkets Piccadilly could be pointed out as one of the innovative on the market. The company was recently issued BDS EN ISO 9001:2001 (Quality Management Systems) and BDS EN 22000:2005 (Food Safety Management Systems) Certificates.
Chain name: Fantastiko Address of the head office: 12 Akad. Boris Stefanov Blvd., Sofia Tel: (+359) 2 969 25 00 Fax: (+359) 2 969 25 31 E-mail: office@ff-bg.net Web site: www.ff-bg.net Total number of stores ( by 05. 2008) Number of stores in Sofia ( by 05. 2008): Average sq. m. per store Number of employees Total Turnover 2007 Profit 2007 Year of Establishment Ownership 32 31 The stores vary from 400 to 4,500 sq.m. 1,207 (2007) EUR 101.7 Million EUR 8.5 Million 1991 Van Holding EOOD 5 stores Vinterko BG 5 stores Evropa VN 6 stores Euro Hard 5 - stores Dar 5 - stores
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ICAP Bulgaria Chain name: Fantastiko Valeri Nikolov SP 3 - stores Others 3 stores Store Format General Information Supermarket, Convenience Stores Currently the company is presented mostly in Sofia and in the town of Kustendil. Lately the company implements a diversification of products investment strategy by combining the supermarkets with entertaining centers.
Chain name: CBA Bulgaria Ltd. Address of the head office: CBA Bulgaria LTD 93-96 Atanas Dalchev Str, Izgrev District, Sofia 1113 Web site: http://www.cba.bg/
CBA Asset Management 14 Marno pole Str Veliko Tarnovo, 5000 Tel: (+359 62) 601241,601247 Fax (+359 62) 601247 E-mail: v.tarnovo@cba.bg Web site: http://www.cbaamg.com/ Total number of stores ( by 05. 2008) CBA Bulgaria approximately 200 CBA Asset Management (major shareholder) 29 (including 11 supermarkets that were recently acquired from Burleks) CBA Bulgaria 16 CBA Asset Management 1 The supermarkets are of different type. Currently there are: 70 Local Markets up to 150 sq.m. 51 Supermarkets between 150 300 sq.m. 37 Supermarkets between 300 1000 sq.m. 3 Hypermarkets of more than 1000 sq.m. Capital CBA Bulgaria EUR 127 887 CBA Asset Management EUR 100 000 40
Number of stores in Sofia ( by 05. 2008): Average sq. m. per store
Supermarkets & Hypermarkets in Bulgaria Chain name: CBA Bulgaria Ltd. Number of employees 2008 Total Turnover 2007 Over 600 (CBA Asset Management) CBA Bulgaria - EUR 57,5 Million (experts estimates) CBA Asset Management - EUR 23 Million Year of Establishment CBA Bulgaria Jsc. 2003 CBA Bulgaria Ltd. 2006 CBA Asset Management - 2007 Ownership CBA Bulgaria Is a trade union of 29 companies with shares between 0,4 and 4,4%. Some shareholders are CBA Hungary, CBA Veliko Turnovo, CBA Rousse, CBA Gabrovo. Supermarket, Convenience stores, Local stores More than 10 Thousand products are offered. The product variety varies in the different shops because of the different commercial areas. Currently CBA Bulgaria has approximately 200 supermarkets of different sizes in approximately 40 towns through the country. It unites 29 shareholders. The supermarket network is developed using Hungarian CBA Commercial model. Its goal is to develop a network of independent supermarkets under the brand name CBA. Thus companies could face the strengthening international competition, negotiate better contract conditions with producers and distributors, and provide quality products at a competitive price. The supermarkets are of convenient stores type. They are closely connected with the regions in which they operate and have good understanding of the local consumption patterns and needs. At the moment CBA Asset Management, the major shareholder in CBA Bulgaria, has 29 supermarkets (including the acquired Burlex supermarkets). Its subsidiaries are CBA Veliko Tarnovo, CBA Rousse, and CBA Gabrovo. The company is a regional leader in the regions mentioned. Before the acquisition the total area represented approximately 10 252 sq.m. Most of the supermarkets have a long term lease contract and only a few are owned by the company. After the acquisition the total area will reach 16 500 sq.m. The acquisition is financed by a EUR 9,5 Million credit from Unicredit Bulbank. The acquired Burlex 104 JSC company has 11 supermarkets, 8 of them are located in 41
Store Formats General Information
ICAP Bulgaria Chain name: CBA Bulgaria Ltd. Varna, and one in Dobritch, Provadia and Kavarna. It owns 6 of the supermarkets covering the total area of approximately 9 000 sq.m. Since the end of 2007 CBA Asset Management is a public company. At the moment CBA Bulgaria has 14 regional centers that are responsible for the logistics and distribution. They are situated in the major towns of the country - Sofia, Montana, Pleven, Gabrovo, Veliko Turnovo, Rousse, Shoumen, Varna, Bourgas, Stara Zagora, Haskovo, Blagoevgrad, and Pernik.
Chain name: Magazini Evropa Address of the head office: Total number of stores ( by 05. 2008) Number of stores in Sofia ( by 05. 2008): Average sq. m. per store Capital Number of employees 2008 Total Turnover 2007 Profit 2007 Year of Establishment Ownership Store Formats General Information 1360 Sofia, Bulgaria Industry zone Orion, 34, 3020 str., floor 6 26 20 500 sq.m Appr. EUR 210. 4 Million N/A N/A Loss EUR 227 Thousand 2007 Magazini Evropa JSC Supermarket, Convenience stores The first stores, owned by Mr. Kovachki had been opened since 1992. Later in 2001 he decided to consolidate them in store chain Evropa. The stores were aquired by stages during the last ten years and untill the beginning of 2007 were owned and managed by 13 firms, which in the beginning of 2007 were consolidated into a new company Magazini Evropa AD. Till the end of 2007 the company used for its stores the extant buildings of the former stores Nova Denitsa and Oasis. In the futur plans of the company are underlined
42
Supermarkets & Hypermarkets in Bulgaria Chain name: Magazini Evropa some new investments in two or three big trade-entertaining centres.
Chain name: Maxima Bulgaria (T-Market) Address of the head office: 1517 Sofia, Vrazhdebna District 247 Botevgradsko shosse Tel: (+359 2) 915 2800 Fax: (+359 2) 915 2671 E-mail: maxima@maximabulgaria.bg Web site: www.maximabulgaria.bg Total number of stores ( by 05. 2008) Number of stores in Sofia ( by 05. 2008): Average sq. m. per store Capital Number of employees Total Turnover 2007 Profit 2007 Year of Establishment Ownership Store Formats General Information 22 17 500 sq. m. EUR 0,5 Million 721 EUR 41.7 Million Loss (EUR 2.8) Million 2005 Maxima Bulgaria (Maxima Invest UAB Lithuania) Supermarket, Convenience stores Approximately 4 6 Thousand products are displayed. Approximately 90% of the food products are from local producers.
Chain name: Familia Address of the head office: Total number of stores (2008) Sofia, 8 Khan Asparuh str. Tel: (+359 2) 9433525,9805294,9442403,9809858,9805680 14
43
ICAP Bulgaria Number of stores in Sofia (2008): Average sq. m. per store Capital Number of employees 2008 Total Turnover 2007 Profit 2007 Year of Establishment Ownership Store Formats General Information 14 250 sq.m EUR 2 500 153 EUR 5.3 Million EUR 18 Thousand 2007 Nova Familia 2007 EOOD Convenience stores Familia supermarkets started operating as convenient stores in year 2000. In 2004 the private equity fund Global Finance acquired 20% of the company. In 2005 the private equity fund Equest Balkan Investment acquired 30% of the company including Global Finances shares. Due to its rapid growth (18 new stores are opened for one year) in 2006 the company suffers liquidity crisis. That leads to franchising and selling some of the stores. About 3 Thousand products are disclosed.
Chain name: 345 Address of the head office: Sofia, 1421 2 Bisser Street, Lenec District, Tel: (+359 2) 9640371,9505636; 9640345 10 10 Stores are of different sizes. From 200 to 1500 sq. m. EUR 60,000 302 (2006) EUR 13 Million (2006)
Total number of stores ( by 05. 2008) Number of stores in Sofia ( by 05. 2008): Average sq. m. per store Capital Number of employees Total Turnover 2007
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Supermarkets & Hypermarkets in Bulgaria Profit 2007 Year of Establishment Ownership EUR 1 Million 2002 Mr. Vassil Giorev 33.33% Mr. Georgi Trendafilov 33.33% Mr. Dimitar Georgiev 33.33% Store Formats Supermarket, Convenience stores
Chain name: Elemag Address of the head office: 30 Elemag Stra, Sofia 1113, Tel: (+359 2) 9632237,9632796, 9631984, 9940162 Fax: (+359 2) 8688397 E-mail: goran@elemag.bg WEB-site: http://www.elemag.bg/ 3 3 2,000 sq.m total area, 1,000 sq.m. trading area EUR 1.5 Million
Total number of stores ( by 05. 2008) Number of stores in Sofia ( by 05. 2008): Average sq. m. per store Capital Number of employees Total Turnover 2007 Profit 2007 Year of Establishment Ownership Store Formats
EUR 8 Million EUR 18 Thousand 1994 Agro Industrial Bozhidar Petrakiev SP Gourmet
6.2 Key Sector Representatives Sales Development

The data used for the presentation of the key industry players total revenue development is derived from their officially published financial statements. The supermarkets and hypermarkets major share of total revenue is generated by food
45
ICAP Bulgaria and non food products sales. In some cases revenues are generated also from other activities (for example logistic services) but that applies to a few representatives and do not distort the general conclusions. The total revenue of the trade union, CBA Bulgaria, is hard to be provided for the 2004 2007 period due to its organizational structure and fast development. According to company representatives, CBA Asset Management provides approximately 40% of the total CBA Bulgaria sales for 2007 and that comment is taken into account when calculating. The sector is marked with a considerable growth in the period of 2004-2007 as all major representatives increased their total revenue due to their aggressive market expansion. A rapid growth in total sales is particularly observed in the discounter Kaulfland. The company entered the market in 2006 with seven stores and now is one of the market leaders with approximately EUR 131 Million total revenue. The market leader in the sector is Metro Cash & Carry with almost EUR 476 Million total revenue for 2007. The company operates since 1998 and is the first international chain entering the market. By May 2008 the company operates nine stores. It is followed by Billa Bulgaria with almost EUR 171 Million turnover for 2007. Table 6.1: Key Sector Representatives Total Revenue Development in Million EUR, 2004 2007
Sector Representative 2004 Metro Cash & Carry Billa Bulgaria Piccadilly Kaufland Bulgaria Maxima Bulgaria (T-Market) CBA Asset Management Fantastiko Hit Hypermarket Familia 345 Elemag
Source: Official Balance Sheets of Companies
Total Revenue 2005 376 115 32.8 N/A 4.5 14.6 67.7 13.4 9 8.9 4.2 2006 405 141 55 45.9 25 16.9 78.1 18.5 7.5 11.1 6.8 2007 476.4 171.4 85 131 41.7 23 101.7 21.6 5.3 13 8
345.5 95.7 26.844 N/A N/A 11.3 61.3 3.7 4.55 4.3 3
Top retail representatives are Metro Cash & Carry, Billa Bulgaria, Kaufland Bulgaria, Fantastiko, Piccadilly, and CBA Bulgaria (CBA Asset Management is a key representative). Key local representative is Fantastiko with almost EUR 102 Million turnover. The decrease in the total revenues generated by Familia Supermarket chain was due to liquidity crisis and reorganization of the company.
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Supermarkets & Hypermarkets in Bulgaria Chart 6.1: Total Sales Development, 2004 - 2007
Source: Official Balance Sheets of Companies and Experts estimates
Key Representatives Average Sales per Store Development The average sales per store are marked with an upward trend. It is calculated on the basis of the annual turnover of the company and the number of stores operating during the calendar year. Key drivers for the development are the consolidation of the sector, organizational development, increase of the food prices, and the consumers purchasing power. The store formats and size are very closely related to the average sales per store. The top sales retail representatives are also leaders regarding the sales per store. The companies managed to increase their total number of stores expanding outside the big towns and moving to the rural regions. Metro Cash & Carry takes the lead with revenue of approximately EUR 59.6 Million per store for 2007 followed by HIT Hypermarket with EUR 10.8 Million, Kaufland with almost EUR 9.4 Million, Billa Bulgaria with EUR 6.6 Million and Piccadilly with almost EUR 7.7 Million per store. Table 6.2: Key Representatives Average Sales per Store Development in Million EUR, 2004 - 2007
Average Sales Per Store Development By 2004 Metro Cash & Carry Billa Bulgaria Piccadilly Kaufland Bulgaria T-Market CBA Asset Management 49.4 10.63 6.711 N/A N/A 2.2 2005 53.7 9.58 6.56 N/A 0.45 2.4 2006 50.6 7.83 5 6.56 1.56 1.9 2007 59.55 6.6 7.73 9.36 2.45 2.1
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ICAP Bulgaria
Average Sales Per Store Development Fantastiko Hit Hypermarket Familia 345 Elemag 2.7 3.7 0.6 0.86 1.5 2.71 6.7 0.39 1.1125 2.6 2.9 9.3 0.29 1.3875 3.4 3.51 10.8 0.41 1.44 2.65
Most key players have positive sales per store development. It could be observed that Billa Bulgaria has a down slopping average sale per store development for the 2004 -2007 period proving the severe competition on the market and the expansion to the regions with shops of smaller formats. Chart 6.2: Key Representatives Average Sales per Store Development in EUR Million, 2004 -2007
6.3 Key Players Number of Stores Development

The rapid development of the sector marks the expansion of the key players representatives in terms of total number of stores. The share of supermarkets and hypermarkets is increasing reaching approximately 1% of the total retail sector representatives. Leading market players have approximately 350 stores including CBA Buglaria stores (CBA Asset Management is a part of CBA Bulgaria). About 120 of them are supermarkets and hypermarkets. Some market players managed rapidly to develop their network of stores during the last few years as opening a new store investments vary according to the different sizes. Billa Bulgaria, Kaufland Bulgaria had a vast expansion policy in Greenfield 48
Supermarkets & Hypermarkets in Bulgaria investments. For some sector representatives as Familia, the rapid store expansion lead to a liquidity problems as the stores were not so mature so as to generate revenue and thus finance the development. Other sector representatives like CBA Bulgaria, T-Market mostly expand by takeovers and alliances. Recently CBA Asset Management (part of CBA Bulgaria), acquired the retail chain Burlex and thus expanded to the northeast regions. T-market also acquired several Familia stores. Metro Cash & Carry apart from their hypermarket store format managed also to develop convenience stores formats under their private label ARO and thus expand to regions and enter neighbourhoods. Currently there are more than 500 stores of such format offering mostly Metro Cash & Carrys branded products. Chart 6.3: Key Players Number of Stores Development, 2004 05.2008
Source: Sector Representatives and RIPCPH
Key Players Stores Mapping The presence of supermarkets and hypermarkets is mostly observed in the bigger cities of the country such as Sofia, Varna, Plovdiv, Burgas, Veliko Turnovo, Blagoevgrad, Russe. The rivals follow similar aggressive expansion practices although a disparity in the choice of regional concentration is observed. CBA Bulgaria, for example, is concentrated mostly in the North Central Region (Veliko Turnovo, Gabrovo, Russe). The large retail chains Metro Cash and Carry, Billa Bulgaria, Kaufland Bulgaria on the other side, have similar expansion strategy and have decided to mark their presence in every larger town of the country. Piccadilly, on the other hand, chose Varna to be its first town of operations and is well positioned in it. The company managed to expand to other big town locations as well.
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ICAP Bulgaria Table 6.3: Key Players Presence in Bigger Towns In Bulgaria (by 05.2008)
Retail chain/ Towns in Bulgaria Sofia Plovdiv Varna Bourgas Russe Stara Zagora Pleven Dobritch Sliven Shoumen Blagoevgrad Vratza Veliko Turnovo 1 1 1 2 1 Metro 2 1 1 1 1 1 1 2 1 1 2 1 1 1 1 1 1 1 1 3 11 11 2 Billa 7 2 Kaufland Fantastiko Piccadilly 4 1 1 8 1 31 2 TMarket 17 3 CBA 15 13 28 4 5 19 7 4 Hit 2 345 10 Elemag Familia 3 14
Source: Sector Representatives
Currently all key players are present in the capital Sofia, which is considered as hub. It is a major attraction for investments in the food and beverages retail sector as it enjoys a growing population and the highest in the country purchasing power. It could be observed that major players Metro Cash and Carry, Billa Bulgaria, Kaulfland already have established locations in the bigger towns of the country. Although third in population the town of Varna is second in terms of key players number of stores presence. It is observed that still Billa Bulgaria has no significant presence in the southeast region while Kaufland Bulgaria is already developing their second location in Varna. CBA Bulgaria also managed successfully to develop its retail shops network in the country. The key players geographical concentration proves that still the market is very fragmented and there is room for expansion to the regions. Table 6.4 provides information about the key players presence (hypermarkets, supermarkets, convenience stores, discount stores) in the major towns of the country in comparison to the total number of stores in the bigger towns. It could be observed that the food and beverage sector is dominated by non specialized and specialized retail store formats. Also key players have relatively low share in terms of total number hypermarkets and supermarkets that reveals opportunities for future mergers and acquisitions. Table 6.4: Total Number of Stores Presence in Major Towns in Bulgaria (by 05.2008)
Town Key Players' Retail sale of Total Number food, of Stores beverages and Presence in tobacco in Major Towns In specialized Bulgaria stores 107 597 20 38 190 205 Retail sale in nonspecialized stores with food, beverages or tobacco predominating 4549 796 2735 Non specialized stores for sale of Hypermarkets, food and non food Supermarkets goods 248 2944 796 105 43 83
Sofia Plovdiv Varna
50

Key Players' Retail sale of Total Number food, of Stores beverages and Presence in tobacco in Major Towns In specialized Bulgaria stores 8 306 9 21 11 5 3 13 2 6 13 127 239 53 183 110 102 141 69 68 Retail sale in nonspecialized stores with food, beverages or tobacco predominating 1351 1427 655 1647 105 36 422 139 804 340 Non specialized stores for sale of Hypermarkets, food and non food Supermarkets goods 1195 625 1774 651 1167 1099 1011 2109 645 1529 34 22 24 18 11 23 19 26 16 26
Town
Bourgas Russe Stara Zagora Pleven Dobritch Sliven Shoumen Blagoevgrad Vratza Veliko Turnovo
Source: Sector Representatives and RICPH
6.4 Key Players Financial Analysis

The data used in the financial analysis that follows is derived from the financial statements of the companies. The following companies were chosen to be analyzed as they represent the retailers in the forefront of the industry and financial data is available: Metro, Billa, Picadilly, CBA Asset Management, T-Market, Kaufland, Familia, Fantastiko, 345, HIT Hypermarket, Elemag. The period of the analysis includes the following years: 2004, 2005, 2006, and 2007. It is important to note here that investors reading this report should bear in mind that the companies under analysis are in different stages of their business life and their financial results would, therefore, reflect such stages. For example Kaufland Bulgaria started operating in 2006, the Lithuanian Maxima group (T- market) in 2005. An average industry annual ratio is presented by calculating the arithmetical financial ratios. Some data has to be examined carefully as some industry representatives financial development distorts the overall sector representation (the poor results of one company influences the overall positive results of the others). Profitability Profitability is analyzed based on the following five indicators - Operating margin (%), EBITDA margin (%), Net profit margin (%), Return on shareholders equity (%), Return on capital employed (%) (see Appendix 6.1).
51
ICAP Bulgaria
Chart 6.4: Profitability Average Ratios per 11 Companies, 2004-2007
Source: Official Financial Statements of Companies
The Operating Margin (%) represents the operating income as a percentage of Net Sales. A steady increase in the operating margin is observed in the financial results of the following key players show the calculation for the years 2004 2007. The average annual ratio is developing through the years starting from negative 4.75% in 2004 and reaching positive 1.8% in 2007. The average ratio for 2004 the key players are as follow: Metro (5.87 %), Fantastiko (4.93 %), Billa Bulgaria (4.71 %). All key sector representatives had an upwarding operating margin development for the 2004 2007 period. Higher results in 2007 present Metro Cash & Carry (8.22%), Fantastiko (9.16%), 345 (8.39%), Billa Bulgaria (5.89%). Table 6.5: Key Players Operating Margin (2004 2007)
Name 2004 2005 2006 2007
Operating Margin (%) Metro Cash&Carry Billa Bulgaria Piccadilly 5.87 4.71 0.22 7.21 5.07 -1.71 8.02 5.62 -8.67 8.22 5.89 -0.04
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Name CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 2004 1.51 N/A N/A 0.75 4.93 2.96 -65.14 1.47 -4.75 2005 1.57 -58.29 N/A -19.89 6.21 2.51 -23.30 3.92 -7.67 2006 1.84 -14.31 -24.84 -51.64 6.73 4.75 -10.86 2.55 -7.35 2007 2.83 -6.93 -6.73 2.86 9.16 8.39 -4.21 0.30 1.80
EBITDA represents the Earnings before Interest, Taxes, Depreciation, and Amortization. The EBITDA margin is calculated by taking EBITDA as a percentage of the Net Sales Revenue. EBITDA is used to analyze and compare profitability between the companies as it eliminates the effects of financing and accounting decisions. Table 6.6: Key Players EBITDA Margin (2004 2007)
Name 2004 2005 2006 2007
EBITDA Margin (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 7.43 6.78 0.32 4.96 N/A N/A 3.25 6.67 5.80 -59.14 7.68 -1.81 8.68 6.92 -1.42 4.33 -49.63 N/A -16.95 7.90 5.41 -18.98 9.76 -4.40 9.36 7.49 -7.60 3.80 -14.31 -14.52 -44.02 8.41 7.86 -6.83 8.26 -3.83 9.39 7.79 2.35 4.12 -2.53 1.24 2.93 10.89 10.99 -0.85 5.94 4.75
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ICAP Bulgaria The average annual EBITDA margin is marked with a positive development for the 2004 2007 period. The average EBITDA margins increases from (-1.81%) to 4.75% in 2007. Companies with high EBITDA that could be pointed out are 345 (10.99%), Fantastiko (10.89%), Metro Cash&Carry (9.39%), and Billa Bulgaria with (7.79%). The Net Profit Margin represents the profit before taxes as a percentage of Net sales. The higher the profit margin compared to the competitors, the better, but in some cases lawer profit margin represents a pricing startegyas in most cases some retailers, may be known for their low-cost, high volume approach. Table 6.7: Key Players Net Profit Margin (2004 2007)
Name 2004 2005 2006 2007
Net Profit Margin (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 5.87 4.71 1.59 1.51 N/A N/A 0.75 4.93 2.96 -65.05 1.47 -4.58 7.21 5.07 -0.02 1.57 -58.29 N/A -19.89 6.21 2.51 -23.30 3.90 -7.50 8.02 5.62 -5.87 1.84 -14.32 -24.84 -51.64 6.73 4.75 -10.86 2.55 -7.09 8.22 5.89 -0.04 2.83 -6.93 -6.73 2.86 9.16 8.39 -4.20 0.30 1.80
Compared to its competitors Fantastiko takes the lead position with 9.16% ratio for 2007, followed by 345 with 8.39%, Metro Cash&Carry 8.22%. The average industry net profit margin ratio is also developing reaching 1.80 in 2007. Return on shareholders equity (%) is expressed as the ratio of pre-tax profits to shareholders equity. It is a measure of the rate of return the shareholders receive on their investment in the business. Net Income for the Year is after taxes and interest as shareholders are not entitled to these cash flows. Metro Cash and Carry and 345 show a steady increase in this ratio. The rest of the competitors have fluctuating results and/or present really high ratios as a result of very low amounts of retained
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Supermarkets & Hypermarkets in Bulgaria earnings. The negative ratios are due to the negative earnings generated by the companies. Table 6.8: Key Players Return on Shareholders Equity (2004 2007)
Name 2004 2005 2006 2007
Return on Shareholders Equity (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 29.44 43.10 111.27 37.08 120.16 -7.86 0.46 50.44 45.74 -220.38 0.29 19.07 28.54 44.52 -28.68 20.52 121.25 -28.27 -314.06 44.29 39.31 153.95 17.94 9.03 29.36 39.54 130.58 29.40 62.21 -28.63 -131.94 37.86 57.37 -186.97 9.84 4.42 33.62 34.87 -18.78 7.87 42.15 -16.69 97.56 41.57 61.76 -541.16 -1.73 -23.54
Liquidity Liquidity is a class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. Liquidity is measured based on the following ratios: current, cash and quick, ratios as well as working capital (see Appendix 6.2). The current ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.
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ICAP Bulgaria
Chart 6.5: Liquidity Average Ratios per 11 Companies, 2004-2007
The industry average current ratio varies between 1.81 in 2004 to 1.22 in 2007. The company with highest ratio for 2007 is CBA Asset Managemet with 2.8 current ratio. Table 6.9: Key Players Current Ratio (2004 2007)
Name 2004 2005 Current Ratio Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market 1.26 1.07 0.83 1.04 8.23 N/A 1.22 0.99 0.87 1.91 1.69 0.80 0.82 1.14 1.41 N/A 0.84 0.98 1.03 1.38 1.87 1.24 0.61 1.17 0.82 0.41 1.27 0.99 0.91 1.38 1.68 1.31 0.67 2.80 0.98 0.39 0.98 1.41 0.98 1.46 2006 2007
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Name Elemag Average ratios per year (11) 2004 0.65 1.81 2005 0.53 1.06 2006 0.57 1.02 2007 0.76 1.22
The cash ratio measures a companys ability to meet its short-term obligations with its most liquid assets: cash and cash equivalents. A ratio above one displays the ability of the company to meet its short-term obligations with cash and cash equivalents. A decline in the average key players quick ratio is observed for the 2004 2007 period starting from 0.69 in 2004 and reducing to 0.43 in 2007. CBA Asset Management (1.99) has the highest ratio for 2007 while the rest are below 0.5. Table 6.10: Key Players Cash Ratio (2004 2007)
Name 2004 2005 Cash Ratio Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 0.01 0.59 0.23 0.48 4.17 N/A 0.23 0.40 0.01 0.46 0.29 0.69 0.01 0.27 0.17 0.21 0.39 N/A 0.09 0.17 0.18 0.32 0.21 0.20 0.05 0.19 0.14 0.34 0.20 0.06 0.21 0.36 0.34 0.40 0.25 0.23 0.03 0.20 0.23 1.99 0.27 0.10 0.46 0.44 0.36 0.54 0.17 0.43 2006 2007
The higher the quick ratio, the better the liquidity of the company. The average annula key players quick ratio decreases from 1.11 in 2004 to 0.78 in 2007. The best ratio for 2007 is registered by CBA Asset Management (2.27) followed by Metro Cash&Carry with 1.33.
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ICAP Bulgaria Table 6.11: Key Players Quick Ratio (2004 2007)
Name 2004 2005 Quick Ratio Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 0.88 0.61 0.45 0.58 5.87 N/A 0.77 0.47 0.10 0.93 0.42 1.11 1.25 0.29 0.41 0.64 0.93 N/A 0.65 0.52 0.28 0.42 0.37 0.58 1.42 0.84 0.26 0.63 0.46 0.24 1.12 0.56 0.40 0.58 0.42 0.63 1.33 0.99 0.33 2.27 0.43 0.19 0.72 0.55 0.65 0.87 0.28 0.78 2006 2007
Structure The debt to equity ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. A high debt to equity ratio suggests a capital structure with more debt than equity and vice. The average ratio of total debt to equity was ranging from 2.71 in 2004 to 10.69 during the last 4-year period. The industry players total debt equity ratio development is presented in the table below. Table 6.12: Key Players Total Debt Equity Ratio (2004-2007)
Name Metro Cash&Carry Billa Piccadilly CBA Asset Management 2004 0.81 1.36 10.05 7.76 2005 0.60 1.18 24.03 3.79 2006 0.53 1.12 -6.42 3.86 2007 0.67 1.17 5.11 0.57 Total Debt Equity Ratio
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Name T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (11) 2004 -4.47 0.14 1.74 1.49 5.48 4.21 1.23 2.71 2005 -4.14 2.27 6.40 1.20 5.15 -4.30 1.30 3.41 2006 -2.74 1.88 1.08 0.88 3.33 4.65 1.28 0.86 2007 -2.96 1.70 69.93 0.64 1.70 37.73 1.27 10.69
Activity ratio The average collection period represent the approximate amount of time that it takes for a business to receive payments owed, in terms of receiveables, from its customers and clients. Most chain stores show relatively short average collection period as the average ratio per the sector. Table 6.13: Key Players Activity Ratios (2004 2007)
Name 2004 2005 2006 2007
Average Collection Period - (days) Metro Cash&Carry Billa Piccadilly CBA T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year (14) 0.70 0.64 1.69 0.00 N/A N/A 11.82 0.83 0.52 22.61 2.21 4.56 1.17 1.04 4.67 0.00 28.24 N/A 30.13 1.71 2.23 4.40 5.73 7.93 1.40 0.00 3.84 0.00 0.00 25.54 8.22 2.51 2.97 6.54 6.77 5.25 0.27 0.00 5.46 0.00 8.10 6.30 59.18 2.51 13.98 14.18 4.87 10.44
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ICAP Bulgaria
6.5 Key Players Departments Data

The food and non food articles in the retail stores are organized in different departments. The most common divisions include: Food: including basic products, preserves, meats, frozen products, dairy products, confectionaries, bakery products, fish products, pet food, beverages (non alcoholic, alcoholic, wines, and beer), hot and cold bar, etc. Non food: including home appliances, cosmetics, sanitary products, clothes, accessories, office, media, electronics, etc. Grocery: fruit and vegetables.
According to the generated sales the different divisions form a certain share of the total revenue. It differs according to the store format types (hypermarket, supermarket, convenience stores) as the key international players have a significant share of non food sales. According to convenience stores and supermarkets representatives (Fantastiko, Familia, 345, T Market) the total revenue is distributed in the following way: Food and Beverages approximately 75 % of total sales o o Food approximately 55-65% of total department sales Beverages approximately 20 25% of total department sales
Non food approximately 15 20 % of total sales Grocery approximately 5-10% of total sales
According to the hypermarkets, supermarkets and discounter representatives (Hit, Metro, Billa, Kaufland) the total revenue is distributed in the following way: Food approximately 65 55% of total sales Non food approximately 30 40 % of total sales Grocery approximately 5% of total sales
Especially regarding Metro Cash & Carry non food sales have a significant share of the total revenue reaching approximately 40 45%.
6.6 Terms and Suppliers
Conditions
of
the
Collaboration
with
In most cases the supermarkets relations with producers, traders and distributors regarding supplies are on long term basis. In the beginning of each year the stores negotiate the contract conditions and the discounts as well as the promotions regarding the products supplied with. Discounts are negotiated on the basis of the volume of goods ordered. Discounts are also affected by the volume of sales. In most cases the suppliers are Bulgarian producers. Some sector representatives (for example Kaufland) require a bank guarantee that the producer will be able to 60
Supermarkets & Hypermarkets in Bulgaria supply the contracted amounts. There are cases that local producers cannot handle the amount of quantities required and thus import of the necessary goods (food, non food and groceries) is required. During negotiations both sides also discuss the participation of the products in the promotional brochures. Each company is obliged to participate in the promotion activities of the supermarket. The number of promotions is described in the contract and differs according to the sales volume and the marketing strategy. Sometimes retail chains include a clause that suppliers should not provide the same promotion conditions to the competitors for a few weeks. A key factor regarding the terms of payment is the amount ordered. The smaller supermarkets usually have a grace payment period of one and up to two weeks after the goods are delivered. In rare cases that period reaches a month. For bigger supermarkets and hypermarkets the payment terms may reach up to three months and more. After the EU integration many international producers and traders express their interest in offering their products on the Bulgarian market. The new international products usually are introduced through an already established in the country distribution network. For some goods larger retail representatives negotiate and contract directly with the foreign producers using the existing international mother chain network or local representatives. Companies from Central Europe Czech Republic, Poland, Hungary, as well as Romania and Greece where large European producers have already settled, show a considerable interest towards the Bulgarian retail market. In the pursuit for better profits, the retail chains are trying their best to cut down the costs of their operations. As the infrastructure is still in poor shape and the logistics have proven to be very difficult to improve in the short run, the chains are trying to enhance their position against the food producers in order to get better deals from them. In order to enhance the negotiation power the chains have developed a variety of methods to cut down the cost of products. Some include: Introducing private label products Private labels give the chain the freedom to choose its suppliers and look for cheaper products. Changing the supplier does not have any effect on the product loyalty because the brand is the same. Private label products are described in chapter 6.9 of the current report. Currently in Bulgaria most retail key representatives have their own private label products. Forming alliances As the bargaining power of the retail chains is increasing suppliers possibilities to determine a price of their own for each customer has deteriorated because of the strategic alliances companies have formed. The first alliance of this sort was formed in Bulgaria by CBA Bulgaria in 2003 with approximately 200 stores nowadays. The alliance is supposed to cut down the purchasing costs of goods by using the common negotiation power of the members of the alliance towards the food 61
ICAP Bulgaria manufacturers. The members share information on their prices, discounts, etc., and thus discounts negotiated and benefit every store in the alliance. The alliance is geared toward implementing a unified marketing and advertising policy. Offering the possibility for the supplier to sell its products in other regions as well. The chains introduce own label goods and form alliances in order to get discounts for products. The regional expansion of the biggest retail chains enhances their negotiation power. Regional expansion has become a significant factor in negotiations. Suppliers are interested in regional expansion along with the retailers, and only some retailers can provide access to the regions where the best growth prospects are. In Bulgaria that is provided mostly by international chains that operate on the market: Metro Cash & Carry, Kaufland, Billa, Piccadilly. Often importers and producers disagree with the supermarkets policy for constant discounts and promotional prices. That factor differs on the size of the companies as more developed enterprises have a wider variety of distribution channels while smaller producers mostly rely on retail chains trade. According to many industry representatives the retail chains policy towards suppliers becomes more and more aggressive. Lately, it could be observed that low price is not necessarily the main criteria for supplier selection. What the chains are looking for are high quality brands that attract customers.
6.7 Sales Promotion Methods

The stores are developing a wide range of services aimed at attracting and retaining customer loyalty. Bulgarian retail chain sector representatives managed to develop different sales driving activities, although merchandise activities in general are still in their initial phase. Such promotional activities include free samples or trials, coupons, lotteries, discounts, gifts, demonstrations and most of them apply to every retail chain. Major sales promotions methods that Bulgarian food and beverage retailers have implemented include the provision of promotion products catalogues or specialized newspapers among the customers. All key representatives have applied that promotional channel. Usually the catalogues are distributed in the post boxes in the neighborhoods and are also available on the website of the retail chain. The stores are thus using a push strategy that is aimed at customers with high price elasticity. Online Sales For now online shopping is not a common practice among Bulgarian food and beverage retailers. Only the supermarket Piccadilly implemented such service in 2007. Currently it offers approximately 1000 products. The total prices are the same as in the shop while a EUR 3 delivery fee is charged. The delivery is carried out within two hours. Still online shopping in Bulgaria has relatively slow growth due to several main reasons:
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Supermarkets & Hypermarkets in Bulgaria There is a need to change the already established consumer shopping patterns. There is a need to provide detailed information on products, including nutritional information, ingredients, etc. Some logistic problems associated with delivery Technological issues regarding personal computer use
Loyalty Cards Some supermarkets developed loyalty cards that are part of their client retaining strategy. The traditional loyalty card scheme provides customers with a percentage discount once they have accumulated certain spending amount. In some cases such loyalty cards grant customers with sales points that allow special purchases when reaching a certain number of points. Such is the practice that was applied by Piccadilly. The possession of a loyalty card provides access to self scanning, which is potentially a major source of convenience and added value to the customer, and may be valued to a group of customers more highly than the discount arrangement. For the retailer there is a greater incentive for the customer to use the loyalty card, which in turn adds to the retailers database of customer information. The real value of loyalty card schemes is to allow the retailer to relate purchases to customer buying behavior, to demoChartics, lifestyle and geoChartic profiles. This allows for better understanding of the types of customers and their needs which is vital for the business of the retailers. Such schemes also create higher customer switching costs as clients will not be as willing now to change stores and forego the accumulated points on their loyalty cards. Such impact on customer loyalty is becoming a key measure for retailer performance. According to CBA and Piccadilly representative approximately 60% of the total revenue is generated through the loyalty cards. The other key representatives also provide such conclusions. Specialization Retailers in Bulgaria continue to develop a retail structure that could enable them to be successful. It is observed that larger retailers are investing in store structures and services that could match the market needs in locations along the country as well as diversify themselves from the rest of the competitors. Their efforts are concentrated on providing: easy to access locations; extended opening hours; prepared foods and ready to serve meals; increased range of disposable products; and increased range of services. accessible parking lots
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ICAP Bulgaria
6.8 Logistics and Distribution

Logistics and distribution hold a significant share in the market positioning and business development of the retail sector representatives. Usually companies that trade with higher volumes develop their own logistic centers in order to have a more centralized distribution network and thus reduce product prices. The key market players with own logistic warehouses include Metro (with two distribution centers), Billa (in Gorublyane, Sofia), Kaufland (near the town of Rakovski), CBA Bulgaria (in the 11 regional centers). The distribution centers not only improve the companies efficiency and low cost structure but also the level of quality. As the producers usually must distribute their goods to the shops themselves, a well-planned and implemented logistic scheme has to be applied. Retail key players in Bulgaria share the fact that they do not have own tranposrtation and mostly rely on third party logistic companies. That is reported as a significant issue as not many logistical players could provide accurate, timely and high volume goods transportation. Some of the logistic companies mentioned are Willi Betz and Biomet. Smaller market representatives in most cases develop relations with different product distributors or directly with producers. Some representatives claim that a proper relation with distributors is a very challenging task since the distribution is mainly the responsibility of producers. As a result there is a high threat for the operations of the small stores posed by the distributors.
6.9 Private Label Products

Private label products of retail chains have shown a considerable presence and growth in the past few years following the advancement of the sector. The private label products aim is to provide optimal quality at lowest price due to the higher volumes of purchase. Usually private label products cover goods of primal necessity or best selling products in a certain product groups. In that case Bulgarian food and beverages retail sector does not differ from the common practice in the sector worldwide. Due to trade policy confidentiality private label sales development data in Bulgaria is hard to obtain. Branded products do not calculate costs for advertising, promotion, distribution and thus lower prices are achieved. Also producers manage to produce and sell more apart from the already contracted products and thus lower price is also offered. In most cases branded products producers are certified companies, already established on the market. Every retail chain has its own, at least one, private label. Such include: Metro Cash & Carry The company has developed several private labels in the different food and non food product groups (fruit and vegetable specialties, seafood, juice, pet food, bags and shoes, house ware, clothes, etc). The most common spread is ARO. It covers approximately 500 food and non food articles in 100 product groups. Approximately 80% of them are produced in Bulgaria. In 2005 convenience stores with total area of 64
Supermarkets & Hypermarkets in Bulgaria 50 150 sq.m started operating under the brand name ARO. The stores get special discounts from Metro Cash&Carry for the distribution of private label products. The owners still keep the right to provide other products as well. Other brands are Metro Quality, Casa Roma, Four Seasons, Charles House, Terradena, and others. According to company data private label products reach approximately 10% of the total turnover. Billa Bulgaria Billa Bulgaria developed its private label product under the brand name Clever. Clever commodities cover very wide range: frozen foods, cold cuts, confectionaries, fish products, mineral water, juices, detergents, etc. Kaulfand Bulgaria The private label products of the company are close to 200 covering different product groups. According to company management approximately 10 % of the total sales are generated by the private label products. Piccadilly Bulgaria The company offers private label products under the brand name Mister Pix. There are more than 300 products offered under the private label name generating approximately 5% of the total revenue. CBA Bulgaria According to the company data there are approximately 220 products offered under the CBA brand name. According to company management the goal is private label products to reach 10% of the total revenue. T-Market The company has also developed own private labels trying to cover every product group. According to company data private label revenue in some cases reaches approximately 20% of the total sales in some product groups. Fantastiko The company provides two private label products FF Vkus and FF Dom. A new private label brand is expected to be introduced targeting the higher price segment. According to company representatives private label products reach approximately 15% of the total turnover. International Trend of Private Label Products According to The Power of Private Label survey carried out by AC Nielsen in September, 2005 Private Label sales accounted for 17% of the value sales across the 38 countries and 80 categories included in this study in comparison to 2004 when Private Label sales grew by 5%. Europe maintained its position as the most developed Private Label region with an aggregated Private Label share in value sales of 23% for the 17 European countries included in the study. Switzerland, Germany, Great Britain, Spain and Belgium are the five countries with the highest
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ICAP Bulgaria Private Label shares. The share of Private Label North America, which ranked second, is currently at 16%. Private Label in the Emerging Markets saw the fastest growth over the last year, up 11%. Private Labels hold approximately 6% share of sales in the Emerging Markets in 2005. That growth was primarily driven by the increasing strength of the modern trade (where Private Label goods are more prevalent), as well as the entry of Private Label products into new categories. A contributing factor to Private Label growth, particularly in Europe, was the growing presence of Hard Discounters. Hard Discounters sell a very limited selection of products (primarily shelf stable food) at a very low price mostly sell Private Label products. For example, within Aldi, Private Label products account for approximately 95% of sales. Hard Discounters such as Aldi and Lidl are present in most European country and as they continue to grow and gain share, with more stores and wider consumer acceptance, so does Private Label. The survey shows that in a number of countries, category penetration of Private Label is still significantly underdeveloped. As Private Label offerings are expanding into new markets and categories, global share will of course grow. Today, Private Label has a 17% share of market globally and it is still growing. Even in the most developed market of Switzerland, Private Label continues to extend its reach. (In the last year, Private Label in Switzerland gained yet another share point). As retailers with strong Private Label offerings expand their reach across categories and countries, Private Label will continue to challenge the position of branded products in the minds of the consumers.
6.10 Advertising Channels

After the rapid increase in the period of 2000 2004, the advertising budgets of supermarkets have since then retained steady. A research carried out by Gallup TV Plan/ TNS shows that among the three most common media mix channels TV, Press, and Radio, the budget spent in the press is marked with a considerable growth entirely replacing the TV advertising. Advertisers use mainly mass press channels and local radiostations. A key advertising channel is the supermarkets own product promotional catalogues or newspapers distributed in the post boxes in the supermarkets neighborhoods. Most common advertising product groups are sanitary products and cosmetics, confectionaries, beverages and meats. Usually advertising has it peak months in May and November.
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7 MARKET SIZE
The estimated market size is based on information collected from the available balance sheets of the main companies active in the field, data provided by the National Statistical Institute about the retail sector of food and beverages total sales, comments of the local players regarding the share of food and non food products, and experts estimates. The total market size represents the food, beverages, tobacco and non food products sold in specialized and non specialized retail stores. Data about the food, beverages and tobacco sector is derived from the National Statistic Institues Statistical Yearbook. Retail sales include the value of the purchased and sold out goods, as well as materials and own production at prices of realization (including VAT and excises) to the population and other institutions and departments to satisfy their individual needs. These data comprise all sales of goods to the final users at the domestic market, including goods produced and sold directly from the producers to the final users without trade intermediation (other than these realized in catering establishments). The sales are realized by the stationary, semi-stationary and nonstationary premises for retail trade - shops, pavilions, booths, warehouses-shops, outdoor counters and stalls, at organized and non-organized markets, by post orders, by catalogue, by automatic trade machines, delivery of goods at home and others. Experts estimates include the establishment of 2007 market size data as well as defining the food, beverages and tobacco sales share to non food products. As already observed total sales of companies include food as well as non food sales. The annual growth of 18-20% of food, beverages and tobacco sales for 2005 - 2006 is applied for the establishment of 2007 total sales as the business climate in the field was marked with positive development. When calculating the total market size the average ratio of the key players food to non food sales is taken into account representing 70% food sales and 30% non food sales. Estimations are based on key players comments (see Chapter 6.5 Key Players Departments Data). The estimation on the Bulgarian market for food, beverages, tobacco and non food products sold in specialized and non specialized stores shows a considerable growth for the 2004 2007 period. The total market is estimated at approximately EUR 3,5 Billion in 2004 reaching approximately EUR 5,6 Billion in 2007, indicating a growth rate of average 17% on an annual basis for the 2004 -2007 period. The following companies could be pointed out as market leaders in the sector: Metro Cash &Carry, Kaufland Bulgaria, Billa Bulgaria, Fantastiko, Piccadilly, CBA Asset Management (shareholder in CBA Bulgaria). These key players hold approximately 17% of all sales and their role in the sector is increasing since 2005. The analyzed eleven companies in the report (the above mentioned including Hit Hypermarket, Familia, T-Market, Elemag, 345) increase their total share from 16.5% in 2005 to almost 19.5% in 2007. According to the officially provided financial statements the key players total sales are constantly increasing with 16.3% in 2005, to 25% in 2006 and almost 32% in 2007 reaching almost EUR 1.1 Billion. The rest almost EUR 4.5 Billion for 2007 are total sales from other specialized and non specialized retail shops (including 67
ICAP Bulgaria supermarkets and hypermarkets) not presented in the study. Their total share is slightly decreasing during the examined period from 83.5% in 2005 to almost 80.5% in 2007. Unfortunately due to the fragmentness of the sector exact market share of supermarkets and cash& carry stores could not be provided. Still food retail sector in Bulgaria key players consider the market open for new developments. Chart 7.1: The Total Market Size of Food, Beverages, Tobacco and Non food Products Sold in Specialized and Non Specialized Retail Stores in Billion EUR, 2004 - 2007
Source: NSI, Key players comments, Experts estimates
Taking into consideration the above mentioned market size, the largest market shares regarding 2007 sales are occupied by the international market chains Metro Cash & Carry (8.6%), Billa Bulgaria (3,1%), and Kaufland Bulgaria (2.4%). A rapid market development is observed by Kaufland Bulgaria started operating in Bulgaia in 2006 and quickly gaining market share. The Serbian owned Piccadily is also marked with a considerable development in revenue with almost 50% average sales increase annually for the examined period. The company reports EUR 85 Million total revenue for 2007 and holds 1.53% of the market share. The domestic chain Fantastiko is also among the top five retailers with total revenue of EUR 101.7 Million and approximately 1.8% market share for 2007. CBA Bulgarias total revenue is hard to be described. The trade alliance consists of approximately 200 stores of different formats. A key player is CBA Asset Management with 28 stores. According to CBA Asset Management representatives the company conducts about 40% of the whole CBA turnover. CBA Asset Managements total sales for 2007 account to EUR 23 Million. Judging from that data and the company representatives comments, the
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Supermarkets & Hypermarkets in Bulgaria total sales of CBA Bulgaria reach approximately EUR 57.5 Million and about 1% of the total market share. Appart from the top five retailers in terms of sales the other sector representatives hold 82.65% of total revenue for 2007. Chart 7.2: Key Players Market Shares for 2007
Source: Key players financial statements and comments, Experts estimates
Most key market players kept at almost constant level or managed to increase their market shares for the 2004 -2007 period as observed in Table 7.1 Table 7.1: Key Representatives Market Shares Development in %, 2005-2007
CHAIN NAME Metro Cash&Carry Billa Bulgaria Kaufland Bulgaria Fantastiko Piccadilly CBA Asset Management T-Market Familia 345 HIT Hypermarket Elemag Total Key Players Market Share Others (other specialized and non specialized retail stores) Market shares (2005) 9.59 2.93 0.00 1.73 0.82 0.37 0.11 0.23 0.23 0.34 0.13 16.50 83.50 Market shares (2006) 8.73 3.02 0.99 1.68 1.15 0.36 0.54 0.16 0.24 0.40 0.15 17.43 82.57 Market shares (2007) 8.54 3.07 2.35 1.82 1.52 0.41 0.75 0.10 0.23 0.39 0.14 19.34 80.66
Source: Key players financial statements and comments, Experts estimates
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ICAP Bulgaria
Competiti on, St rategi c Moves

The Bulgaria retail market still remains unconsolidated, as approximately 15 % of the total food retail sales is controlled by the top 5 players on the market. Examples of EU Member States where the top 5 retailers made up more than 70% of the grocery market in 2005 according to Global Retail Concentration Report 2006 by Planet Retail are: Finland 90.02%, Sweden 81.8%, Ireland 81.4%, Slovenia 81.6%, Estonia 78.8%, Austria 78.7%, Germany 70.1%, and France 70.0%. It could be observed that retailers in Bulgaria have been more interested in expanding to the regions than in acquiring the rival companies, because being first on a market has a huge significance for being successful. The Bulgarian food retail sector has experienced an invasion of global retailers in the last few years. Metro Cash & Carry, REWE, Schwarz Group have all entered the market with big store formats. Carrefour and Lidl are expected to enter the market shortly as well. Currently on the Bulgarian market the global players possess several competitive advantages in comparison to the domestic chains. These include mostly financial resources and economic sustainability, access to long-term credit from international banks, which allows a lot of green field investments and lets them operate with low level of profitability for the start-up period. Another advantage for the global players is their effective systems of logistics and storage management that they managed to develop in the country. They are also able to sign contracts directly with world brand producers and thus save on distribution costs. Also, due to their efficiency they can also pay high rents and taxes if needed. Global retail chains managed modern store layouts and arrangements and can handle a cut-price approach. Everything is standardized, which leads to efficiency. Advanced technologies of merchandising are implemented that stimulate customers purchasing activity, including those inducing to impulsive purchases. Domestic chains suffer mostly from lack of investment resources and know how. They use mostly own accumulated capital and profit as well as local banks credits in order to finance their expansion. Domestic chains have the chance to finance their expansion through stock markets but so far only one of them has done so: CBA Asset Management. There are rumors that other retailers also planning IPOs and are potential followers. In order to cope and adapt to the new market conditions in the tightening competition the retail sector representatives applied different strategies: Regional Concentration and First Movers Advantage Large retailers were mostly attracted to the huge capital of the large towns with the higher purchasing power: Sofia, Plovdiv, Varna, Burgas. For example CBA started as operating in the Central North region in the towns of Veliko Turnovo, Gabrovo, Russe where currently competition pressure is less. Piccadilly also was concentrated in the town of Varna.
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Supermarkets & Hypermarkets in Bulgaria Selling business At the moment not many large companies are thinking about selling its profitable business away because the margins are still high and the market continues to grow. Recently the retail chain Burlex (concentrated in the town of Varna, and the towns in the region) sold its business to CBA Asset Management. However, such developments are not very commonly observed as the foreign companies clearly favor greenfield investments in increasing their market share. The reason for this might be that the Bulgarian companies should have more standardized shops, so that it would be possible to integrate them easily with the methods of the global retailers. Getting closer to customers This strategy was implemented mostly by the Bulgarian chains on the market. While foreign chains are concentrating on expansion and building hyper- and supermarkets mostly in the periphery of the towns, local and convenience stores took advantage of the niche created. The global retailer Metro Cash & Carry managed to enter the neighborhoods by expanding its network on a franchise basis. About 500 local and convenience stores already have the brand name of the company Aro and provide Metros private label products. Fast Growth The strategy of expanding fast is something that every retail company is doing at the moment. Even though the market in Sofia is not yet saturated, the chains are moving towards the regions, where there are better growth perspectives and the market situation is different. To be the first on the market is a great benefit for the chains, although every leading chain is expanding to regions at the moment. The crucial factors in implementing this strategy are the access to capital and the ability to generate cash flow for expansion and attract loyal customers. A lesson learned in the sector is the rapid development of Familia stores in the past causing liquidity issues and thus dropping of business. Alliances and mergers A good example for that type of strategy is the CBA which formed a trade alliance gathering approximately 200 stores. The domestic firms are forming purchasing unions to cut down product costs. Also cooperation improvements include for example synergy benefits in logistics and warehousing, advertising and in negotiation power towards the suppliers. It is also easier to get access to long-term capital. Recently the 13 Bulgarian retailers that the businessman Hristo Kovachki acquired in 2006 formed the retail chain Magazini Evropa. According to company plans about EUR 100 Million will be invested in expansion of the chain in Bulgaria, Serbia and FYR of Macedonia.
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8 INTERNATIONAL RETAIL MARKET DATA

The report Global Power of Retailing 2008, from Deloitte Touche Tohmatsu, marked 10 trends in global retailing 1) Social responsibility - which is displayed in the increased concern of the food retailers about the safety of their supply chain; 2) Global consumer growth shifts away from the US towards Asia; 3) Commoditization run amok Commoditization take place when consumers view products as essentially undifferentiated other than on basis of price. Aiming to avoid it global retailers focusing less on the mass market and more on niche oriented markets; 4) the raise of long tail retailing the mass market has become saturated, whilethe population in the developed countries has become more fragmented in terms of incomes and shoping behavior. Within the mass market, retailers and their suppliers have become highly focused on price competition, instead of focusing on niche opportunities along the so-called long tailcan be quite lucrative; 5) the fight to plan the flag in India for the world leader retailers India is gamble, but worth taking; 6) Retail investment in services as people move from their younger adulthood to middle age, they tend to spend less on goods and more on services as finance, health and successful retailers will take advantage of it; 7) Emerging market investment in developed retailers; 8) Multi - chanel integration the rise of online retailing has taken market place from store retailers in some markets. 8) focus on customer experience In the coming years, the world best retailers will increasingly focus on offering consumers experience that is enjoyable, informative, entertaining, and easy; 10) retailers as a world class marketers in the past the manufacturers of fast moving consumer goods FMCG were considered the leading marketers in the world, now reatlers become bigger and powerful and suppliers must focum more on their customers than on their consumers and today retailers has become more aggressive, aiming to build strong brand identity in order to compete with other retailers and branded suppliers through private label sales. Global Retail Development Index A.T. Kearney developed the Global Retail Development Index that ranks the top 30 emerging countries for retail development using 25 macroeconomic and retail specific variables on a 100 point scales. GRDI scores are based on the following four variables: Country risk (country risk and business risk), Market attractiveness (retail sales per capita, population, urban population, business efficiency), Market saturation (share of modern retailing, number of international retailers, modern retail sales area per urban inhabitant, market share of leading retailers), Time pressure. India, Russia and China continue to be the first in the Index. Bulgaria is ranked 12. Other eastern European countries ranked before are Russia (2), Ukraine (5), and Latvia (7). Nine of the 12 Eastern European Countries are in top 30 as annalysts consider the region still attractive. Bulgaria has the most rapid development advancing with 9 places.
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ICAP Bulgaria A window of opportunity a measurement implemented by A.T. Kearnet describes four stages of development opening, peaking, declining and closing as countries evolve from emerging to mature markets. According to that measurement Bulgaria is described at its declining phase of retail development in one group with Slovakia, Ukraine, China, Russia stage where discounts and hypermarkets are introduced. Labor strategies include scaleing up of operations, increasing local hiring, participate in community. According to the study the time is potentially ripe for retailers to enter Eastern Euripean countries in categories such as do-it-yourself, consumer electronics and apparel. Multilevel fashion malls and mixed-use centers are also expected to be successful. Annalyzing regions on the radar screen and to consider for the 2003 2007 period it could be observed that Eastern Europe attractiveness globally is declining with its peak moment in 2005 as Middle East, North Africa, America becoming more attractive. Bulgaria along with Romania according to A.T. Kearneys analysis is expected to enjoy several years of rapid investment and significant retail growth. Retail in Central and Eastern Europe The international consumer survey SHOPPING MONITOR CEE 2008 has revealed the growing popularity of the modern retail formats, in particular hypermarkets and discount stores. The centre of the most dynamic development is shifting from Central Europe to the Balkans the most remarkable changes have been monitored in Romania. According to the comprehensive consumer survey Shopping Monitor Central & Eastern Europe 2008, conducted by GfK & INCOMA in 11 countries of the region (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Russia represented by Moscow and St. Petersburg, Serbia and Montenegro, Slovakia, Slovenia and Ukraine represented by Kiev), hypermarkets are already the leading retail format in the CEE region. In total, 25% of customers in the monitored region claim hypermarket to be their main shopping place for FMCG; that represents 32,7 million of customers (this number includes both immediate shoppers and their household members). Discount stores represent the main shopping place for grocery for 18 % of the households already. Discounters show stable growth in a long term and are slowly replacing supermarkets, once a leader, today only the second strongest retail format in the CEE region with its share decreasing down to actual 21 %. Of course, there are considerable differences among the monitored CEE countries; due to the state of development of the retail network but also due to the shopping habits of the local population. Hypermarkets are the most important formula in Czechia, Moscow & St. Petersburg, Hungary and Romania, while supermarkets lead in Croatia, Kiev, Slovenia, Serbia and Slovakia. Discount stores are well established at Moscow and St. Petersburg markets as well as in Hungary, Poland and in Czechia. Smaller self-service stores such as superettes are very popular in Poland, Slovakia and Hungary; counter food shops still prevail in Bulgaria.
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Supermarkets & Hypermarkets in Bulgaria The SHOPPING MONITOR CEE 2008 results indicate Romania featuring the highest dynamics of the retail market transition. While the share of the counter food serviced shops has shrunk by more than 50 % in four years (from 51 % in 2003 down to 22 % in 2007), the hypermarket format popularity has grown dramatically (from 4 % in 2003 up to 29 % in 2007). The discount stores are following the pattern as well starting from zero 2005 and reaching the 13 % level in 2007. In terms of a concrete name of the main shopping place, Kaufland and Tesco have appeared four times among the TOP 3, Billa and Penny Market have reached a medal position in three countries, Coop and Carrefour twice. In terms of a concrete name of the main shopping place, Kaufland and Tesco have appeared four times among the TOP 3, Billa and Penny Market have reached a medal position in three countries, Coop and Carrefour twice. According to a Deloitte Researh on Food and Beverages over the past three decades, consumers, retailers, and manufacturers have come to expect food prices to consistently fall relative to consumer income. This was part of a larger trend of declining relative commodity prices. In rich countries, food has become such a modest share of total consumer expenditure that consumers can spend a large share of their total food budget on food services, such as restaurants, rather than simply purchasing ingredients for meal preparation. Low food prices have enabled consumers to purchase high-priced specialty foods, organic foods, and storeprepared meals. It has also allowed consumers to spend far more on many non-food items. Indeed, food retailers have struggled to offer higher value products in order to continue growing. However, beginning in 2005and for the first time since the early 1970s food prices have been increasing substantially because of: a) Increased consumer demand b) Increased industrial demand c) Declining agricultural land use and efficiency d) Increased oil prices Impact on consumer behavior Higher relative food prices should lead to increased purchasing of low priced private label and discount products and shopping at low-priced retailers. It should also lead to a shift away from eating meals outside the home. These trends appear to be under way. However, increased energy prices and slower overall economic growth also contribute to these trends, making it difficult to identify the impact of higher food prices. In poorer countries, the rise in food prices is far more serious to ordinary consumers. Already there have been violent disturbances in some countries when subsidies have been reduced. In China, a leading hypermarkets promotion of low prices caused a riot as customers fought to get the discounted items. In addition, sustained higher food prices in emerging markets will necessarily lead to reduced spending on non-food products.
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ICAP Bulgaria Impact on retailer and supplier strategies Some food retailers are struggling to hold the line on food price increases. This requires that they either absorb a reduction in margins or, more likely, pressure their suppliers to absorb a reduction in margins. If retailers or suppliers do choose to raise prices with impunity, several criteria need to be met, including clear product differentiation, strong brand equity, innovative products or services, and, in the case of retailers, a superior customer experience. Experience suggests that consumers are willing to pay a premium for such things. For food retailers, rising relative food prices mean that consumers are likely to switch from eating out to shopping for food for home consumption. All other things being equal, this should stimulate growth. It should not be forgotten, however, that retailers can benefit from higher general prices. In past episodes of inflation, retailers were able to be profitable even in the absence of efficiency or price competitiveness because an environment of rising prices dulls consumer sensitivity to price differences. That, in turn, reduces the importance of supply-chain efficiency. Moreover, inflation allows retailers to profit by holding inventories of non-perishable products. Finally, in times of product price inflation, margins are no longer being squeezed due to higher employment, energy, or property costs. Thus, from the retailers perspective, the current environment is not completely onerous. The increasing power of world leader retailers is confirmed also by their increasingly growing market share worldwide. The Top 10 retailers share of total Top 250 sales continues to inch up. With combined sales of $978.5 billion in fiscal 2006, a healthy 10.2% rise over 2005, the worlds 10 largest retailers captured 30.1% of Top 250 sales. This compares with 29.4% in 2005, when this same group of companies comprised the Top 10 leader board. While the names remained the same, Tesco overtook Metro to reach the #4 spot in the rankings. The rest of the Top 10 maintained their positions. Wal-Mart increased its lead over #2 Carrefour in 2006, with retail sales growth more than double the pace of its rival. Schwarz Group (operator of Lidl hard discount stores) remained secure in tenth place, outpacing direc competitor Aldi, #11. Table 8.1: Top 10 European Retailers, 2006 Top 10 European retailers, 2006 European Rank 1 2 3 4 5 6 7 76 Top 250 rank 2 4 5 10 11 14 16 Company Carrefour Tesco Metro Schwarz Aldi Rewe Auchan Retail Saes Billion USD) $97.9 $80.0 $74.9 $52.4 $50.0 $45.9 $43.2 (in Country of origin France UK Germany Germany Germany Germany France
Supermarkets & Hypermarkets in Bulgaria 8 9 10 17 20 22 Edeka Zentrale E Leclerc Ahold $40.7 $38.7 $37.1 Germany France Netherlands
Source: Global Power of Retailing 2008
Wal-Mart Stores, Inc. (Wal-Mart) has remained the worlds largest retailer, according to the 2008 Global Powers of Retail report, from Deloitte Touche Tohmatsu, in conjunction with STORES magazine. The US company increased its lead over second place French retailer Carrefour, with retail sales growth more than double the pace of its rival. The report shows that total sales for the Top 250 rose to $3.25 trillion in fiscal 2006, up eight percent from the previous year. In addition, more companies in the Top 250 contributed to that growth. Only 36 retailers saw declining sales in 2006, compared with 49 in 2005. According to the report, the average net profit for the group (based on available figures from 187 companies) was 3.6 percent, a small increase from 3.5 percent the previous year. Just seven of the 187 companies reported a net loss in 2006, compared with 15 of 188 companies in 2005. The big mover was Tesco PLC (Tesco), which overtook German retail giant Metro AG (Metro) to take 4th place, the first movement among the Top 5 since 2003. In doing so, Tesco also became the 2nd largest retailer in Europe and is gaining ground on Carrefour. Over the past decade, Tesco has rapidly climbed the Global Powers of Retail list. In 1996, the company was ranked 18th and by 2001 it had reached 13th. Between 2001 and 2006, Tesco achieved the fastest compound annual growth rate (CAGR) of any of the current Top 10 retailers in 2006 and continued its ascent into the Top Five. With combined sales of $978.5 billion in fiscal 2006, the worlds 10 largest retailers accounted for 30.1 percent of Top 250 sales, compared with 29.4 percent in 2005. Indeed, the tenth largest retailer, Schwarz, is growing at a faster rate than its closest rival, Aldi GmbH & Co., meaning the gap between the Top 10 and the rest is widening.
77
9 FUTURE DEVELOPMENT
The prospects for investments in the sector look greater as the country has become a member of the EU bringing with it considerable advantages for the EU based companies in terms of freedom of trade and economies of scale. The fragmented nature of food and beverages retailing in Bulgaria provides high potential for developments in the sector in terms of store formats and expanding to regions. Low consumer spending and changing shopping habits and lifestyles indicate that there is potential for the discount format to succeed in Bulgaria. Present players and new entrants future development plans are described below.
9.1 Future Development of Present Market Players

Metro Cash & Carry The short term plans of the company are to open three stores. The locations are Pleven, Plovdiv and a third store in Sofia. The store in Pleven will have cover approximately 7000 sq.m while the one in Plovdiv approximately 10 000 sq.m. According to the company plants by the end of 2011 the total stores should reach 15 or 16. Billa Bulgaria The strategy of the company includes opening stores in the bigger towns of the country with population of over 30 000 as well as expansion where Billa is already presenting reaching approximately 70 stores. Kaufland Bulgaria The company plans to open approximately 40 supermarkets in Bulgaria in towns with minimum 40 000 inhabitants. Piccadilly In the short term Piccadilly plans to open five more stores in the towns of Bourgas, Vidin, Stara Zagora, Dobritch and Plovdiv. Some supermarkets will be located in large trading centers the ones in Plovdiv and Stara Zagora. By the end of 2008 the company plans to open its new branded stores Tempo. These will be soft discounter convenient shops located in the suburban areas in the bigger towns.. The targeted regions are towns with over 100 thousand inhabitants. The first two shops of the Tempo brand will be located in Sofia. Piccadillys strategy also includes opening approximately 20 new supermarkets with total area of 2 4000 sq.m. The plans also include opening approximately 40-50 corner shops type of total are 300 400 sq.m under the brand name Piccadilly Express. Hypermarkets Piccadilly Extra with over 12 000 sq.m. total area are also planned to be opened.
79
ICAP Bulgaria CBA Bulgaria The company plans to expand its trade alliance model throughout Bulgaria not only in local and convenience stores formats. The expected revenues for 2009 are over EUR 75 Million. T-Market In the short terms the company plans to open supermarkets in Kostenec, Samokov, Veliko Turnovo, Vratza, Montana, Pleven and Vidin. The total investment amount so far is approximately EUR 28 Million and another EUR 20 Million are planned.
9.2 New Entrants

Carrefour One of the top global retailers Carrefour is expected to open its first stores soon. The company plans to open a new hypermarket in Bourgas in Bourgas Plaza shopping center in 2008, in Sofia in the Mall of Bulgaria on Bulgaria Boulevard, in Varna in the Grand mall. Currently the company acquired a new spot in Sofia near the central railway station. Another hypermarket is planned to open in Varna. The company plans to have a chain of 20 hypermarkets throughout the country by the end of 2014. Recently the Greek real estate fund Assoss Capital bought Carrefours project in Sofia on Tzarigradsko Shosse. Mercator The Slovenian retailer also intends to launch into the Bulgarian market. According to released information the company will open stores in Sofia, Stara Zagora and Bourgas. The growing interest of firms from neighboring countries is observed emphasizing the potential for growth within retailing in Bulgaria. Plus Market The company Tangelmann also plans to establish approximately 200 discount stores by 2011. Lidl The hard discounter owned by the German Schwarz Group also considers entering the market with convenience stores formats covering most of the regions in the country. It is reported that the company is developing its logistic center. Penny Market Penny market is a part of the REWE group which representative Billa Bulgaria has already presence in the coutntry. The company is registered in Bulgaria in 2004. Its plans are to open about 100 discount stores located in the neighborhoods all along the country. Some locations include Kustendil, Svilengrad, Kavarna,
80
10 CONCLUSIONS
This chapter concludes the presented analysis of the Retail Sector in Bulgaria. The aim is to summarize the basic findings concerning the tendencies, perspectives and problems of the market and to present the principal conclusions and prospects of the assessed sector.
10.1 Present situation in the Bulgarian Food Retail Market

Bulgarias European Union intergration had a significant effect on the retail sector development. The economy is growing in a positive direction (GDP growth rate superior to 6%) and the business environment in the country is favorable for foreign investors. That results in the growing households purchasing power and changing consumers patterns. Still the retail sector in Bulgaria is very fragmented. Currently the supermarkets and hypermarkets in the country are approximately 500 and represent about 1% of al the food and beverages stores in Bulgaria in terms of number. It is observed that their share is increasing through the years. Key sector representatives are several global retailers. These include: Metro Cash & Carry (operating in Bulgaria since 1998), Billa Bulgaria REWE Group (operating in Bulgaria since 1999), Kaufland Bulgaria Schwarz Group (operating in Bulgaria since 2004). Other international chains worth mentioning are Piccadilly Bulgaria (owned by the Serbian Delta Maxi), the Hungarian Bulgarian trade alliance CBA Bulgaria, the Lithuanian T Market (owned by Maxima Group). There are a few domestic retail chains operating on the market. The most distinguished one is Fantastiko. Others are 345, Familia, Elemag. All key market players are currently present in the capital Sofia because the growing population of the city and highest income per capita in the country. Plovdiv and Varna are the other two towns that attract retail investors. The market representatives have implemented different expansion strategies depending on the store formats as well as the targeted clients. Key international players Metro Cash & Carry and Kaufland use Greenfield investments to build up hypermarket and supermarkets formats mostly in the suburbs. Others like Piccadilly acquire locations by entering the trading and shopping centers that are developing in the country more closely to the city center. Using the Hungarian model CBA Bulgaria developed a trade alliance currently uniting approximately 200 stores throught the country and thus managing to increase the negotiating power with suppliers. Most key representatives report an increase of total revenue for the 2004 2007 period following the expansion and gaining of new locations. Average sales per store are also increasing. Currently key ten representatives form approximately 20% of the retail sector turnover and their share in the market is increasing.
81
ICAP Bulgaria
10.2 SWOT Annalysis

Presented below are the basic aspects of the S.W.O.T. analysis for the Supermarkets Retail sector in Bulgaria. Table 10.1: Supermarkets Retail Sector in Bulgaria SWOT Annalysis Strengths Bulgarias macroeconomic stability Increasing consumers purchasing power Weaknesses Lack of labour force Poor infrastructure
Middle class development and changing Not well developed logistic sector consumer patterns Still relatively low purchasing power Developing retail sector Local producers limited capacity for Relatively low real estate and plot prices larger amounts in comparison to EU Opportunities Fragmented market Opportunities for discounters Regional expansion Higher private label penetration Brand loyalty development
Source: Sector Representatives Comments
Threats Increasing investment costs Increasing food prices Collaboration with suppliers Expensive financing sources Unfavourable business climate
Sector weaknesses and threats One of the key issues reported by the sector representatives is related to the professional skills and qualifications of the employees occupied in the sector. There is a shortage of well-qualified and experienced employees mostly at lower and middle level. Having well developed warehousing and logistical schemes are essential for being successful on the market. A current problem concerning the sector is the present situation of the transport infrastructure in the country, which in some cases cannot handle the increasing traffic flows, both domestic and international. Larger representatives comment that since the companies do not have their own transportation network not many logistic companies on the market could provide timely and accurate distribution of goods. Some sector representatives comment that there are cases when local producers could not manage to deliver the required product amounts and thus import was needed. In the pursuit of customers and better profits, the retail chains are trying their best to cut down the product prices by constantly asking for discounts and promotions from suppliers. The increasing retail power of the supermarkets and hypermarkets and the 82
Supermarkets & Hypermarkets in Bulgaria increasing competition provokes the issue about the collaboration with suppliers. A nother issue is the still relatively low although developing purchasing power. After the positive development of the retail sector in Bulgaria retail climate for 2007, due to slowing world and national economy as well as the negative comments of the European institutions towards Bulgarias accumulation of funds placed a constraining effect on the retail business climate for 2008. That fact combined with the increasing food prices and investment costs might have a negative impact on the development of the sector. Sector Opportunities According to the sector representatives the market is open for investments. Still it is considered that plots and real estetes are relatively low in terms of price in comparison to other CEE countries. Major sector opportunities are related to the increasing purchasing power and the fragmentness of the sector. Many aspects of the retail market remain underdeveloped concerning brand loyalty, sales encouraging activities, market penetration, and private labels. A significant boost for the sector is also the developments in the trade and shopping centers. The increasing food prices place an advantage for discounters to enter the market. As mentioned in the previous chapter except the present companys expansion plans several new players are expected to enter the market in the nearest future. The top globar retailer Carrefour is already developing its locations in Burgas, Sofia and Varna. The company plans are to open approximately 20 stores. According to the 2007 A.T. Kerneys Global Retail Report Bulgaria already reached its retail sector saturation phase and that is the time when discounters start to enter the market. For now only Kaufland is present in such a format in Bulgaria and is expanding rapidly. The hard discounters Lidl, Plus Market are also expected to open their first stores soon. These moves prove the fact that the market has not reached its saturation point and have room for developments.
83
Supermarkets & Hypermarkets in Bulgaria APPENDICES Appendix 3.1: Bulgarias regions data
N 1 2 3 4 5 6 7 8 9 Region Blagoevgrad Bourgas Dobrich Gabrovo Haskovo Kardjali Kyustendil Lovech Montana Area Size, km2 6 449.5 7 748.1 4 719.7 2 023 5 533.3 3 209.1 3 051.5 4 128.8 3 635.6 4 456.9 2 394.2 4 335.5 5 972.9 2 639.7 2 803.4 3 389.7 2 846.3 Population, Work force, Unemployment, 31.12.2006 31.07.2007 31.11.2007, % 330 034 417 810 204 738 134 490 264 312 157 463 150 792 157 407 164 057 296 281 139 677 301 634 706 413 137 853 255 315 197 632 132 699 170 689 201 006 105 343 66 804 125 042 82 379 73 521 77 600 79 897 149 030 6 737 148 178 329 791 73 857 121 067 95 785 67 108 5.90 3.74 7.20 3.55 12.21 9.13 7.06 8.44 12.49 9.23 5.44 8.14 5.73 11.89 6.17 11.92 10.60 Average gross monthly salary, 30.09.2006, EUR 153 181 161 174 142 150 157 165 156 167 166 163 158 160 159 167 152
District Administration - http://www.bl.government.bg/bl/home_e.html District Administration - http://www.bsregion.org/indexEn.html District Administration - http://obldobrich.orbitel.bg/ District Administration - http://www.gb.government.bg/gb/index_en.htm District Administration - http://www.hs.government.bg/hs/index-en.html District Administration - http://www.kj.government.bg/ District Administration - http://www.kn.government.bg/kn/en/index-en.html District Administration - http://www.oblastlovech.org/BG.php District Administration - http://www.montanabg.org/ 10 Pazardzhik 11 Pernik 12 Pleven 13 Plovdiv 14 Razgrad 15 Rousse 16 Shumen 17 Silistra District Administration - http://www.pz.government.bg/pz/fr_engl.html District Administration - http://www.pernik.e-gov.bg/ District Administration - http://www.pleven-oblast.bg/ District Administration - http://www.pd.government.bg/ District Administration - http://www.rz.government.bg/rz/index.html District Administration - http://ruse.e-gov.bg/gb/index.php District Administration - http://www.oblastshumen.icon.bg/
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ICAP Bulgaria
Area Size, km2 Population, Work force, Unemployment, 31.12.2006 31.07.2007 31.11.2007, % Average gross monthly salary, 30.09.2006, EUR 151 149 189 240 201 154 185 154 145 203 150 186
Region
District Administration - http://www.silistra-bg.net/ 18 Sliven 19 Smolyan 20 Sofia district 21 Sofia city 22 Stara Zagora 23 Targovishte 24 Varna 25 Veliko Tarnovo 26 Vidin 27 Vratsa 28 Yambol Total 3 544.1 3 192.9 7 062.3 1 348.9 5 151.1 2 558.5 3 819.5 4 661.6 3 032.9 3 937.6 3 355.5 111 001.9 209 169 129 731 258 397 1 237 891 358 342 134 264 456 915 280 883 114 769 205 797 144 525 7 679 290 102 836 70 648 125 456 551 815 172 917 66 835 218 272 135 465 56 478 97 742 70 924 3 704 336 8.10 10.91 7.94 1.54 13.90 7.62 4.70 6.91 11.51 10.17 8.64 6.62 District Administration - http://www.sliven.government.bg/ District Administration - http://www.region-smolyan.org/ District Administration - http://www.sf.government.bg/sf/index_en.html District Administration - http://www.sf.government.bg/sf/index_en.html District Administration - http://www.sz.government.bg/BG.php District Administration - http://bulgaria.domino.bg/targovishte/ District Administration - http://www.vn.government.bg/en/index.htm District Administration - http://www.vt.government.bg/index.php District Administration - http://vidin.iwebland.com/ District Administration - http://oblast.vratsa.bg/en/Home.htm District Administration - http://yambol.government.bg/
Source: Bulgarian Investment Agency
86
Supermarkets & Hypermarkets in Bulgaria Appendix 4.1: Store Development by Format, 2004 May 2008
N 1 Type of Stores Retail sale of food, beverages and tobacco in specialized stores % development 2 Retail sale in non-specialized stores with food, beverages or tobacco predominating % development 3 Stalls for sale of food % development 4 Non specialized stores for sale of food and non food goods % development 5 Hypermarkets, Supermarkets % development 6 Market Halls % development 7 Municipal market place, producers market, weekly market % development 8 Separate stands for sale of food, at markets places, halls, stations, stores for non food goods and others % development TOTAL NUMBER OF STORES : % STORES DEVELOPMENT : SHARE OF SUPERMARKETS, HYPERMARKETS DEVELOPMENT (%)
Source: RIPCPH
By 2004
2005
2006
2007
By May, 2008 2,420 4.85 19,718 3.08 7,053 1.10 21,829 2.13 496 5.04 4 0 176 4.76 2,931 4.98 54,627 2.64 0.88
1,767
2,133 20.71
2,063 -3.28 17,429 11.40 6,550 9.53 20,049 8.78 409 19.56 4 0 161 24.81 2,304 31.66 48,969 10.29 0.74
2,308 11.88 19,128 9.75 6,976 6.50 21,375 6.61 471 13.16 4 0 168 4.35 2,792 21.18 53,222 8.69 0.84
13,673
15,645 14.42
5,298
5,980 12.87
16,611
18,430 10.95
261
329 20.67
4 33.33
106
129 21.70
1,286
1,750 36.08
39,005
44,400 13.83 0.67
87
ICAP Bulgaria Appendix 5.1: Monetary Income of Households by Sources of Income 2003 2007
Sources of income 2003 2004 2005 2006 2007 CAGR (2003-2007) 13.16% 13.69% 14.21% 16.29% 24.14% -5.43% 10.60% 7.03% 34.76% -2.60% 35.84% 11.50% 14.31% 14.84% 15.63% 17.56% 25.74% -4.89% 11.77% 9.10% 35.88% -1.67% 37.47% 11.90%
Average per household - EUR Monetary income Wages and salaries Other earnings Entrepreneurship Property income Unemployment benefits Pensions Family allowances Other social benefits Household plot Property sale Miscellaneous Average per capita - EUR Monetary income Wages and salaries Other earnings Entrepreneurship Property income Unemployment benefits Pensions Family allowances Other social benefits Household plot Property sale Miscellaneous Structure - % Monetary income Wages and salaries Other earnings Entrepreneurship Property income Unemployment 100.0 51.4 4.9 5.4 0.7 0.7 100.0 50.4 4,8 4.9 0.9 0.6 100.0 51.8 4.8 5.4 0.8 0.5 100.0 52.2 4.5 5.5 0.8 0.4 100.0 52.4 5.0 6.0 1.1 0.3 0.48% 0.51% 2.67% 11.96% -19.09% 848 436 41 46 6 6 224 6 11 24 7 41 937 472 45 46 9 5 260 8 17 23 6 47 1,038 538 50 56 8 5 274 9 22 22 7 46 1,197 625 54 66 9 5 308 9 26 20 22 54 1,447 758 73 87 15 5 350 9 38 22 26 65 2,223 1,142 108 120 16 15 589 16 29 61 19 107 2,416 1,218 116 119 22 14 671 20 44 60 14 118 2,648 1,373 128 142 21 12 698 24 58 57 18 117 2,998 1,565 134 166 23 12 771 23 64 51 55 134 3,646 1,908 184 219 39 12 881 21 96 55 64 165
88

Sources of income benefits Pensions Family allowances Other social benefits Household plot Property sale Miscellaneous
SOURCE: NSI, 2008
2003
2004
2005
2006
2007
CAGR (2003-2007) -2.24% -3.78% 18.92% -14.45% 18.92% -1.08%
26.5 0.7 1.3 2.8 0.9 4.7
27.8 0.8 1.8 2.5 0.6 4.9
26.4 0.9 2.2 2.1 0.7 4.4
25.7 0.8 2.1 1.7 1.8 4.5
24.2 0.6 2.6 1.5 1.8 4.5
Appendix 5.2: Total Income of Households by Sources of Income 2003 - 2007

Sources of income 2003 2004 2005 2006 2007 CAGR (2003-2007) 9.39% 8.78% 13.69% 14.20% 16.29% 24.14% -5.43% 10.60% 7.03% 28.52% -11.50% 35.84% -2.19% 23.05% 16.17% 5.74% 10.51% 9.89% 14.84% 15.12% 17.56%
Average per household - EUR Total Total income Wages and salaries Other earnings Entrepreneurship Property income Unemployment benefits Pensions Family allowances Other social benefits Household plot Property sale Miscellaneous Interest income Loans and credits Loans repaid Average per capita - EUR Total Total income Wages and salaries Other earnings Entrepreneurship 1,147 1,089 436 42 46 1,261 1,175 472 46 46 1,319 1,235 538 51 56 1,458 1,360 625 55 66 1,711 1,588 758 74 87 3,010 2,855 1,142 109 120 16 15 589 16 36 520 19 272 72 77 6 3,250 3,029 1,218 119 119 22 14 671 20 48 490 14 296 110 105 5 3,363 3,149 1,373 129 142 24 12 698 24 61 423 18 245 113 97 4 3,651 3,404 1,565 138 166 23 12 771 23 67 343 55 242 128 113 6 4,310 3,997 1,908 186 219 39 12 881 21 98 319 64 249 164 141 8
89
ICAP Bulgaria
Sources of income Property income Unemployment benefits Pensions Family allowances Other social benefits Household plot Property sale Miscellaneous Interest income Loans and credits Loans repaid Total income Wages and salaries Other earnings Entrepreneurship Property income Unemployment benefits Pensions Family allowances Other social benefits Household plot Property sale Miscellaneous
SOURCE: NSI, 2008
2003 6 6 224 6 14 198 7 104 27 30 3 100.0 40.0 3.8 4.2 0.6 0.5 20.6 0.6 1.3 18.2 0.7 9.5
2004 9 5 260 8 18 190 6 115 43 41 2 100.0 40.2 3.9 3.9 0.7 0.5 22.1 0.7 1.6 16.2 0.5 9.7
2005 9 5 274 9 24 166 7 96 44 38 2 100.0 43.6 4,1 4.5 0.7 0.4 22.2 0.8 1.9 13.4 0.6 7.8
2006 9 5 308 9 27 137 22 98 51 45 2 100.0 46.0 4.0 4.9 0.7 0.4 22.6 0.7 2.0 10.1 1.6 7.0
2007 15 5 350 9 39 127 26 99 65 56 3 Structure - % 100.0 47.7 4.7 5.5 1.0 0.3 22.1 0.5 2.4 8.0 1.6 6.2
CAGR (2003-2007) 25.74% -4.89% 11.77% 9.10% 29.53% -10.59% 37.47% -1.13% 25.01% 17.08% 4.66%
4.50% 5.46% 6.97% 13.62% -11.99% 1.77% -4.46% 16.56% -18.58% 22.96% -10.12%
90
Supermarkets & Hypermarkets in Bulgaria Appendix 5.3: Monetary Expenditures of Households by Expenditure Groups, 20032007
Expenditure groups 2003 2004 2005 2006 2007 CAGR (20032007) 13.13% 12.80% 12.47% 18.54% 11.85% 8.75%
Average per household - EUR Monetary expenditure Consumer monetary expenditure Foods and nonalcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing, water, electricity, gas and other fuels Furnishing and maintenance of the house Health Transport Communication Recreation, culture and education Miscellaneous goods and services Taxes Household plot Other expenditure Average per capita - EUR Monetary expenditure Consumer monetary expenditure Foods and nonalcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing, water, electricity, gas and 814 695 288 31 31 125 923 777 324 37 33 137 1,002 855 348 42 37 149 1,143 974 391 53 41 169 1,389 1,171 481 64 51 182 14.28% 13.95% 13.65% 19.65% 13.15% 9.90% 2,136 1,823 757 81 82 327 2,379 2,003 834 96 86 353 2,554 2,179 887 108 94 380 2,861 2,438 978 134 104 423 3,499 2,951 1,211 161 129 458
77 102 125 109 83 79 73 60 181
82 116 136 124 89 87 76 61 239
90 129 154 139 99 100 77 57 241
115 140 179 148 107 109 81 56 286
139 173 246 171 132 131 107 71 370
16.04% 14.16% 18.37% 11.86% 12.45% 13.48% 10.28% 4.21% 19.59%
91
ICAP Bulgaria
CAGR (20032007)
Expenditure groups other fuels Furnishing and maintenance of the house Health Transport Communication Recreation, culture and education Miscellaneous goods and services Taxes Household plot Other expenditure Monetary expenditure Consumer monetary expenditure Foods and nonalcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing, water, electricity, gas and other fuels Furnishing and maintenance of the house Health Transport Communication Recreation, culture and education Miscellaneous goods and services Taxes Household plot
2003
2004
2005
2006
2007
29 39 48 41 32 31 28 23 69 100.0 85.3 35.4 3.8 3.9 15.3
32 45 53 48 35 33 30 24 93 Structure - % 100.0 84.2 35.1 4.0 3.6 14.8
36 51 60 55 39 38 30 22 95 100.0 85.3 34.7 4.2 3.7 14.9
46 56 72 59 43 45 32 22 114 100.0 85.2 34.2 4.7 3.6 14.8
55 69 98 68 53 51 42 28 147 100.0 84.3 34.6 4.6 3.7 13.1
17.32% 15.23% 19.71% 13.20% 13.53% 13.62% 11.35% 5.14% 20.86%
-0.29% -0.57% 4.89% -1.31% -3.81%
3.6 4.8 5.9 5.1 3.9 3.6 3.4 2.8
3.5 4.9 5.7 5.2 3.8 3.5 3.2 2.6
3.6 5.1 6.0 5.4 3.9 3.8 3.0 2.2
4.0 4.9 6.3 5.2 3.8 3.7 2.8 2
4.0 4.9 7.0 4.9 3.8 3.7 3.1 2.0
2.67% 0.52% 4.37% -1.00% -0.65% 0.69% -2.28% -8.07%
92

CAGR (20032007) 5.67%
Expenditure groups Other expenditure

SOURCE: NSI, 2008
2003 8.5
2004 10.0
2005 9.5
2006 10
2007 10.6
Appendix 5.4: Total Expenditure of Households by Expenditure Groups, 2003 - 2007

Expenditure groups 2003 2004 2005 2006 2007 CAGR (20032007) 12.46% 11.92% 11.43% 9.81% 15.67% 11.85% 8.70%
Average per household - EUR Total Total expenditure Consumer total expenditure Foods and nonalcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing, water, electricity, gas and other fuels Furnishing and maintenance of the house Health Transport Communication Recreation, culture and education Miscellaneous goods and services Taxes Household plot Other expenditure Saving deposits Purchase of currency and securities Debt paid out and loan granted Average per capita - EUR 2,485 2,344 2,030 948 95 82 329 2,726 2,567 2,191 1,008 108 86 355 2,933 2,733 2,358 1,055 116 94 382 3,303 3,043 2,619 1,145 146 104 425 3,976 3,679 3,130 1,378 170 129 460
77 102 125 109 83 79 73 61 181 64 3 75
82 116 136 124 89 87 76 62 239 73 2 85
90 129 154 139 99 100 77 57 241 86 0 114
115 140 179 148 107 110 81 57 285 122 0 139
139 173 246 171 132 131 107 72 370 138 1 159
16.04% 14.16% 18.37% 11.86% 12.45% 13.36% 10.28% 4.15% 19.59% 21.12% -33.13% 20.81%
93
ICAP Bulgaria
CAGR (20032007) 13.62% 13.07% 12.57% 10.94% 16.77% 13.15% 9.76%
Expenditure groups Total Total expenditure Consumer total expenditure Foods and nonalcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing, water, electricity, gas and other fuels Furnishing and maintenance of the house Health Transport Communication Recreation, culture and education Miscellaneous goods and services Taxes Household plot Other expenditure Saving deposits Purchase of currency and securities Debt paid out and loan granted Structure - % Total expenditure Consumer total expenditure Foods and nonalcoholic beverages Alcoholic beverages and tobacco Clothing and
2003 947 894 774 361 36 31 126
2004 1,057 996 850 391 42 33 138
2005 1,150 1,072 925 414 46 37 150
2006 1,319 1,215 1,046 457 58 41 170
2007 1,579 1,461 1,243 548 67 51 183
29 39 48 41 32 31 28 23 69 24 1 29
32 45 53 48 35 33 30 24 93 28 1 33
36 51 60 55 39 38 30 22 95 34 0 44
46 56 72 59 43 45 32 23 114 49 0 55
55 69 98 68 53 52 42 28 147 55 1 63
17.32% 15.23% 19.71% 13,.20% 13.53% 14.19% 11.35% 5.14% 20.86% 22.83% -15.91% 21.74%
100.0 86.6 40.4 4.1 3.5
100.0 85.3 39.3 4.2 3.4
100.0 86.3 38.6 4.2 3.4
100.0 86.1 37.6 4.8 3.4
100.0 85.1 37.5 4.6 3.5 -0.44% -1.84% 2.92% 0.00%
94

CAGR (20032007)
Expenditure groups footwear Housing, water, electricity, gas and other fuels Furnishing and maintenance of the house Health Transport Communication Recreation, culture and education Miscellaneous goods and services Taxes Household plot Other expenditure
SOURCE: NSI, 2008
2003
2004
2005
2006
2007
14.1
13.8
14.0
14.0
12.5
-2.97%
3.3 4.3 5.4 4.7 3.5 3.3 3.1 2.6 7.7
3.2 4.5 5.3 4.8 3.5 3.3 3.0 2.4 9.3
3.3 4.7 5.6 5.1 3.6 3.8 2.8 2.1 8.8
3.8 4.6 5.9 4.9 3.5 3.6 2.7 1.9 9.3
3.8 4.7 6.7 4.7 3.6 3.5 2.9 1.9 10.1
3.59% 2.25% 5.54% 0.00% 0.71% 1.48% -1.65% -7.54% 7.02%
Appendix 5.5: Household Consumption of Main Foods and Beverages (Average per capita)
Foods and beverages Bread and paste products - kg Flour - kg Rice - kg Other cereals - kg Other bakery products kg Meat - kg Pork Beef and veal Lamb Mutton and goat Minced meat Poultry meat Other kinds of meat 2003 124.2 11.1 5.8 0.6 4.9 24.8 4.6 1 1.9 0.7 5.5 7.8 0.4 2004 1266 8.8 6.1 0.6 5.6 24.2 4.3 1.0 1.8 0.6 5.7 7.5 0.3 2005 121.2 8.8 6.2 0.7 5.8 24.2 3.6 1 1.6 0.6 6.2 7.9 0.3 2006 116.6 8.2 6.2 0.7 6 26.5 4.3 1 1.6 0.6 6.8 8.9 0.3 2007 111.5 7.9 6.1 0.7 6.4 27.4 5.1 1.1 1.5 0.5 6.9 8.8 0.3 CAGR (2003-2007) -2.66% -8.15% 1.27% 3.93% 6.90% 2.52% 2.61% 2.41% -5.74% -8.07% 5.83% 3.06% -6.94%
95
ICAP Bulgaria
Edible offals Meat products - kg Non-perishable sausages and dry meat Perishable sausages and dry meat Bacon Meat cans Ready-to-cook Fish and fish products - kg Milk - litres Yoghurt - kg White cheese - L432kg Yellow cheese - kg Other milk products - kg Eggs - number Sunflower oil - litres Margarine - kg Butter - kg Lard - kg Fresh and frozen fruit - kg Apples Pears Grapes Import fruit Melons and watermelons Pumpkins Other fruit Nuts - kg Compotes - kg Jam, preserves and marmalade - kg Juices, syrups and nectars - litres Fresh and frozen vegetables - kg Tomatoes Cucumbers 2.9 11.9 2.0 7.4 0.5 1.3 0.7 3.8 26.0 256 10.2 2.5 1.4 140 12.2 1.8 0.4 0.5 41.3 8.7 1.2 3.6 6.6 12.8 3.1 5.3 0.9 16.7 1.3 1.8 63.7 19.8 8.0 3 12.7 2 8 0.5 1.4 0.8 43 24 26.1 10 2.4 1.3 134 12.6 1.9 0.5 0.5 36.8 8 0.5 2.9 6.6 10.1 3.1 5.6 1.0 18.6 1.4 1.8 60.7 17.1 7.4 3 13.4 2.4 8.5 0.3 1.2 1 4.2 22.2 257 10 2.6 1.3 136 12.8 2.0 0.5 0.3 36.2 8.7 0.9 1.6 7.5 9.5 3.4 4.6 0.9 17.7 1.2 2 59.9 15.8 8.5 3 14.1 2.6 9.0 0.3 1 1.2 43 208 26.0 10.7 2.9 1.4 133 13.1 2.0 0.5 0.2 37.8 8.8 0.4 2.2 7.5 10.6 2.7 5.7 1 16.3 1.1 2.3 64.8 18.9 8.8 3,2 14.8 3 8.9 0.3 1.2 1.4 4.3 19.6 27.3 10.6 3 1.7 128 12.9 1.9 0.5 0.2 38.8 9.2 0.7 3 8.3 11.5 1.7 4.4 0.9 14.0 0.9 3 63.3 19 95 2.49% 5.60% 10.67% 4.72% -11.99% -1.98% 18.92% 3.14% -6.82% 1.62% 0.97% 4.66% 4.97% -2.22% 1.40% 1.36% 5.74% -20.47% -1.55% 1.41% -12.61% -4.46% 5.90% -2.64% -13.95% -4.55% 0.00% -4.31% -8.78% 13.62% -0.16% -1.03% 4.39%
96

Cabbage Peppers Onions Other vegetables Dry beans - kg Lentils - kg Canned vegetables - kg Vegetable juices and nectars - litres Pickled vegetables - kg Mushrooms - kg Potatoes - kg Sugar - kg Sugar products - kg Chocolate products - kg Salt - kg Vinegar - litres Non-alcoholic beverages - litres Alcoholic beverages litres Beer Wine Brandy Other spirits Tobacco products number
SOURCE: NSI, 2008
6.1 9.8 10.4 9.6 4.0 1.6 15.8 2.2 11.8 0.4 27.9 8.9 1.3 0.7 2.2 1.4 31.7 21.4 10.0 8.3 2.7 0.4 978
7.4 7.9 10.6 10.3 4.2 1.8 16.3 2.1 12.8 0.4 28.8 8.9 1.3 0.7 2.1 1.4 36.0 22.6 11.4 8.3 2.6 0.3 931
6.4 7.1 11.3 10.8 4.1 1.8 15.3 1.7 11.5 0.5 29.5 8.4 1.4 0.8 2.1 1.4 43 22.4 12 7.5 2.5 0.4 926
7 8.5 10.9 10.7 4 1.8 14.5 1.5 10.6 0.5 29.2 8.4 1.4 0.8 2.1 1.4 49.1 23.1 14.4 6.0 2.3 0.4 726
6.5 8 10.1 10.2 3.9 1.9 134 1.6 9.7 0.5 27.4 8 1.4 1 2 1.4 56.7 24.8 15.9 6.3 2.1 0.5 854.4
1.60% -4.95% -0.73% 1.53% -0.63% 4.39% -4.04% -7.65% -4.78% 5.74% -0.45% -2.63% 1.87% 9.33% -2.35% 0.00% 15.65% 3.76% 12.29% -6.66% -6.09% 5.74% -3.32%
97
ICAP Bulgaria Appendix 6.1: Profitability ratios of Key Players, 2004 2007
Name 2004 2005 2006 2007 Average per companies (2004-2007)
Operating margin (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year 5.87 4.71 0.22 1.51 N/A N/A 0.75 4.93 2.96 -65.14 1.47 -4.75 7.21 5.07 -1.71 1.57 -58.29 N/A -19.89 6.21 2.51 -23.30 3.92 -7.67 8.02 5.62 -8.67 1.84 -14.31 -24.84 -51.64 6.73 4.75 -10.86 2.55 -7.35 8.22 5.89 -0.04 2.83 -6.93 -6.73 2.86 9.16 8.39 -4.21 0.30 1.80 7.33 5.32 -2.55 1.94 -26.51 -15.79 -16.98 6.76 4.66 -25.88 2.06 -4.49
EBITDA margin (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year 7.43 6.78 0.32 4.96 N/A N/A 3.25 6.67 5.80 -59.14 7.68 -1.81 8.68 6.92 -1.42 4.33 -49.63 N/A -16.95 7.90 5.41 -18.98 9.76 -4.40 9.36 7.49 -7.60 3.80 -14.31 -14.52 -44.02 8.41 7.86 -6.83 8.26 -3.83 9.39 7.79 2.35 4.12 -2.53 1.24 2.93 10.89 10.99 -0.85 5.94 4.75 8.71 7.25 -1.59 4.30 -22.16 -6.64 -13.70 8.46 7.51 -21.45 7.91 -1.32
Net profit margin (%)

Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market
5.87 4.71 1.59 1.51 N/A
7.21 5.07 -0.02 1.57 -58.29
8.02 5.62 -5.87 1.84 -14.32
8.22 5.89 -0.04 2.83 -6.93
7.33 5.32 -1.08 1.94 -26.51
98

Average per companies (2004-2007) -15.79 -16.98 6.76 4.66 -25.85 2.06 -4.35 30.24 40.51 48.60 23.72 86.44 -20.36 -86.99 43.54 51.05 -198.64 6.58 2.24 29.89 40.18 6.18 20.62 -45.51 -5.95 -51.47 31.19 23.18 -50.94
Name
Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year
2004 N/A 0.75 4.93 2.96 -65.05 1.47 -4.58
2005 N/A -19.89 6.21 2.51 -23.30 3.90 -7.50
2006 -24.84 -51.64 6.73 4.75 -10.86 2.55 -7.09
2007 -6.73 2.86 9.16 8.39 -4.20 0.30 1.80
Return on shareholders equity (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year 29.44 43.10 111.27 37.08 120.16 -7.86 0.46 50.44 45.74 -220.38 0.29 19.07 28.54 44.52 -28.68 20.52 121.25 -28.27 -314.06 44.29 39.31 153.95 17.94 9.03 29.36 39.54 130.58 29.40 62.21 -28.63 -131.94 37.86 57.37 -186.97 9.84 4.42 33.62 34.87 -18.78 7.87 42.15 -16.69 97.56 41.57 61.76 -541.16 -1.73 -23.54
Return on capital employed (%) Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market 28.58 44.20 126.30 23.66 -37.25 -5.72 7.80 28.73 16.08 -58.88 28.64 43.06 2.58 25.26 -50.29 -4.51 -153.61 30.35 8.73 -68.25 29.12 38.91 -119.56 26.02 -71.78 -10.29 -125.65 29.50 28.74 -51.88 33.23 34.57 15.41 7.54 -22.71 -3.28 65.57 36.19 39.16 -24.75
99
ICAP Bulgaria
Average per companies (2004-2007) 11.91 0.84
Name Elemag Average ratios per year
2004 6.91 16.40
2005 23.29 -10.43
2006 14.14 -19.34
2007 3.30 16.75
Appendix 6.2: Liquidity ratios of Key Players, 2004 2007

Average per companies (2004-2007)
Name
2004
2005
2006
2007
Current Ratio Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year 1.26 1.07 0.83 1.04 8.23 N/A 1.22 0.99 0.87 1.91 0.65 1.81 1.69 0.80 0.82 1.14 1.41 N/A 0.84 0.98 1.03 1.38 0.53 1.06 Quick Ratio Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market 0.88 0.61 0.45 0.58 5.87 N/A 0.77 0.47 0.10 0.93 1.25 0.29 0.41 0.64 0.93 N/A 0.65 0.52 0.28 0.42 1.42 0.84 0.26 0.63 0.46 0.24 1.12 0.56 0.40 0.58 1.33 0.99 0.33 2.27 0.43 0.19 0.72 0.55 0.65 0.87 1.22 0.68 0.37 1.03 1.92 0.21 0.82 0.53 0.36 0.70 1.87 1.24 0.61 1.17 0.82 0.41 1.27 0.99 0.91 1.38 0.57 1.02 1.68 1.31 0.67 2.80 0.98 0.39 0.98 1.41 0.98 1.46 0.76 1.22 1.62 1.11 0.73 1.54 2.86 0.40 1.07 1.09 0.95 1.53 0.63 1.28
100
Name
2004
2005
2006
2007
Average per companies (2004-2007) 0.37 0.78 0.02 0.31 0.19 0.76 1.26 0.08 0.24 0.34 0.22 0.43 0.23 0.39 74,717.50 6,705.50 -5,423.00 4,326.00 34.75 -83,903.50 251.25 1,913.50 -79.00 2,157.75 -1,032.75 4,010.46
Elemag Average ratios per year
0.42 1.11
0.37 0.58 Cash Ratio
0.42 0.63
0.28 0.78
Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year
0.01 0.59 0.23 0.48 4.17 N/A 0.23 0.40 0.01 0.46 0.29 0.69
0.01 0.27 0.17 0.21 0.39 N/A 0.09 0.17 0.18 0.32 0.21 0.20 Working Capital
0.05 0.19 0.14 0.34 0.20 0.06 0.21 0.36 0.34 0.40 0.25 0.23
0.03 0.20 0.23 1.99 0.27 0.10 0.46 0.44 0.36 0.54 0.17 0.43
26,196.00 1,967.00 -1,169.00 141.00 217.00 N/A 417.00 -104.00 -70.00 2,859.00 -762.00 2,969.20
75,712.00 -5,802.00 -1,784.00 723.00 2,048.00 N/A -1,011.00 -283.00 50.00 1,593.00 -1,127.00 7,011.90
95,386.00 10,462.00 -10,111.00 1,084.00 -1,777.00 -64,570.00 1,659.00 -178.00 -229.00 1,637.00 -1,456.00 2,900.64
101,576.00 20,195.00 -8,628.00 15,356.00 -349.00 -103,237.00 -60.00 8,219.00 -67.00 2,542.00 -786.00 3,160.09
101
ICAP Bulgaria Appendix 6.3: Structure Ratios of Key Players, 2004 2007
Name 2004 2005 2006 2007 Average per companies (2004-2007)
Total debt equity ratio Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year Metro Cash&Carry Billa Piccadilly CBA Asset Management T-Market Kaufland Familia Fantastiko 345 HIT Market Elemag Average ratios per year 0.81 1.36 10.05 7.76 -4.47 0.14 1.74 1.49 5.48 4.21 1.23 2.71 126.07 35.29 16.81 3.96 N/A -5.35 2.10 739.50 4.53 N/A 2.08 113. 52 0.60 1.18 24.03 3.79 -4.14 2.27 6.40 1.20 5.15 -4.30 1.30 3.41 Interest coverage 214.73 N/A 0.94 4.35 -11.16 -2.04 -56.23 1372.17 4.14 N/A 7.93 191. 74 264.37 N/A -4.48 10.18 N/A -3.32 -53.63 N/A 8.23 N/A 5.99 38. 64 552.09 N/A 0.93 N/A -2.82 -0.94 N/A 81.68 N/A N/A 1.44 126. 29 289.32 35.29 3.55 6.16 -6.99 -2.91 -35.92 731.11 5.63 N/A 4.36 117.55 0.53 1.12 -6.42 3.86 -2.74 1.88 1.08 0.88 3.33 4.65 1.28 0.86 0.67 1.17 5.11 0.57 -2.96 1.70 69.93 0.64 1.70 37.73 1.27 10.69 0.65 1.21 8.19 4.00 -3.58 1.50 19.79 1.05 3.91 10.58 1.27 4.42
102

Supermarkets and Hyper Markets in Bulgaria - FINAL REPORT - 2008

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Supermarkets & Hypermarkets in Bulgaria

Executive Summary ...................................................................................................5

PEST Analysis ................................................................................................................9

General Characteristic of the Food Retail Sector..............................................23

6.10 Advertising Channels ......................................................................................... 66 7 8 9

Supermarkets & Hypermarkets in Bulgaria

Supermarkets & Hypermarkets in Bulgaria

1.3 The Market

Supermarkets & Hypermarkets in Bulgaria

Supermarkets & Hypermarkets in Bulgaria

3.2 Political, Legal and Regulatory Framework

Source: InvestBulgaria Agency

3.3 Economic Factors

Supermarkets & Hypermarkets in Bulgaria

Source: National StatisticalInstitute, BNB

Source: Agency for Economic Analysis and Forecasting

Supermarkets & Hypermarkets in Bulgaria

2002 -11.3 36.6 47.9 1.88

2003 -13.7 37.7 51.4 1.55

2004 -14.9 40.2 55.1 1.44

2005 -20.2 43.3 63.4 1.66

2006 -22 47.7 69.6 1.49

2007 -25.5 46.6 72.1 1.33

Supermarkets & Hypermarkets in Bulgaria

Source: Agency for Economic Analysis and Forecasting

Supermarkets & Hypermarkets in Bulgaria

3.4 Social and Demographic Factors

Technical Sciences Graduates

4.606 12.445 4.805 51.029

1.402 3.576 1.441 14.229

4.016 5.465 4.737 2.757 1.916 2.297 32.574

559 1.218 779 513 479 343 5.690

Source: National Statistical Institute, Jan. 2007

Supermarkets & Hypermarkets in Bulgaria

4 GENERAL CHARACTERISTIC OF THE FOOD RETAIL SECTOR

4.2 General data on the food retail sector in Bulgaria

4.3 Legal Framework Supermarket

Supermarkets & Hypermarkets in Bulgaria

Supermarkets & Hypermarkets in Bulgaria

5.1 Household Budgets for the 2003 2007 period

SOURCE: NSI, 2008

SOURCE: NSI, 2008

5.2 Household Consumption of Main Foods and Beverages

5.3 Bulgarian Consumers Shopping Habits

Source: GKF, + INCOMA, Research 2007

Source: GKF, + INCOMA, Research 2007

Supermarkets & Hypermarkets in Bulgaria

5.4 Purchasing Decision Factors

Source: Urban population, TGI Market Test Bulgaria

ICAP Bulgaria Chart 5.6: Particular day for shopping

Source: Urban population, TGI Market Test Bulgaria

Supermarkets & Hypermarkets in Bulgaria

6.1 Presentation of Key Sector Representatives

Supermarkets & Hypermarkets in Bulgaria

Number of stores in Sofia ( by 05. 2008): Average sq. m. per store

Store Formats General Information

6.2 Key Sector Representatives Sales Development

Source: Official Balance Sheets of Companies and Experts estimates

Source: Official Balance Sheets of Companies and Experts estimates

Source: Official Balance Sheets of Companies and Experts estimates

6.3 Key Players Number of Stores Development

Source: Sector Representatives and RIPCPH