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SHOPPING AND RETAIL

Pushing east: A low risk retail investment

The hypermarket rush has spread across the country to the eastern reaches of Slovakia. Virtually non-existent outside the Slovak capital three years ago, large supermarkets, or 'hypermarkets', can today be found in nearly every Slovak city.
Tomáš Kmeť, an economic analyst at SLSP bank, is not surprised, saying that the Slovak market was "hungry" for large shops where customers could buy a wide variety of goods in a single location.
"These firms discovered that there was an opportunity in the east. A few years ago there were no malls, shopping centres or large supermarkets in the east of the country, but now they're everywhere," he said.

The hypermarket rush has spread across the country to the eastern reaches of Slovakia. Virtually non-existent outside the Slovak capital three years ago, large supermarkets, or 'hypermarkets', can today be found in nearly every Slovak city.

Tomáš Kmeť, an economic analyst at SLSP bank, is not surprised, saying that the Slovak market was "hungry" for large shops where customers could buy a wide variety of goods in a single location.

"These firms discovered that there was an opportunity in the east. A few years ago there were no malls, shopping centres or large supermarkets in the east of the country, but now they're everywhere," he said.

"The west and the central part of the country have been pretty much covered. Now it's moving to the east. This is just a continuation of a natural process, the stores are going where there are openings."

The German chain Kaufland is the latest foreign investor to join the Slovak hypermarket push. Its new supermarket is set to open in the eastern Slovak city Spišská Nová Ves on December 4. British Tesco has been the most prolific and successful hypermarket chain on the Slovak market, said Kmeť.

Tesco has eight operating branches in Slovakia, including new openings in Martin on October 26 and in Prešov on November 3, joining shops in major Slovak cities like Bratislava, Nitra and Košice. Tesco's main competitor, the French Carrefour, opened a new branch in Žilina on November 16.

Dutch Ahold announced plans November 6 to open markets in Považská Bystrica and Michalovce.

According to Kmeť, such foreign investments are low-risk ventures. The stores, most of which are focused on foods, provide goods needed by every human being, regardless of their financial means, he said.

"Most of these hypermarkets are focusing on food. It doesn't matter where you go, people buy food. In small cities with high unemployment rates and low nominal wages, people still buy food. So of course these stores are successful," he said.

"These firms know that they will see a return on their investment. I would be very surprised if any of these companies made such an investment without being sure that a market existed for their product. There is a huge demand for these services," he said.

Kmeť added that he expected expansion to continue, albeit at a slower rate. "The Slovak market is hungry for these stores. There will eventually be a slow-down but the question is when. Six months or ten years?" he said.

For one supermarket chain, the slowdown has already begun. Internationally-owned Delvita said it would close two of its supermarkets in Slovakia by the end of the year due to weak performance.

Geoffroy d'Oultremont, spokesman for the Delhaize Group in Brussels, the parent company of the 116 Delvita stores in the Czech Republic and Slovakia (17 of which are in Slovakia), said: "The market is still important for us and we intend to continue in our development program, however, at a weaker pace."

Other firms, though, will charge ahead with expansion as the overall economic picture in Slovakia continues to improve, said analyst Kmeť.

"The economic situation throughout Slovakia is getting better and better. And in the long run Slovakia will be a part of the European Union, which will also lead to higher wages. The long-term outlook is improving.

"I can't say I'm surprised by the rapid expansion. If there were five Tescos in Bratislava, I'd be surprised but there are only two now. Three years ago there were also none of these types of stores and now they are in every city. The trend of more stores opening across the country is expected to continue."

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