Dynamic Outlook for Croatian Retail

Croatia – the newest member of the EU – has been showing promising economic development in the past years. Its GDP is continuously growing between 4.7% and 4.8% p.a. in the past 3 years, fuelling consumer spending and increasing consumer confidence.

Retailers have benefited from the positive economic development. With consumer spending on the rise, stable macroeconomic growth and lower import barriers acquired through the EU membership, a race for market shares has begun.

How is the grocery retail market in Croatia structured? Are there differences to Western Europe?

Similar to Western Europe 20 years ago, Croatian consumers are opting for convenience and choosing to shop in supermarkets where a wider selection of products is available. A typical consumer is generally price-sensitive and responds well to discounts offered by large grocery retailers, while smaller neighbourhood stores remain only a place for a quick top-up purchase. By 2024, small neighbourhood stores are forecasted to be halved in numbers, accounting for a mere 7.8% of all grocery sales in Croatia.

The rise of popularity of discounters, another Western European trend can be observed in Croatia in recent years. Since entering the Croatian market 10 years ago, German discounter Lidl expanded its network to 97 stores. From a relatively unknown retailer, it has become a reliable store, accounting for 14.1% of Croatian grocery retail sales (Source: Planet Retail). Consumers, especially young families, are on the lookout for their weekly grocery shopping as well as in-out promotions. Lidl’s popularity was additionally boosted two years ago, when a nationwide discussion emerged due to an elementary teacher’s post on Facebook.

The post was describing how school age children from families of lower financial standards were pinned under the term “Lidl children” by their peers, because the clothes they wore were not branded, but (possibly) bought in Lidl. This sparked a social media movement in which thousands of Croatians, even celebrities, were admitting that their children are also “Lidl children”. What at first started as a derogatory term used in kindergartens and schools, soon became a social awareness campaign in which consumers, gave the retailer credit for offering quality products for a lower price, taking away the stigma for children wearing non-branded clothes.

 

What are the numbers and figures of the Croatian retail market? Market leader? Main players? Market value of the grocery retail?

The Croatian market is well diversified in terms of competition. However, national retailers are still leading on the market, accounting for 53% of national grocery sales.

After Agrokor, the parent company of leading Croatian retailer Konzum (34.8% market share), suffered a crisis of management in 2017 an Extraordinary Administration was appointed. In 2019 the retailer managed to grow and regain its shares consolidated under the newly founded Fortenova Group.

International retailers are led by the Schwarz Group with its two banners – Lidl and Kaufland – holding 26% of Croatia’s grocery market.

In terms of channels, with 41% market share, supermarkets are holding the throne of grocery sales, followed by hypermarkets with 19% and discounters (including a variety of discount stores) with 14% (Source: Planet Retail).

Foley Retail Consulting provides detailed insights into the Croatian retail market including a forecast based on macro- and socioeconomic indicators.

 

Is there one „Croatian market“ or is the market more fragmented?

The Croatian market fragmentation is owed largely to one of the major drivers behind Croatia’s economy – tourism, which highly affects consumer spending habits in different regions and seasons.

Each year in the summer, Croatia – a country of around 4 million, is visited by roughly 18 million tourists. For some costal places and towns this means a population increase of up to 300% with both tourist and seasonal work-force migrating from the inland.

Retail traffic is profiting greatly, as only about 23% of all tourists seek hotel accommodation. The rest are spending their vacation in private accommodation (53%), camps (21%) and hostel, sanatoriums and resorts, buying their groceries in the local supermarkets (Source: Croatian Ministry of Tourism).

Another factor influencing the market fragmentation is the geographical complexity of the country. Even though the coastal region has a very well-developed road network, islands still represent somewhat a challenge for retailers, especially those who are also active in servicing the tourism industry, so called HoReCa operators. Many of the 48 inhabited islands in Croatia don’t have a well-developed road infrastructure, and those that do, are not easy to reach, with long waiting lines for ferries in the summer months.

 

What are some of the challenges retailers in Croatia are faced with?

The biggest challenge for retailers in Croatia arose in the years following 2013 as Croatia joined the EU. As a consequence of one of the elementary principles of the EU – freedom of movement, Croatians have been increasingly emigrating to larger European markets. Due to high unemployment and more attractive earnings compared to Croatian wage levels, some 350.000 Croatians left their homeland in search for a higher standard and better working conditions, which is quite a problem for a nation of only 4 million inhabitants.

This led to retailers unable to find seasonal workers to serve the high influx of tourists in the summer months, where additional sales force is needed. To add to the challenge, hospitality industry, also struggling with finding seasonal work-force, offers competitive and compared to retail significantly higher salaries, driving the potential employees even further away from the retail industry.

Currently, the government is assisting the industries by allowing quotas for foreigners seeking employment in Croatia. Nevertheless, the problem persists, forcing retailers to raise salaries and increase their labour costs not only seasonally, but thought the year as well.

 

Which retailers from Western Europe are present on the Croatian market?

As the tourism started taking pace after the war years in Croatia in the mid 90’s, Western European retailers started to take notice of the market potential the second wealthiest country in the Balkans (after Slovenia) was offering.

The first foreign chain to enter the Croatian market was Billa in 1999. Before the economic crisis began, Billa was the fifth largest retailer of consumer goods in Croatia. Even with continuous expansion, Rewe’s international banner continually lost shares, until in 2016 it finally pulled out of the market, selling its operations to the rivalling Spar.

Briefly after Billa, in 2001, Kaufland made an entry to Croatia. In 17 years of market presence, the company grew to have 40 stores around the country, and a market share of 12% in 2018.

Kaufland’s small brother Lidl (market share: 14%), also belonging the German Schwarz Group, took much less time to win over consumers. Since 2006 and opening the first 13 stores in one day, the retailer has grown to 97 outlets across Croatia with sales growing around 8% per year.

Spar is also rapidly gaining market shares, especially after taking over 62 stores from Billa. The company, currently owning 8% of the market, is planning to continue its expansion focusing on the coastal regions (Source: Planet Retail).

Along with the Western European retailers, domestic retail chains still hold a large share of the market (53%). The complicated and slow administration associated with starting a business in Croatia certainly presents a challenge for companies planning to set foot in this growing market. However, the promising market dynamics are unlikely to be overlooked by other international retailers seeking to expand to new markets in the upcoming years.

 

Which well-known western FMCG companies are present on the Croatian market?

Almost all the global brands are present on the market. However, reminiscent of the times during the Yugoslavian era when, in light of strong nationalism, buying imported goods was almost frowned upon, Croatians are faithful to their national brands. According to a recent research by the market research agency Ipsos (2016), out of top 30 brands in Croatia (rated by consumers), 20 are local brands – particularly in the essential food and sweets categories. International brands are very successful within the household and cosmetics categories (e.g. Procter & Gamble brands Ariel and Head & Shoulders; Beiersdorf brands Nivea and Labello etc.).

 

Are Croatian companies interested to invest in European retail?

Due to regional, historic and cultural cohesion, large Croatian companies usually seek to invest in one of the neighbouring markets, such as Slovenia, Bosnia & Herzegovina, Serbia and Montenegro, to name the few.

A good example of this practice is the Croatian company Fortenova (formerly known as Agrokor), which stands behind big retailer banners like Konzum (present in Croatia and Bosnia & Herzegovina) and Mercator (present in Slovenia, Montenegro and Serbia).

Fortenova is not only the biggest retailer in the Balkan region but also vertically integrated, owning many FMCG brands across the Balkans (e.g. Frikom, Ledo, Dijamant, Sarajevski Kiseljak).

 

If some companies want to enter the Croatian market, what do they have to take care of?

Our advice is: do your research! As already stated, Croatia is known for administrative hurdles and slow and sometimes illogical legal processes. The market is, however, showing promising development and low consumer loyalty poses a great opportunity for market newcomers. Retailers that wish to grow with the market should look to offer competitive prices – in this sense, discounters have a good starting point compared to conventional retailers.

Foley Retail Consulting offers market studies for “green field” investments as well as commercial due diligence for possible take-overs in the retail segment.

 

What are the strengths of Foley retail consulting? Why should someone work with FRC?

Foley Retail Consulting is a qualified partner for all retailers interested in expanding or optimising their business scope. Our consultants – with a combined retail experience of over 100 years – offer targeted solutions due to their distinguished specialisation on a particular field of retail. We’ve handled hundreds of projects on all continents, assisting international expansions of some of the biggest companies in the business, but also supported smaller retailers in optimising their operations to make the highest returns.

We take pride in the many returning customers that recognised our hands-on approach and passion for retail.

 

For support in your retail connected ventures, please send us a request: