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SHOPPING AND RETAIL

Small shops feel the hyper-craze pinch

In the six months following the opening of the first hypermarket in western Slovakia's Nitra, the business revenues of small grocer Norbert Kirchner, 41, dropped by 35%. He was forced to shut his store.
Kirchner's story has become a common one in the Slovak retail industry since large foreign retail chains began a massive expansion programme of hypermarkets in 2000. Multinationals such as Tesco and Carrefour were accused of unfair market practices in squeezing suppliers for lower prices to defeat competing small grocers.
"People just stopped coming to my store and started spending most of their money at the hypermarket," Kirchner said. "The government should really regulate these chains and their business practices so smaller retailers don't get hurt. At the moment they can do anything they want."

In the six months following the opening of the first hypermarket in western Slovakia's Nitra, the business revenues of small grocer Norbert Kirchner, 41, dropped by 35%. He was forced to shut his store.

Kirchner's story has become a common one in the Slovak retail industry since large foreign retail chains began a massive expansion programme of hypermarkets in 2000. Multinationals such as Tesco and Carrefour were accused of unfair market practices in squeezing suppliers for lower prices to defeat competing small grocers.

"People just stopped coming to my store and started spending most of their money at the hypermarket," Kirchner said. "The government should really regulate these chains and their business practices so smaller retailers don't get hurt. At the moment they can do anything they want."

But while small businessmen such as Kirchner ask for more protection, government representatives and analysts say that retailers must simply adapt to the fierce competition or go out of business. State help, they say, would only delay the inevitable.

"Small retailers have to become more efficient in what they do and improve their services. In general people will always prefer going to a store in their neighbourhoods rather than driving several kilometres to a hypermarket," said Tomáš Kmeť, an analyst with Slovenská sporiteľňa bank.

"Some small grocery stores have been affected by the hypermarkets, but it's mostly shops close to these larger retail centres. The influence is not yet what you'd call significant," Kmeť added.

Although Slovaks still spend 52% of the money they put towards groceries in small stores, that figure is down 11% from 1998. Hypermarkets, meanwhile, have seen their share of consumer grocery spending rise from 1% to 8% in the last two years.

A hypermarket is a large supermarket covering a floor space of above 5,000 square metres, with at least 18 cash registers, offering over 30% of non-grocery products and employing at least 500 workers.

The hypermarket boom has also caused a fall in employment in the retail sector in Slovakia with the closure of some smaller grocers. While in September 2000 the retail sector employed 243,574 people, one year later it was 209,172.

But government officials said the impact of the large retail chains had been limited and was not likely to worsen, since the tiny Slovak market could not support swifter development.

Among its neighbours and peers for entry to the European Union, Slovakia has fewer hypermarkets per capita than do the Czech Republic, Hungary and Poland.

"The small size of the Slovak market does not permit a dramatic expansion by these retail chains, so it's not necessary to restrict them. We expect that the current boom will peter out between 2004 and 2005," said Anastázia Lešková, head of the business and service industry section at the Economy Ministry.

Lešková suggested that in the meantime smaller retailers could use several means to deal with competition from the

larger chains.

"They can create alliances of small and medium-sized retailers and thus become stronger players, they can specialise in selling only certain goods, they can improve their services or even get a franchising license. These are common tactics which have helped small retailers to resist pressure from large chains in some western European countries," Lešková said.

In the Czech Republic, the government has approved a law supporting the creation of alliances between small and medium-sized retailers, putting taxpayer money behind the initiative.

Lešková said the Slovak government might do the same in the future, but added that the 2002 budget draft did not envisage any such subsidies.

But the expansion of multinational chains is expected to continue in 2002, from 15 hypermarkets at the end of this year to 18 in 2002.

Tesco, the leading hypermarket player in Slovakia, has recently opened two new hypermarkets in the smaller Slovak towns of Martin and Prešov, bringing to eight the number of shopping malls it now operates in the country. The company expects turnover of Sk13 billion($270 million) this year, up from Sk11.3 billion last year and Sk4.3 billion in 1998.

Although pressure on small retailers is expected to increase, analyst Kmeť said he was strongly opposed to any government subsidies to help retailers survive.

"Subsidies are absolutely useless in this case. These small businesses first have to prove they can survive on their own, and many of them can. Those that can't have to be allowed to disappear without getting state support."

One small grocer who survived a face-to-face showdown with a hypermarket agreed that small stores still had advantages which they could maximise to bring customers and lost revenues back without government involvement.

"Our advantage is that people can get everything fast here and we can assist them. Some customers need to talk to a shop-assistant and get advice. This is not really something you can do in a hypermarket," said Magda, 45, the head of a grocery store across the street from the Carrefour hypermarket in Bratislava.

Even Kirchner, now out of business, sees shopping patterns changing once the novelty of massive shopping malls wears off. "In western Europe people still shop in small grocery stores and are willing to pay more because they like to be assisted when they shop. It's a tradition. This used to be the tradition here too, and I hope people will return to it after they get fed up with the hypermarkets," he said.

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